Retirement income measures
2015/2016 Federal Budget
1. Social security assets test
The Government will increase the lower limit of the asset test thresholds for single homeowners to $289,500 and to $451,500 for couples. The tapering rate will be increased from $1.50 per $1000 over the asset test threshold to $3.00 per $1000 over the assets test threshold. The Government aims to achieve savings of $2.4 billion over five years by implementing these measures.
Pensioners who lose their pension entitlement on 1 January 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age.
This measure signifies the Government's shift to a policy of maintaining a sustainable Age Pension by implementing tighter means testing arrangements. These changes will have a significant impact for SMSF trustees that have an average sized balance of retirement savings outside their family home, especially those with assets around the value of the assets testing thresholds. While the intent of the measure is understandable, there is a concern that the proposed changes could provide an incentive to shift wealth out of means tested assets into untested assets such as a retiree's dwelling to capitalise on the available Age Pension.
2. Access of superannuation for terminal medical conditions
From 1 July 2015, the Government will extend access to superannuation for people with a terminal medical condition. Currently, patients must have two medical practitioners (including a specialist) certify that they are likely to die within one year to gain unrestricted tax free access to their superannuation balance. The Government will change this period to two years giving terminally ill patients earlier access to their superannuation.
3. Indexing the Age Pension to CPI
The Government will not proceed with the 2014-15 Budget measure Index Pension and Pension Equivalent Payments by the Consumer Price Index. Pension and pension equivalent payment rates will continue to be indexed under current arrangements - by the higher of the increases in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI) and benchmarked against Male Total Average Weekly Earnings (MTAWE).
This decision not to proceed with this controversial 2014-15 Budget measure will ensure the value of the Age Pension is maintained over time. It signifies that the Government has shifted focus to tighter means testing for the Age Pension to reduce their expenditure on aged income support.
If you have any questions about how these measure may impact you, please contact the team at Goodwin Chivas & Co.