Increase in the assets test threshold
The assets test threshold is the amount of assets pensioners can hold before their pension starts to reduce under the Centrelink assets test. The table below shows the new thresholds that apply from 1 January 2017.

Assets test thresholds from 1 January 2017

Increase in the ‘taper rate’
The taper rate is the rate at which the age pension starts to reduce when the level of assets increase. From 2017 the taper rate will increase from $1.50 a fortnight to $3 a fortnight. This means the maximum age pension a pensioner can receive will be reduced by $3 per fortnight for every $1,000 of assets they hold above the assets test threshold.

How the changes could affect your age pension
The higher assets test thresholds will generally mean:
• age pension recipients with an asset value ‘around’ the thresholds are likely to see an increase in their age pension entitlement, and
• age pension recipients with assets above the threshold are likely to see a reduction in their age pension – in some cases to zero –as a result of the increased taper rate.

Example
Retired couple Betty and John are both 68 years old and own their home. They have $823,000 in total assets and currently receive a part age pension of $500 per fortnight. If their assets remain unchanged on 1 January 2017, their age pension is estimated to reduce to zero (see Chart 1 and Chart 2).

Chart 1– The effect of a couple homeowner’s age pension as at 1 January 2017 *1

Chart 2 – Projection of future entitlements

Speak to your Leenane Templeton financial planner to find out more about the likely impact of these changes on your entitlements and to explore strategies to help reduce the impact.

The post Changes to the age pension rules – will you be affected? appeared first on Newcastle Financial Planners & Financial Advisors.

Both sides of politics have committed to retaining the age pension “for those in need”. The age pension is means tested using both an income and an assets test – the test that pays the lowest pension is the one that is used.

Conclusion – The age pension will remain, but not for everyone

There are two other aspects to the government’s retirement income policy – compulsory superannuation and tax-concessional voluntary superannuation. As you build more super, you will qualify for less age pension.

Statistics below show the predicted impact of superannuation on the age pension. These figures are for people of age pension age:

Conclusion – Fewer people will qualify for the age pension in the future

One aspect that people don’t consider is the age when a pension becomes payable. Historically, it has always been age 65 for men, and since 1995 the qualifying age for women has been progressively extended to age 65.

With people now living longer lives, the age pension may be payable for 20 to 30 years – a very long-term commitment for governments. This raises the question “why 65?”

The answer to this question suggests another key issue in the provision of the age pension. It all goes back to Otto von Bismark, the German Chancellor in the 1880s. He introduced state funded “accident and old age insurance” – the first pension scheme in the world. This standard was followed throughout the rest of Europe and eventually the world.

His actuaries nominated age 65 as when the “old age insurance” would be payable. This was at a time when the average life expectancy of a German male was 44. A very small percentage of the population could expect to receive the pension and they were not likely to receive it for long.

In 2010 the government considered the question of ‘why 65?” and the age pension age was increased. The qualifying age for both men and women will be increased by six months every two years starting from 1 July 2017. From 1 July 2023, the qualifying age will be 67. Four years later in the 2014/15 Federal Budget, the government has proposed increasing the qualifying age further to 70 by 2035. The legislation to implement this change is yet to be passed.

With increasing “grey power” as our population ages, it would be political suicide for any government to even consider abandoning the age pension. Instead, fewer people are likely to qualify at a later age for a shorter period.

This is all the more reason to continue to build your own superannuation nest egg and become self-sufficient in retirement.

Source:
www.centrelink.com.au
www.rim.treasury.gov.au Inquiry into Superannuation and Standards of Living in Retirement
demographics.treasury.gov.au A More Flexible and Adaptable Retirement Income System
www.agedcare.org.au An Ageing Australia – (Saul Eslake, 2008)

Disclaimer

If you wish to discuss the age pension with our expert and award winning financial planning team please call (02) 4926 2300 or email us.

The post Will there always be an age pension? appeared first on Newcastle Financial Planners & Financial Advisors.

Retirement is a life-changing event. After you stop working, you can find yourself with time to do the things you may not have been able to do before, like travelling, volunteering or spending more time with family and friends so making the most of your retirement income is essential.

As you adjust to this new lifestyle, you'll also need to think differently about your finances. In retirement, your priority typically changes from saving, in preparation for when you leave the workforce, to carefully spending those hard-earned savings. It's likely that your initial focus will be to find a way to replace your salary or wage with cash flow from other sources.

The composition of your retirement income requires careful planning. Your retirement income may come from more than one source.

Age Pension

The Age Pension is an income support payment offered by the Government to older Australians who meet the relevant eligibility criteria. 

