On January 1, 2017, there was a major change in the assets test for those on an Age Pension.
Whilst the assets test threshold increased (the good news), the taper rate doubled, meaning that those on a part pension, with assets over the threshold, lost their entitlement at a much faster rate.
About 300,000 part pensioners were affected by this loss of entitlements. To say that this came as a shock is an understatement. And this is just one example of why we believe that an understanding of asset rules is key to managing your retirement income effectively.
Asset rules, of course, are not just about government changes to Age Pension thresholds. They also relate to a number of ways you can manage your assets to maximise your pension. These include gifting, prepayments, valuation of home contents and vehicles and more.
Additionally potential property sales or purchases can affect your retirement income due to taxation implications and the exemption status of property you might own.
How Margaret mastered the rules
Margaret recently managed to activate her part Age Pension by knowing the rules.
She did this by paying down debt, using $150,000 she had invested in a term deposit, earning very little, to pay off her home loan. With her assets reduced by $150,000 she was now under the single pension threshold. And apart from the Age Pension income gain, she’s no longer paying $312 interest each month on a mortgage. She did lose the term deposit and of course the earnings on her term deposit but these were much less than she was paying on the mortgage
Win, win, win is what we call this.
There are two key learnings here.
Firstly that government legislation and pension changes occur frequently. Retirement Essentials always informs our members on proposed and actual changes, well ahead of the date on which they are enforced. Keeping an eye on our weekly emails is a great way to stay up-to-date on any changes which might affect your income or eligibility status.
Secondly, the asset test rules can seem complex. It’s handy to know that our support staff know these rules inside out and can share examples of how they work. Having someone with whom you can discuss the ramifications of the asset rules and how they may affect your own situation is a very useful support.
Our free age pension and entitlements calculator is a useful starting point.
Read the fourth big mistake now.