Weighing up the pension changes
You may have heard that from January 1st next year the government has changed the assets test for the aged pension quite substantially and a lot of pensioners are wondering what, if anything, they can do. What are the changes?
You will still receive the full pension if as a single homeowner your assets in addition to your home are less than $209,000 or as a couple less than $296,500. You will get between a few cents and $61.50 a fortnight more if your assets as a single homeowner are between $209,000 and $250,000 and as a couple up to $39 more each if your assets are between $296,500 and $375,000 (to compensate for previous reduction in this bracket).
If your assets are more than $270,000 (single homeowner) or $401,000 (couple), your pension will reduce. Worst off are those people who have assets of $542,500 (single) and $816,000 (couple) or more as they will lose all their aged pension. Anybody who loses their aged pension will get the Commonwealth senior’s health card or a low income health card, providing access to Medicare bulk billing and pharmaceuticals at a reduced price. What to do?
In most cases it is not worth making changes to increase your pension – the costs of the changes far outweigh the benefits. Examples are:
Spending your money so you increase your pension. This is a really bad idea. Losing $100 to get back $7.80 a year is a bad deal.
Buying a more expensive home so fewer assets are outside the home. Not as bad but the cost of changing over is expensive and having less money available can make many people nervous. Renovating your home is similar, provided the renovation adds value to your home, otherwise renovating is the same as spending the money.
Pre-paying for a funeral or a funeral bond. For some that is a legitimate expense and can be considered, provided you don’t overpay.
Gifting money to the children, up to $10,000 a year but no more than $30,000 in five years. That is possible but it is a form of spending.
Buying a long-term annuity. That won’t help in the beginning but over the years the calculated value of the annuity (but not the annuity payments) will reduce, increasing your pension. This is worth considering.
Looking at the valuation of your household items and other assets to see if their value has reduced. This could be well worth considering.
As you can see, for many people the best strategy is to spend a little less or to take a little more from your own assets, or both. Please feel free to contact me should you wish to discuss your personal situation.