With maximum payments of $21,912.80 p.a. for a single pensioner and $33,035.60 p.a. for pensioner couples (including the Pension and Clean Energy Supplement and current for the period 20 March 2014 to 19 September 2014), the Age Pension probably won't be enough to afford most people a modest post-work lifestyle of basic activities, let alone a comfortable lifestyle.

To afford even a modest lifestyle in retirement, many people will need to supplement the Age Pension with other income. This could come from an annuity, an account-based pension or other investments.

An annuity (from within or outside super)

An annuity is a simple, secure financial product that guarantees a series of payments, for a fixed term or for life, in return for an upfront investment. The earning rate is fixed at the outset, and this applies for the length of the annuity, regardless of share market movements or interest rate fluctuations. Capital can be returned at the end of the agreed term or gradually during the term of the annuity as part of the regular payments.

An account-based pension (from your super)

An account-based pension is an investment account which gives you the ability to choose from a range of investments and can vary from time to time with the level of income you wish to draw subject to the minimum annual withdrawal amounts set by the Government. Account-based pensions are usually market linked. This means that the capital value is linked to the performance of the underlying investments, which can impact the level and duration of your savings and the income produced. Account-based pension providers, which may include your super fund, charge management and/or administration fees for these products. This reduces your investment returns.

Other investments

These are just some of the types of investments that can sit within your super fund (personal or self-managed superannuation fund) or outside superannuation.

• Term deposits are fixed term, fixed interest savings account. Terms generally range from one month to five years.
• Shares pay income in the form of dividends. You can invest in shares directly or via managed funds.
• An investment property is real estate which has been purchased with the intention of earning a return on the investment, either through rent, the future resale of the property, or both. Another type of property investment is a property trust, which is a managed fund that enables investors to pool their money to purchase an interest in a portfolio of real estate assets.

Income from various sources can be 'layered' to meet your income requirements. This can be set up so that more secure income, such as from the Age Pension or an annuity, can cover your essential costs of living, while your income from other sources can fund your discretionary spending.

This approach can also allow your more growth-oriented assets to remain invested, giving them time to grow.

Source: Challenger, May 2014

Disclaimer

Since each person is different, there is no single retirement income solution. More than one investment strategy and product may be required so it's important you receive professional help from your financial planner. It can make all the difference to your financial success in retirement.

Please call our email our expert team today!

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It can be difficult to plan, either financially or emotionally, for the move into an aged care facility. When trying to choose the best care, many practical issues arise and decisions need to be made.

Seeking financial advice during this time can ensure that the decisions that you and your family make will be the right decisions. The following key tips and traps should assist you and give you confidence when facing the aged care challenge.

Key tips

• Determine whether you or your loved one are eligible to enter into an aged care facility and what level of care will be needed (such as high level care – also known as a nursing home). This is established via assessment by an aged care assessment team.
• Gain an understanding of the aged care fees applicable to your aged care facility and whether you can purchase additional extra services.
• Take into account the impact that entering an aged care facility may have on your or your loved one’s financial situation and age pension entitlements.
• Read the booklet titled “5 steps to Entry into Residential Aged Care” which can be obtained from the Department of Health & Ageing. This booklet mainly focuses on the non-financial matters and issues that need to be considered (for example, what you should consider when choosing a nursing home).
• Ensure that you have sufficient cash-flow to fund the aged care fees and costs (for example ongoing maintenance of the former family home)
• Determine how long your money will last and create a plan with your financial adviser to improve this.
• Revise your estate plans and important legal documents (such as an enduring power of attorney) that have been granted to your immediate family, close relative or friend.
 

Key traps

• Avoid selling the family home before seeking financial advice.  Paying certain aged care fees and renting out the former home could deliver a better outcome. The overall benefits of not selling may include reduced aged care fees and increased age pension entitlements.
• When retaining and renting the former family home, it is important to consider the income tax impact (as the rental income is assessable for tax purposes), the capital gains implications and whether renovations are required.
• Avoid taking actions that could result in a loss of age pension and increased aged care costs (for example gifting assets outside Centrelink gifting rules).
• Remember to consider the impact that entering an aged care facility might have on your or your loved one’s financial estate, to be passed on to the next generation.
 

Start planning early as part of a retirement planning strategy. This will mean that you can effectively plan for this next phase of life. Most importantly, note that it is essential that you seek financial advice prior to entering into an aged care facility agreement.
 

Ensuring that you make the right decision will depend upon a multitude of factors and the decision can be complicated.  Speak to our financial adviser, who is an aged care specialist, to ensure that you can make the right financial decisions to optimise your situation and avoid the key traps.
 

1. Access Economics, 2001. Population Ageing and the Economy, research paper commissioned by the Commonwealth Department of Health and Aged Care, ACT.
2. Treasury’s Australia 2050: Future Challenges (2010 Intergenerational Report).

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