With changes to the pension test coming into full effect on 1 January next year, Colonial First State executive manager Craig Day says it’s essential that Aussies – especially those in SMSFs – nearing or already in retirement review their portfolios now.
“Retirees that have accumulated that level of assets inside super, depending on what other assessable assets they have, they’re the kind of people who may be most impacted by these changes,” Mr Day said.
Under the new rules, lower assets test thresholds will be increased, but retirees will lose $3 per fortnight of the age pension for every $1,000 they have in assets above the threshold. This is double the $1.50 per fortnight reduction that currently applies.
The changes will ultimately adjust the amount retirees can hold in assets such as cars, superannuation, bank accounts and investment properties to retain the age pension. The family home is exempt.
“For example, if you look at a couple home owner aged 65 at the moment, they can have combined assessable assets up to $1,178, 500 and they would still qualify for at least a part pension. However, as of 1 January 2017, this limit will reduce substantially back down to $816,000,” Mr Day said.
To that end, trustees are encouraged to make that review now while they still have time to implement necessary changes to their investment strategy.
“They have to think, do they need to adjust their spending habits and compromise their quality of life or do they look at increasing the drawdown from their account-based pensions which may be funded from their SMSF which will also require them to look at their asset mix and their investment strategy,” Mr Day said.
“Reducing spending just won’t be appropriate for some, while increasing the drawdown will mean reviewing whether the longevity of the fund will be sufficient.”
There are several ways SMSFs may reduce their assessable assets, and in doing so, soften the impact of the changes, according to CBA executive general manager Linda Elkins.
“For couples with one spouse under the pension age, withdrawing part of the older person’s superannuation account and re-contributing it to the younger person’s account may result in a reduction of assets, as superannuation is exempt in the accumulation phase until they reach pension age,” Ms Elkins said.
Trustees can gift up to $30,000 over five years to children and grandchildren or pre-pay funeral expenses up to $12,500 to reduce their assessable assets, among other strategies.