Several new restrictions on pension eligibility and payments will take effect as of 1 January, having been passed through parliament back in 2015.
The cuts are expected to affect 325,000 pensioners, with Industry Super Australia stating that the changes will have the greatest impact upon low- to middle-income retirees. Many pensioners are expected to end up living off less than the full pension, due to low interest rates resulting in lower investment returns.
There are two major changes being introduced: a reduction in the upper limit for the asset means test, and a doubling of the pension taper rate on assets. The asset threshold will drop significantly to $542,500 from $793,750 for single retirees, and to $816,000 from $1,178,500 for couples. Beyond this threshold, partial Age Pension payments are stopped, meaning more retirees and couples will be affected.
The second major change is an increase in the pension taper rate from $1.50 to $3.00. This means that for every $1000 of assets beyond the assets free area, the pension is reduced by another $3/fortnight ($78/year).
To compensate in part, the limit of the assets test free area – below which people receive the full pension – is being increased, from $209,000 to $250,000 for singles and from $296,500 to $375,000 for couples. The full Age Pension remains unchanged, at a maximum of $877/fortnight for singles and $661/fortnight for each member of a couple.
According to Industry Super Australia’s Chief Executive David Whiteley, the changes are an ill-advised step that will disproportionately tighten the budgets less wealthy Australians.
“These changes will heighten existing weaknesses and disproportionately hit low to middle income retirees well into the future,” said Mr Whiteley.
“For most Australians, these changes mean working longer, retiring with less, or saving more. Industry Super is calling on government to revise the taper rate down to $2 per fortnight.”
According to AMP, approximately 50,000 additional Australians will begin receiving the full age pension, but around 300,000 part pensioners will see their payments reduced. Another 100,000 will lose their pension payments entirely.
“The new settings provide perverse incentives to splash out on a cruise or renovate the family home rather than save,” Mr Whiteley stated.
“It is not as simple as giving assets away to children or grandkids, as gifting restrictions can also affect pension eligibility.
“Retirees will need to see how the changes affect them personally in the New Year and should seek financial advice if they are unsure,” he said.