Australia: Proposed changes to the Age Pension in the 2015-16 Budget

Last Updated: 29 July 2015
Article by Dorothy Yip

The Government proposed some changes to the Age Pension in the 2015 Federal Budget. As with all changes, there will be winners and losers. The Government estimates that around 50,000 part pensioners will qualify for a full pension while some 170,000 will gain a modest increase to their pensions under the proposed reforms. However, a greater number (235,000) will have their current pension reduced and almost 91,000 pensioners will lose their entitlements entirely.

What are the changes?

An individual who has reached pension age can qualify for the Age Pension after being Centrelink income and assets tested. The income test remains unchanged. The Government has proposed two changes to the assets test:

  1. Taper rate

A full pension is payable when your total assets (excluding the family home) are within the assets-free area. The 'taper rate' is the rate at which your pension will reduce when your total assets exceed the assets-free level. Currently, yourpension will reduce by $1.50 per fortnight (i.e. $39 per annum) if you have an additional $1,000 of assets above theminimum asset threshold. The new rules will see the rate of reduction doubled to $3.00 per fortnight for every $1,000of assets above the lower threshold.

  1. Assets test thresholds

Under the proposed reforms, the lower asset thresholds will be raised, however, the cut-off thresholds will be scaledback. The table below shows the lower and upper assets thresholds under the current and proposed rules:

When do the changes start?

The changes have not been legislated yet. The proposed commencement date is 1 January 2017, if the changes become law.

Are you affected by the proposed changes?

The majority of pensioners will be affected under the proposed reforms but the extent of the impact will depend on the family situation and whether you own your own home. In this article, we will focus on (1) single and (2) couple pensioners who own their own home. While the discussion revolves around the assets test in this paper, it must be noted that the Age Pension also depends on the income test as well.

  1. Pensioner couple home-owners

The graph below shows that in general, the pension entitlements will reduce as the couple's assessable assets rise. Assessable assets do not include the family home. The relevant asset threshold where such a couple is no better or worse off under the current or new rules is $463,5001. This is shown as the cross-over point on the graph (below).

  • Assetsbelow $463,500

If the total assets fall below $463,500, then the couple will be better off under the new system due to a higherassets-free area. A couple with assets up to $375,000 (the new assets-free area) are entitled to the maximumpension payments whereas under the current system, their pension starts to reduce once their assets exceed just$286,500.

  • Assetsabove $463,500

A couple's pension will reduce at a faster pace under the proposed reforms if their assets exceed $463,500. Thecouples whose assets are close to the scaled back cut-off threshold of $823,000 are impacted the most. Thechanges would render these couples with little or no Age Pension whereas currently they would receive more than$12,000 per annum in support from the Government.

Below, the table shows the impact on a pensioner couple's entitlement at differing levels of assets where they are home-owners:

  1. Single pensioner home-owners

The graph below shows the interaction of the current and new rules for a single pensioner home-owner. Individuals with assets of $298,000 will be neutrally affected by the new rules.

  • Assets below $298,000
  • If a single pensioner has total assets below $298,000 then they would receive a higher level of pension paymentsunder the new rules.

  • Assets above $298,000

However, if their assets are over $298,000, they would lose some of their pension entitlements. The worstaffected are singles with accumulated assets of just over $547,000. They would go from receiving a pension ofaround $8,910 per annum to nothing under the proposed reforms.

The table below shows how a single pensioner may be impacted by the changes at different levels of assets:

What is the impact of the proposed changes on your retirement capital?

Those pensioners adversely impacted by the proposed changes are likely to increase the drawdown of their own capital to cover the reduction in benefits.

Examples that illustrate the potential impacts of the changes follow:

Example (1) Couple Pensioners:Jordan and Jade are both 65 and retired, living in their own home. They have total assessable assets of $823,000 made up of superannuation assets of $793,000 and $30,000 in home contents and car. They require an after-tax income of $60,000 per annum to fund their lifestyle.

Example (2) Single Pensioner:Jack is a single 65 year old pensioner who owns his own home. He has total assets of $547,000 and needs an income of $40,000 per annum to live comfortably.

The graph below shows that in order for Jordan and Jade to maintain their retirement lifestyle under the proposed reforms, they need to fully fund it from their own capital as they will not qualify for any Age Pension assistance. As a result, their retirement capital has been estimated to deplete around 4 years earlier than under the current system.

Similarly, Jack's capital is also expected to be exhausted 5 years earlier under the new rules.

Those adversely impacted by the Age Pension changes may have no choice but to reduce their expenditure to extend the longevity of their capital.

Do you lose the health care card?

To alleviate the impact of the changes, the Government has guaranteed those pensioners who will lose their Pensioner Concession Card under the new rules will automatically become entitled to the Commonwealth Seniors Health Card (CSHC).

Conclusion

At this stage the changes are not yet legislated. Nevertheless, it is important to start considering how these changes may impact your personal circumstances and make plans accordingly.

Assumptions:

  • Net earnings rate of 5% p.a;
  • All living expenses, pension payments and income drawdowns are indexed by 3% p.a;
  • Pension payments are based on rates current at the time of writing;
  • Centerlink income test is ignored

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions