Change in Assets Test Affects Account Based Pensions
There will be two results from the new rules that apply to the assets test from January 1, 2017. As a result of the pension reduction factor increasing from $1.50 up to $3.00 for every $1000 over the lower asset limit, a couple’s entitlement to the age pension ceases once their assets exceed approximately $816,000.
Currently anyone who is not in receipt of an age pension is entitled to a Commonwealth Seniors Health Card if they pass the income test. Under that test a couple receive the CSHC if their annual income is less than $84,472.
As the health care card is one of the most prized possessions of anyone receiving the age pension the government announced anyone that loses this card, as a result of the change to the assets test, will effectively receive a CSHC without any income test applying in the future.
Another result of people losing the age pension will be the current treatment of account based pension, under the income test, will no longer apply if they became eligible for the age pension prior to January 1, 2015.
The treatment of an account based pension by Centrelink under the income test changed on January 1, 2015. Under this old test the net value of the account based pension was counted as income.
The amount counted by Centrelink was the value of the account based pension decreased by a deductible purchase price. The purchase price was calculated by dividing the value of your account based pension at the time it was commenced by your life expectancies.
Anyone that loses the age pension, and then becomes eligible under the assets test to receive it again, will be subject to the current income test. Under this income test the value of super pension accounts is added to all other financial assets, and this total value has the income deeming rates applied to it.
The current income test means the age pension ceases once a couple’s combined annual income exceeds $75,357. Under the deeming rates that apply currently a couple can have up to approximately $2.35 million in financial assets and still receive a small age pension.
This means unless someone has significant income in addition to the account based pension they should not be disadvantaged by the new income rules that will apply to account based pensions.