Age Pension changes – time fast approaching

By Tim Miller

(Miller Super Solutions)

 

Centrelink and Self Managed Superannuation Funds (SMSF) have a rocky relationship.  Just when you think you’ve got your head around it, something changes and usually that something is the Centrelink eligibility rules, thresholds, rates or that gem of a staff member who moves on.  Changes are inevitable but keeping up with them requires some level of dedication and if you have clients with an SMSF and you lack dedication then the consequences could be significant for your client and costly for you.  Whether it is Age Pension eligibility, Commonwealth Seniors Health Card eligibility, asset tested pensions or Asset Test Exempt pensions, there is always something to consider.  Right now it’s the impending Asset Test eligibility rules that are changing from 1 January 2017.

1 January 2017 changes to the Asset Test

Exceeding the asset test threshold will result in a loss of the Age Pension and therefore any subsequent requalification via a future drop in balance will be considered a post 1 January 2015 entitlement and subject to deeming rather than the previous deductible amount method.

The table below highlights the current maximum assets you can have to be fully entitled to the Age Pension and the cut out point where your entitlement to Part Age Pension, these figures represent the thresholds currently applicable from 20 September 2016.

Asset Limit – Full Pension Asset Limit – No Pension
Status Homeowner Non-homeowner Homeowner Non-homeowner
Single $209,000 $360,500 $793,500 $945,250
Couple $296,500 $448,000 $1,178,500 $1,330,000

Important to the above consideration is the impending Asset Test changes that will take effect from 1 January 2017.  From that date the amount of assets a single person or a couple can have before their Age Pension entitlement reduces, will increase providing more people with access to the full Age Pension.  On the flip side the maximum assets they can have significantly reduces due to the taper rate for Age Pension reduction increasing from $1.50 to $3 per additional $1,000 in assets held, thus reversing the 2007 decision to decrease the taper rate.

The 1 January 2017 tables look as follows:

Asset Limit – Full Pension Asset Limit – No Pension
Status Homeowner Non-homeowner Homeowner Non-homeowner
Single $250,000 $450,000 $542,500 $742,500
Couple $375,000 $575,000 $816,000 $1,016,000

Therefore, those clients with account balances above $542,500 need to give consideration to what action, if any, they will take prior to 1 January 2017.  In reality it may be very difficult for a single homeowner Age Pension recipient with a large account balance to do anything other than accept that they will lose their Age Pension entitlement.  Similarly, this is likely to be the result for couples in receipt of the Age Pension.  However, for couples where only one person is currently entitled they may be able to consider certain strategies such as the re-contribution strategy if the younger spouse is a number of years away from qualifying for the Age Pension.  That may offer a short term qualification solution due to a reduction in the pension members assets but may significantly reduce the annual deductible amount of a grandfathered pension due to the commutation reducing the return of capital amount.  Also how far away is the spouse from satisfying a condition of release given you’ve just converted unpreserved benefits to preserved.

Those clients that lose their pension entitlement from 1 January 2017 due to the change in taper rate will automatically qualify for the Commonwealth Seniors Health Card (CSHC).

SMSFs and Centrelink a continuing story

There is still so much more to the Centrelink story with the increase to the Age Pension qualification age from 1 July 2017 and what to do with legacy SMSF complying (and non-RBL complying) pensions….if we don’t mention them will they just go away, it would appear not with the recent transfer balance cap rules drafted.  So while most of us ponder what to do with all the draft announcements significantly changing the superannuation landscape, let’s not forget that some changes are already in and may need action well before the dreaded 1 July 2017 date.

 

General advice warning:
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information, so please consult your financial adviser.

Miller Super Solutions is the SMSF education & training creation of Tim Miller, assisting SMSF professionals and trustees with the practices associated with establishing, running and ultimately closing down SMSF’s http://www.millersupersolutions.com.au/

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