It is now clear that modifications to the rules governing pensions and age care have just one thing to say to the public: find alternative means to finance your retirement. These latest changes to pension and aged care rules pose a new threat to Adelaide retirees – as if they needed any more!
The Abbott-Turnbull governments’ introduced programs and initiatives may not appear that substantial. However, if one looks at the bigger picture, it’s easy to see huge cuts to government funding for older Australians.
Alterations to means-testing for the aged pension, eligibility for the Commonwealth Seniors Health Card (CSHC) and the management of the account-based pension, are all aimed at reducing public funds for retirees.
Natasha Panagis, technical specialist at advice business Strategy Steps said, “The government is pushing retirees to use their own capital to fund their retirement.”
The biggest and most contentious reduction in subsidies for senior Australians are the stricter rules around means-testing for the age pension and the level to which pension payments can be influenced by additional savings. These two measures were introduced in the May budget and approved by parliament.
In the new Turnbull administration, the following changes will take effect in January 2017:
- The threshold for a part pension for couples who own their home will be reduced from $1.1 million to $820,000;
- The threshold for a part pension for single or unmarried homeowners will be reduced from $775,000 to $ 547,000.
Thus, the government has declared that an estimated 91,000 people will no longer be qualified for the part pension and an additional 235,000 people will have their pension payments reduced.
Furthermore, for every $1000 in savings a retiree is set to lose $3 in $1.50. In all measures combined the government is projected to save $2.4 billion to 2019.
All this means that the capacity of many middle-income earners to retain their current level of pension will be greatly diminished. In order to qualify for the full pension, the value of assets retirees can own on top of the family home is expected to go up from $286,500 to $375,000. In addition, rental income from property will no longer be exempt from means-testing for any age care payment.
Strategy Steps, in a memorandum to their clients, warned “Clients who move into care after 31 December 2015 may find it more difficult to fund their retirement if they have limited financial resources and wish to keep the family home. Financial advice around aged care funding and cash-flow management will become more critical for these families.”
The burden to senior Australians does not end there.
Starting this month, in January 2016, non-taxable superannuation income was added to the means-test for the CSHC, making it harder for older Australians to qualify for the card. The Seniors Health Card gives discounts on prescription medicines, concessional rail travel on certain lines and, depending on the state, additional health, education and recreation allowances.
In a step aimed at keeping workers in employment for longer, the age at which people can access their super savings went from 55 to 56 in July 2015 – something that is expected to rise further in coming years.
On a more positive note, the government rejected a recommendation by the David Murray Financial System Inquiry to prohibit borrowing by self-managed super funds in order to buy shares and property.
In a bonus for individuals who unwittingly put too much money into the super, starting 2015 people who surpass their annual after-tax contributions limit may choose to have the contributions and associated earnings released from their super accounts. These excess contributions no longer attract tax at the top marginal tax rate. However, the associated earnings will be taxed at the marginal tax rate on top of the Medicare levy.