A quick guide to the new Age Pension rules
With the new Age Pension assets test having taken effect from 1 January 2017, it’s important to understand what impact the new rules could have on your retirement lifestyle.
When you're relying on the Age Pension to fund your retirement, every dollar you receive from your entitlement has an impact on your standard of living.
Your Age Pension is means tested using both an income and assets test, with the lower result being the age pension you are entitled to.
As a result of the new rules for the Age Pension assets test which are now in place, your entitlements calculated under the assets test may have gone up or down, or even been reduced to zero.
But, with these changes comes opportunity, as there are ways to boost your pension under the new threshold rules.
To help you enjoy a more comfortable retirement, here’s some tips to make the most of the new Age Pension rules.
Reduce assessable assets to boost your pension
One significant effect of the changes to the assets test rules is that that the "taper rate", the rate at which your pension reduces under the assets test with each dollar of assets you hold above the lower threshold, has doubled.1
Previously, for every $1,000 of assets you owned over the lower threshold, your pension was reduced by $1.50 per fortnight.
Effective from 1 January 2017, your pension will be reduced by $3 per fortnight for every $1,000 of assets you own over the lower threshold.
Consequently, if the threshold changes are likely to have a negative impact on your retirement income, it may be worth looking at ways to lower the value of your assessable assets to boost your pension.
For many people, these strategies will be twice as effective under the new rules compared to the previous rules. Here are some options:
Additionally, it is recommended that you should revalue your assets and update Centrelink with the new valuations as household items and motor vehicles, in particular, lose market value over time.
More importantly, these valuations could be worth checking as many retirees have not reported changes in the value of their household goods for some time.
Diversify to take more risk
Another approach to boosting your pension in light of the Age Pension changes is to consider taking more risks with your investments by diversifying between both defensive and growth assets.
If you expose your investments to growth assets, such as shares, they can produce higher returns over the longer term. Investments that have provided higher returns over the longer term have also tended to produce a wider range of returns.
So while there is a higher chance of losing money, growth assets can also give you a better chance of achieving your long-term objectives. Selecting the investments that best match your investment needs and timeframe is crucial in managing this risk.
Why you should speak to a financial adviser
While you’re seeking to enjoy a comfortable retirement lifestyle, it can be tricky to know exactly how the new thresholds might affect your financial position.
That’s why it’s worth speaking to a financial adviser. By talking through your options and making any adjustments to your financial strategy to adapt to the new thresholds, your adviser can help you plan to still meet your retirement goals.
1 Department of Human Services website https://www.humanservices.gov.au/
2 The Funeral Bond Allowable Limit as at 1 July 2016 is $12,500 and is indexed in line with CPI pension increases every 1 July (https://www.humanservices.gov.au/customer/enablers/funeral-bonds-and-prepaid-funerals).