5 ways to prepare for the 2017 age pension changes
On January 1 2017, the asset test rules for the age pension are set to face significant changes, and as a result the retirement of thousands of Australians will be greatly affected.
As AMP financial adviser Mark Haynes states, “The rules around the Age Pension assets test have probably always been fairly generous. What’s important now is that retirees realise that the majority of average Australian seniors will be impacted by the changes. They therefore need to start thinking about the strategies they can adopt to lessen the impact."
The good news is that with a bit of planning you can soften the blow and secure your finances in this period of uncertainty. Here are a five ways to prepare for the changes.
1. Home improvements
If you’ve got something around the home that needs to be repaired or replaced, now might be the time to do it. Fixtures and fittings within your home are not considered assessable assets under the age pension asset test. As Haynes states, “Your family home is exempt from Centrelink means testing so any money put into that is no longer assessed. However, don’t fritter away money that you were never planning to spend. Upgrading your car, however, won’t help as this is still an assessable asset – and one which depreciates in value too.
“If it’s something that is going to be happening in the next couple of years anyway, then consider doing it before January. That being said, don’t just blow this money for the sake of trying to get extra pension – unless you are definitely on the cusp of losing the pension completely.”
2. Managing your personal affairs
It might also be a good time to start thinking about getting your personal affairs in order (and not for the reason you might think). Pre-paying for funerals or investing in funeral bonds of us to $12,500 are actually exempt from the income or asset test, so if you’re on the cusp of qualifying these payments might be a good way to get back onto the pension.
3. Gifting money to family members
While it seems as though it’s probably time to start drawing the purse strings tighter together than ever, a little bit of generosity might just get you back onto the pension.
As Haynes says, “Gifting money to family members, which is limited to $10,000 a year or $30,000 in a five-year period, is another useful way to reduce your assessable assets and can give your adult children or grandchildren a financial boost, maybe to help with private education costs, a home deposit or to pay a lump sum off their mortgage.”
4. Start a long term annuity
In some instances a long term annuity may also make good fiscal sense, as a means of replacing lost income. Haynes says, “Starting a long-term annuity could be an option to help reduce assessable assets over time while providing a regular income which is assessed concessionally by Centrelink. However, it’s important to seek financial planning advice to help determine if this strategy will benefit you.”
5. Draw more income from your super
It also might be a good time to start drawing more income from your super through an allocated pension. Superannuation funds are increasingly making it easy for members to tailor their investments to meet their changing financial needs. For example, Equip’s MyPension product invests your money so you can grow it over a long term, while providing a stable income stream. For more information on MyPension, click here.
Final Note
The changes to the age pension are coming, and thousands of Australians will be affected. But, while it’s important to be prepared, it’s equally important to not act rashly.
As Dr Suzanne Doyle, head of advice at State Plus says, “For those people who are at the margin of being eligible you certainly wouldn’t want to go using capital and selling assets by any means to get back on the age pension, because for them it might just be a waiting game and a relatively modest adjustment in their expenditure to budget a little while to get them through.”
Are you concerned about changes to the age pension asset test rates? Do you think you’ll take any of the above mentioned tips onboard? Let us know in the comments.
This article is for general information only. You should seek formal financial advice on your specific circumstances.
Related links:
Plans to lift pension age have senior workers worried
One in three pensioners living below poverty line
Age pension has not kept up with inflation