In just a few months’ time, the Age Pension is set to be cut for many recipients.  As announced in last year’s budget, from 1 January 2017 there will be two changes to the pension asset test:

1. The assets thresholds for qualifying for a full pension have been lifted. This will have the effect of increasing benefits for some with lesser amounts of assets. The new thresholds for receipt of the full Age Pension will become;

	Single Pensioner		Pensioner Couple
	Current	New	Current	New
Homeowner	$209,000	$250,000	$296,500	$375,000
Non homeowner	$360,500	$450,000	$448,000	$575,000

2. The pension taper rate (the rate at which the pension reduces above the thresholds) will increase from $1.50 a fortnight per $1,000 to $3.00 a fortnight. For many part pensioners, it will mean significant age pension reductions and possibly a complete loss of pension benefits.

The asset levels at which pensions will no longer be paid are estimated at;

	Single Pensioner		Pensioner Couple
	Current	New	Current	New
Homeowner	$791,750	$541,500	$1,175,000	$814,250
Non homeowner	$943,250	$741,500	$1,326,500	$1,014,250

* Please note; actual cut offs will vary slightly, depending on indexed payment rates at 1 Jan 17

Under these proposed reforms, the hardest hit will be part pensioners, particularly those with assets that are close in value to the new cut-off levels above.  Pensioners at around these levels could go from receiving a decent part pension to little or nothing.

The table below illustrates the impact on home owning pensioners at various asset levels.

Assessable Assets	Single Pensioner		Pensioner Couple
	Current (pa)	New (pa)	Current (pa)	New (pa)
$500,000	$11,372	$3,221	$26,316	$24,502
$700,000	$3,572	Nil	$18,516	$8,902
$800,000	Nil	Nil	$14,616	$1,102
$900,000	Nil	Nil	$10,716	Nil

* Note: Pension estimates based on current pension rates. Rates at 1 Jan 2017 may differ.

This is a significant impact on some pensioners.  For those affected, it could put increased pressure on capital, at a time where investment returns are hard to come by.

For example; a couple with a $650,000 super fund and $50,000 of personal effects, would lose $9,614 per year.  To maintain their income, an extra 1.5% of capital would need to be drawn.

Affected retirees will have to determine whether they;

• Target higher investment returns, through taking on increased risk;
• Accept a faster rate of capital erosion; or
• Reduce their standard of living

For those that lose the pension completely as a result of this change, they will become eligible for the Commonwealth Seniors Health Card.  Under special rules, this card will be made available for life, without the need to satisfy an income test.

Your Elston adviser will be able to assist you to understand how this will impact your position and what your options are. Please call us on 1300 ELSTON or email info@elston.com.au and someone will be in touch.