Budget 2015 | Superannuation and Retirement Changes
Superannuation
Early access for people with terminal Illness
The Government will increase the life expectancy period for patients with a terminal illness to 24 months from 1 July 2015, providing earlier access to superannuation benefits. Access will be granted where patients obtain certification from two medical practitioners (one being a relevant specialist) that they have a life expectancy period of less than 24 months, rather than 12 months at present.
Increase in supervisory levies
From 2015-16, the Government will increase the supervisory levies paid by financial institutions, over a four year period, to recover the cost of superannuation activities undertaken by the Australian Taxation Office (ATO) and Department of Human Services.
Reducing red tape on lost super
The Government will implement a package of measures from 1 July 2016 to reduce red tape for superannuation funds and individuals by removing redundant reporting obligations and by streamlining lost and unclaimed superannuation administrative arrangements. This will make it easier for individuals to find their lost and unclaimed superannuation.
Comment:
Importantly the Treasurer reiterated that there will be ’no new taxes on superannuation under this Government’, affirming there will be no changes to preservation ages or taxation of superannuation, such as a tax on pension earnings or an increase in contribution-related taxes
Retirement
Increase in Assets Test thresholds
From 1 January 2017, the Assets Test thresholds for the full pension will be increased. The current and proposed thresholds are detailed below:
| Assets Test threshold for full pension(20 March 2015) | Assets Test threshold for full pension (1 January 2017) | |
| Single, homeowner | $202,000 | $250,000 |
| Single, non-homeowner | $348,500 | $450,000 |
| Couple, homeowner | $286,500 | $375,000 |
| Couple, non-homeowner | $433,000 | $575,000 |
Comment:
An increase in the Assets Test thresholds for full pension means retirees can have a greater amount of assets (in addition to the family home) before their pension entitlement is reduced.
Increasing of the Assets Test taper rate
From 1 January 2017, the Assets Test taper rate will increase from $1.50 to $3.00, effectively reversing the 2007 decision to halve the taper rate at that time. The current and proposed thresholds are detailed below:
| Assets Test threshold for full pension (20 March 2015) | Assets Test threshold forfull pension (1 January 2017) | |
| Single, homeowner | $775,500 | $547,000 |
| Single, non-homeowner | $922,000 | $747,000 |
| Couple, homeowner | $1,151,500 | $823,000 |
| Couple, non-homeowner | $1,298,000 | $1,023,000 |
Comment:
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 HealthCare Card (for those under Age Pension age).
Impact of increase in Assets Test thresholds and taper rates on pensioners
- The proposed new taper rates and Assets Test thresholds mean some pensioners will receive a higher fortnightly pension, while others will see their pension reduced. The following table approximates the level of assets above which the pension (under the Assets Test) will reduce due to the proposed measures compared to current entitlements.
| Asset level above which pensions (under the Asset Test) are reduced due to the proposed Measures (from 1 January 2017) | |
| Single, homeowner | $289,500 |
| Single, non-homeowner | $537,000 |
| Couple, homeowner | $451,500 |
| Couple, non-homeowner | $699,000 |
- It may be appropriate to consider strategies which reduce assessable assets. For example, under the proposed changes a strategy which reduces assessable assets by $100,000 will increase the entitlement under the Assets Test by $7,800 per annum (($100,000/$1,000) x 3 x 26) or 7.80% versus 3.90% under the current rules.
- The higher Assets Test thresholds are also expected to increase the point at which a pensioner (with primarily financial assets) moves from being assessed under the Income Test to the Assets Test. This may provide an opportunity to consider strategies which help to reduce assessable income.
- The increase in Assets Test thresholds will increase the Extra Allowable Amount (EAA) from 1 January 2017. The EAA is the difference between the homeowner and non-homeowner Assets Test thresholds and is used to determine whether a pensioner is a homeowner or non-homeowner under the retirement village and granny flat rules.
| Current EAA | Proposed EAA from 1 January 2017 |
| $146,500 | $200,000 |
Impact on aged care residents
- Aged care residents with pensions reduced under the measures may see a reduction in their means-tested care fees (due to a reduction in overall assessable income), helping to minimise the impact of the new measures. Conversely, those who see an increase in their pension entitlements may see an increase in their annual means-tested care fees. The annual care fees may increase up to 50c for every $1 increase in their annual pension.
- Refundable Accommodation Deposits (RAD) are exempt assets under the Assets Test. The higher taper rate may lead to aged care residents being more likely to pay a RAD instead of a Daily Accommodation Payment (DAP) if the resident’s DAPs are based on an interest charge that is lower than 7.80% as calculated in the section above (currently DAPs are calculated as 6.36% of any outstanding accommodation payments – amounts not paid asa RAD).
- Similarly, new residents from 1 January 2017 may find it more attractive to ‘upgrade’ their accommodation and pay a higher RAD if the resident’s pension is still determined under the Assets Test after paying the RAD. Paying a higher RAD can also reduce means-tested care fees as RADs are not deemed under the aged care income assessment.
Pension indexation changes not proceeding
The Government has decided not to proceed with the proposed 2014-15 measure to link pension increases to inflation only. Payment rates will continue to be indexed under current arrangements by the higher of 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).
Deeming and Income Test threshold changes not proceeding
The Government will not proceed with the 2014-15 measures to reset the deeming thresholds and change the indexation of the pension Income Test thresholds and deeming thresholds.
The deeming thresholds remain $48,000 for singles and $79,600 for couples, and the pension Income Test thresholds and deeming thresholds will continue to be indexed annually by CPI.
Cap on defined benefit pension income deduction
The proportion of income that can be excluded from any Income Test (the deductible amount) will be capped at 10% from 1 January 2016.
Presently, some defined benefit members can reduce their assessable income, by up to half in some cases, by having a large proportion of their superannuation income excluded from the pension Income Test.
Recipients of Veterans’ Affairs pensions and/or defined benefit income streams paid by military superannuation funds are exempt from this measure.
