Age Pension Assets Test Changes

Age Pension Assets Test Changes

 

One of the key messages from the 2016 Federal Budget was the need to re balance the assets test to help make access to government pensions fairer. To do this, the Government proposed to increase the assets test thresholds and the assets test taper rate. According to the then Minister for Social Services, Scott Morrison, around 326,000 retired Australians with will lose some or all of their Age Pension entitlements due to a new, harsher Age Pension assets test. The legislation to implement these changes received assent on 30 June 2016 and will come into effect on 1 January 2017.

 

The Aged Pension Asset Test

The Age Pension provides income support and access to a range of concessions for eligible older Australians. Retirees who are currently aged 65 or over, and who satisfy income and assets tests and other requirements, can receive a full or part pension. The Age Pension assets test (also known as the Centrelink assets test) is a means test that assesses the value of the assets you own against asset thresholds, and determines your eligibility for the Age Pension and other social security payments.

 

While this article focuses on the assets test, it’s important to remember that your eligible Age Pension payment is also dependent on the income test. The test that produces the lowest payment, or zero, is applied.

 

Current Assets test thresholds

Family situation
Full Pension threshold / assets less than
Part Pension threshold / assets less than
Single (Home-owner) $209,000 $791,750
Single (Non home-owner) $360,500 $943,250
Couple combined (Home-owner) $296,500 $1,175,000
Couple combined (Non home-owner) $448,000 $1,326,500

 

Where asset values are below those listed in the Full Pension threshold column the person qualifies for a full pension (subject to the income test). The Full Pension threshold, or disqualifying limit, is the maximum value of assets you can have before they affect your Age Pension payment.

 

Where assets values are between the two columns the person qualifies for a part pension (subject to the income test). The rate of part pension is subject to something called a taper rate. The taper rate is used to reduce the pension according to a direct ratio of assets above the Full Pension threshold rate. Currently, the pension rate reduces by $1.50 per fortnight for every $1,000 over the threshold. For example, where a person’s assets are $10,000 over the allowable limit, their rate of pension is reduced by $15 per fortnight.

 

Where asset values are greater than the Part Pension threshold column the person no longer qualifies for any pension at all.

 

Changes to the Aged Pension Asset Test

The assets test thresholds will be increased under the 1 January 2017 changes, potentially allowing more part pensioners to qualify for the full Age Pension payment. The below table outlines the assets test thresholds, or disqualifying limits, for the full Age Pension payment:

Family situation
Existing Full Pension threshold
January 2017 Full Pension threshold
Single (Home-owner) $209,000 $250,000
Single (Non home-owner) $360,500 $450,000
Couple combined (Home-owner) $296,500 $375,000
Couple combined (Non home-owner) $448,000 $575,000

 

The table below outlines the Part Pension thresholds, or disqualifying limits, for the Part Age Pension payment:

Family situation
Existing Part Pension threshold
January 2017 Part Pension threshold
Single (Home-owner) $791,750 $547,000
Single (Non home-owner) $943,250 $747,000
Couple combined (Home-owner) $1,175,000 $823,000
Couple combined (Non home-owner) $1,326,500 $1,023,000

 

In all cases the Part Pension threshold will be reduced. This means the amount of assets a pensioner can have on top of their family home and still receive a part pension will be reduced. This will ultimately mean that people who currently receive a part pension may receive less part pension or be disqualified from receiving a pension altogether.

 

Currently, pension payments are reduced by $1.50 for every $1,000 owned over the Full Pension threshold. This is known as the Age Pension taper rate. From 1 January 2017, the assets threshold will change and pension payments will be reduced by $3 for every $1,000 owned over the threshold.

 

Age Pension recipients who lose their payment entitlement on 1 January 2017 as a result of the changes will be automatically issued with a Commonwealth Seniors Health Card. They will be exempt from the usual income test requirements for these cards indefinitely.

 

More than 495,000 Australians are projected to be affected by the 1 January 2017 changes to the Age Pension assets test:

  • Around 170,000 people will have their pension payment increased
  • Around 326,000 people will lose all or part of their Age Pension payment

 

Implications for Residential Aged Care Members

For residents in residential aged care receiving lower or no age pension could translate to lower care fees. However, receiving less or no pension may also put pressure on cash-flow. Further, to maintain their pension, affected members will have further incentive to maintain and rent out their home rather than sell it and have residual sale proceeds accumulating within a bank account. On the other hand, members with available assets could pay a lump sum refundable deposit (RAD) or increase their RAD, rather than paying periodic accommodation payments/contributions. RADs are exempt from Centrelink asset testing but may increase the means tested fees.

 

Follow Chris Nothling:

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2 Responses

  1. This is so confusing.
    When going into residential care is the family home means tested by centrelink

    • Hi Nita

      You are quite right: It is confusing and very complex.

      A move into an aged care facility comes with a range of decisions, including what to do with a former home. This decision has important consequences for the calculation social security benefits. Navigating the best decision for your family can be a tricky process.

      When establishing the value of assets for the aged pension, some assets are included, and others are exempt. Assessable assets may include financial investments, superannuation, business assets, investments in real estate (other than the primary residence), motor vehicles, boats and caravans, surrender value of life insurances, and household contents. Assets that are not assessable for the aged pension include the primary residence (if it is on less than 2 hectares of land), superannuation monies held in accumulation phase, prepaid funerals, and accommodation deposits paid to residential aged care facilities.

      When calculating how much a person has in assets, the value of their former home is included, unless a protected person continues to live there. If a protected person lives in the property, the value of the property is exempt, when calculating their asset value. For aged pension, a protected person is defined as the spouse or dependent child (under age 16 or under age 25 and in full-time study, for whom the home-owner is a legal guardian).

      If there is no protected person and a senior keeps the family home, the house will automatically be exempt under the assets test for two years from the date they enter care. So, the resident is the homeowner for up to two years or until the home is sold. During this time, the home is an exempt asset. At the end of this period, the person is reassessed as a non-homeowner, and the home will become a fully assessable asset. Any rent received is assessable income.

      If a protected person continues to live in the property, then the value of the property is exempt for calculating their asset value, regardless of how many years pass. For couples, the home is exempt if one member of the couple continues to live in it. The situation changes when the remaining spouse passes away or leaves the home. The assess-ability of the house is treated the same way as if a non-protected person were in the property, meaning it would be exempt for a two-year period, starting from the date the last member of the couple leaves the home.

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