Wednesday, 11 January 2017

Wondering why there are no horror stories flowing from the financial reassessment of Centrelink pension eligibility?

There are many legitimate complaints and concerns being voiced over the Turnbull Government decision to change Centrelink’s debt recovery system to one which is fully automated, with no human oversight of initial debts raised for those certain individuals receiving welfare pensions, benefits and allowances.

However, there is little being said about the reassessment of asset and income limits for aged pension eligibility which came into effect on 1 January 2017.

Centrelink states:

If you have reached age pension age, Age Pension may help to support you. To qualify, you must first satisfy age and residence requirements. How much you can get depends on your income, assets and other circumstances.
If you are a self-funded retiree or still working, you may be able to get a part pension.

Centrelink further states that the current maximum basic age pension rate is $1,203.00 for a couple and $797.90 for a single person per fortnight.

This basic rate places any recipient who relies solely on a Centrelink pension for their retirement income firmly below the poverty line.

For those receiving additional income there is a reduction in this fortnightly basic rate of 50c for every dollar of additional income above $292 per fortnight for a couple and $164 for a single personIncome is defined by Centrelink as: an amount you earn, derive or receive for your own use or benefit profits, the amount of earnings in excess of expenses, whether of a capital nature or not, and a periodic payment or benefit you receive as a gift or allowance.

Financial assets are subject to deeming rates. For a couple the first $81,600 in assets is deemed to return 1.75% and assets above that amount to return 3.25% and, for a single person the first $49,200 is deemed to return 1.75% and assets above that amount to return 3.25%.

Commencing on 1 January 2017 home-owning Aged/Veteran/Disability pension recipients who have assets of over $375,000 for a couple and over $250,000 for singles now have their part pensions reduced by $3 for every $1,000 dollars over this limit. Non-homeowners who have assets of over $575,000 for a couple and over $450,000 for singles will experience a similar reduction.

Every person who is on a part pension after 1 January will retain their Pensioner Concession Card which allows for Medicare bulk billing and subsidised prescription medicine. Those who have their part-pension cancelled will receive a Low Income Health Care Card and Commonwealth Seniors Health Card if of retirement age which allow for the same benefits.

These higher asset limits will possibly make an additional 50,000 retirees eligible for a part-pension for the first time and another est. 116,000-156,000 will receive an increase in their part-pension.

But what does that mean in practical terms?

Well it mean that a home-owning couple will lose their part aged pension if they have assets above $816,000 and home-owning singles will lose the part pension if assets are above $542,500While the assets limit for non-homeowners is $1,016,000 for a couple and $742,500 for a single person.

What the new rules also mean for example*:

*a home-owning part pension couple with $380,000 in assets then your part pension will be est. $1,307.40 combined per fortnight;

 *a home-owning part pension couple with $500,000 in assets then your part-pension will be est. $947.40 combined per fortnight;

*with $600,000 in assets a home-owning couple would receive a part-pension of est. $647.40 per fortnight and with $700,000 in assets the couple would receive a part-pension of est. $347.40 every two weeks
; and

*by the time a home-owning part pension couple reaches $800,000 in assets their combined part pension is an est. $74 per fortnight. At which point the couple's additional retirement income is deemed to have reached est. $980 per fortnight based on those assets.

* All examples are maximum amounts before any tapering for additional income over $292 per fortnight is deducted.
So how many people will be heavily impacted by these changes?

Estimates vary, but ABC News stated on 11 November 2016 that:

The increase in the rate that the pension is reduced, as well as the reduction in this top pension threshold, could result in some 88,000 missing out on the pension entirely, and some 225,000 seeing their pensions reduced.

So is the change to age pension eligibility fair?

Well it depends where you are placed on the wealth ladder and whether or not you deliberately structured your retirement funds to: a) act as a form of estate planning to benefit your heirs and/or b) minimised returns on retirement investments in order to qualify for a part-pension before 2017.

Estimates based on the Dept. Human Services calculations show that poorer retirees and part-pensioners will be better off.

However, those who thought they were being rather ‘clever’ in how they structured their post-retirement assets are not so lucky. Suddenly that sea-side holiday home, weekend rural hideaway, expensive boat, regular overseas holidays, top of the range Winnebago and/or speculative land purchase are no longer being comfortably subsidised by the part-pension.

The absence of individual real-life hardship case studies in media articles concerning new pension eligibility rules appears to indicate that most part-pensioners realise that the changes are relatively fair.

Unfortunately for the Turnbull Government this will not mitigate ire at the ballot box in 2018. 

Firstly, because this particular welfare cost-cutting measure is retroactive and removed a measure of certainty regarding retirement income for est. 80,000-100,000 older people. And secondly, because the cost-cutting marches hand-in-hand with the federal government's determination to continue to ignore what ordinary voters view as blatant rorting of the Australian taxation system by very wealthy individuals and corporations.

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