Sunday, November 6, 2016

Rebalancing the Assets Test

By now most pensioners will have received a letter from Centrelink outlining the changes to the age pension test from 1 January 2017.

We have received a significant number of queries regarding this letter. Hence, we will attempt to summarise the most common concerns.


For expediency we will use one central reference ‘document’ that in turn refers to key Government data. This reference is one of a series of fact checks published by The Conversation. We will refer to this document as The Conversation.

Proportion of pensioners affected – 90% unaffected sounds better than 300,000 Australians to lose.

The Centrelink letter states that “Ninety per cent of pensioners will either not be affected by this change or will receive an increase in their pension”.

The Conversation estimates that 2.4 million Australians “were receiving Age Pensions or Veterans Affairs Pensions”. Therefore, Centrelink are saying that approximately 240,000 Australians will have their pensions rejected or reduced.

Superguide.com.au states “the harsher Age Pension assets test for part Age Pension means an estimated 300,000 Australians will lose Age Pension entitlements, with 100,000 of those retirees losing all entitlements. Now that we know the part Age Pension thresholds are lower than first announced, we expect these estimates to be conservative.”


Why the changes are being made

The Centrelink letter states – in part:
  • “Each year an increasing number of people retire and many receive the Age Pension for far longer than in the past”
  • “The change ensures that taxpayer funded expenditure will be focused on those with lower or moderate wealth”
The first point is frequently reported and then used to imply age pensioners are a burden on society. Additionally, the wording implies that people retire by choice. When discussing this issue with our client we point out that:

1. All too often older Australians would prefer to continue to work but are constrained due to Government policies such as work cover insurance schemes ceasing before the age pension entitlement date, or simply there is no work for older Australians.

2. Most age pension claimants were contributing 3% of their tax to the age pension for the majority of their working life. Some still have their pay slips with that compulsory Government deduction.

3. The age pension is not the largest ‘welfare’ budget item. While the ‘dole’ is approx. 16% and child assistance schemes account for more than 40%. The Conversation states that “As we know from the Intergenerational Report, the proportion of Australians over 65 years is forecast to increase, leading to upward pressure on welfare spending. However, the overall number of Australians who rely on government benefits as their main source of income has been going down from about 28% in the mid-1990s to just under 25% in 2011-12.” Additionally, we know that the proportion of age pensioners in proportion to the tax paying population continues to fall and that trend is forecast to continue.

4. It’s funny that when we consider the kafuffle about the proposed tax concessions for the recent superannuation changes, where a $1.6m limit for an individual was proposed. Compare this to the approx. 25% of that level is applied to a couple’s asset limit before reductions in the age pension are enforced.


What this means for you
The Centrelink letter provides tables on the asset threshold changes and it can easily be interpreted that the changes only impact on those age pensioners whose part pension is being determined by their asset levels. This is not always the case. It is possible that your current part pension is being determined by your income yet the changes could result in your age pension now being determined by your asset levels.

Also be warned about using the web site referred to in the letter 


https://www.humanservices.gov.au/customer/enablers/changes-pension-assets-test 
“where you can access an asset tested rate estimator”. 

This site only considers your assets and as such should only be used by those whose current age pension is being determined by the assets test. If you are unsure please use one of the other age pensioner estimator calculators such as ours http://yourpension.com.au/APCalc/index.html#CalcForm

If your payment is cancelled

Be careful of the wording “If you are age pension age or over on 1 January 2017 you will also be eligible for a Commonwealth Seniors Health Card.” And for the Low Income Health Care Card be “automatically be eligible”. This implies that you will not automatically be posted the cards. Many have interpreted the Ministers statement as age pensioners will automatically receive a card for use before 1/1/2017. We will assume the Ministers statement is correct and you will automatically be issued with the card. We will further assume that the Medicare/Health benefits will automatically be linked as you will continue to have the same CRN/CAN Centrelink client number. However, for most age pensioners the benefits are primarily with State and Local Govt based fees such rates, car registration, utilities etc. We are recommending that you contact these organisations to ensure the discounts continue after 1 January 2017. 

The Commonwealth Seniors Health (CSHC) card is an income based card only and does not consider assets. The changes to the age pension relate to assets. Hence if you are ‘on’ the age pension you would already be automatically entitled to the CSHC. The concession by the Government appears redundant.

If the Centrelink letter is accurate and current processing times for the age pension are 4+ months! We expect a deluge of age pensioners applying for the above cards causing significant processing delays. Be warned about the possibility of loss of benefits during the processing times.


We have been unable to determine what the implications are for ‘grandfathered’ age pensioners. Grandfathering only applies until ‘circumstances change’. Is this change by the Government being interpreted as a changed circumstance?

We are also intrigued by the statement regarding the Low Income Health Care Card (LIHC) and CSHC cards that “they will never be income tested so you will retain entitlement to the cards indefinitely provided you continue to meet all other eligibility requirements.” With the CSHC card it is an income based card and has no assets test. So currently you could have $20m in assets – excluding the family home - and receive the CSHC card. The Centrelink letter implies that you can go back to work and receive $200k pa and still get the card - really?


Further Reading

If you are interested in where the age pension is heading, we recommend the Governments National Commission of Audit report. Where the report continues the trend of converting the age pension from a pension entitlement to a welfare payment.


Where, for example the report forecasts that the number of ‘part’ age pensioners will increase and ‘full’ pensions will fall.




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