It's time for some straight talk on the age pension. Yes, the age pension assets test is being tightened, and some pensioners will lose all or part of their pension come January 1, but we still have one of the most generous age pension systems in the world.
Think about it – even after January, a couple living in a million-dollar mansion and with $800,000 in financial assets such as superannuation can qualify for a part pension and all the goodies that go with it. For a single home owner the cut-off figure for assessable assets is $542,500.
![Wasting money to upsize your pension payments doesn't make good financial sense.](/web/20161209043147im_/http://www.theage.com.au/content/dam/images/g/j/1/m/m/1/image.related.articleLeadwide.620x349.gt74qs.png/1481234414450.jpg)
So the first question any rational observer would ask is why a person with $800,000 should be putting their hands out for welfare when Australia is in such a parlous financial state that it has to borrow $1 billion every month just to keep going.
It may be useful to revisit some of the history. In late 2006 the asset cut-off point for a single home owner was $317,750 and for a couple $490,500. No age pension was payable if assessable assets exceeded these figures.
In May 2007 the Howard Costello government observed that many people were going to extreme lengths to keep a tiny portion of the age pension just to get the health card. Accordingly, mainly with the intention of making the health card accessible to most retirees, they halved the taper rate for the assets test effective at September 20, 2007. Amidst much rejoicing, the cut-off point for couples leapt to $783,000, and for singles to $477,000.
Indexation since then has taken the numbers to the present levels of $1,178,500 for couples and $793,750 for singles. These are the cut-off points that will be reduced to $816,000 and $542,500 in January. The government has announced that anybody who loses the pension as a result of the tightening of the assets test will still retain the health card.
In 2015 the Abbott government tried to rein in the billowing welfare bill by changing the rate of automatic increase in the age pension from average weekly earnings to cost of living – this would have reduced the rate of increase from about 4 per cent a year to 2 per cent. Labor and the Greens ran a scare campaign alleging the government was cutting pensions, when all they doing were cutting how fast they increased. But the scare campaign won, and the change was dropped.
Predictably, we have had a plethora of articles from people who should know better urging pensioners not to take this latest pension change lying down and to spend their superannuation on anything from upsizing the family home, or extensive renovations, to blowing money on a trip.
The argument is that every $100,000 of assets that a pensioner can enjoy spending is worth an extra $7800 a year – equivalent to a 7.8 per cent return and far better than money in the bank.
Well, yes, but think of it another way. If disposing of $100,000 produces $7800 a year in extra pension, it would take almost 13 years to get your money back. Who in their right mind would do that?
But there is another potential problem for anybody considering disposing of assets to get a higher pension. I believe the present system is unsustainable – and it's odds-on that further tightening of pensions will happen sooner rather than later. This may be by further tightening eligibility, or by finding some way to assess the family home.
Anybody who believes they may be affected by the changes should go to my website, noelwhittaker.com.au, and calculate their situation. First, use the deeming calculator then the age pension calculator. At least then you will be able to plan for your changed circumstances.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au.
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