Make sure you read this first The end of one financial year or the beginning of another is a very popular time to step back from full-time work. Of course some people are ‘age’ driven and respond to a very specific birthdate trigger such as Preservation Age (usually...
The Reserve Bank meets on Tuesday 20 May. This is one of eight scheduled meetings each year. The decision the Monetary Policy Board takes may affect your retirement income. We spoke with respected independent financial commentator, Saul Eslake, before the meeting was held, for a plain English explanation of how interest rates work – and how they can affect retirees. But first, here’s a brief backgrounder on Australia’s Central Bank.
What does the Reserve Bank do?
According to the bank itself, it is responsible for Australia’s monetary policy. This primarily involves setting a target for the cash rate, but the bank has other tools at its disposal as well.
What is the Reserve Bank’s goal?
By setting monetary policy, its aim is to maintain price stability as well as full employment. To this end the Reserve Bank has a target inflation rate (measured by CPI), to remain between 2 and 3%.
How is this achieved?
The bank sets a cash rate (currently 4.10%) which is the interest rate that banks pay when they borrow from other banks in the overnight money market. This amount then influences other interest rates for loans and deposits which, in turn, influence overall economic activity, including employment and inflation.
What are the main changes which will affect retirees and their income over the next 12 months?
Here’s a handy End of Financial Year (EOFY) checklist to keep you up-to-date. You may wish to also share this with friends and family. Some changes are not yet legislated, so keep an eye on your Retirement Essentials emails, as we will confirm these rules as soon as they do become law.
Income and Asset thresholds will change
Income and assets tests change three times a year. The upper (disqualifying ) income and asset thresholds change on 20 March and 20 September, in line with indexation (based upon the CPI figures from the previous 6-month period). The lower thresholds change just once a year. This means that they will change on 1 July – and this is likely to increase the number of people able to qualify for a full Age Pension.
The specific amount of the new limits will shortly be confirmed by the Federal Government. As a benchmark, last year the income test limit was increased by $8 for singles and $12 for couples combined while the asset test limit (for non-homeowners) was increased by $22,250 for singles and $28,500 for couples combined.
How to plan ahead
You can check out the current thresholds here and use the Age Pension Entitlements Calculator to test your current Age Pension status. You may be entitled to a higher fortnightly payment after 1 July. Or if your entitlement is currently borderline, you may now become eligible for an Age Pension as well as the automatically issued Pension Concession Card.