The changes to the Centrelink assets test for pensions from 1 January 2017 are going to have an impact on many more than the 326,300 people currently receiving the pension who will have their pensions cancelled or reduced in the New Year.
The age pension will often be an integral part of our clients’ retirement planning strategy where the pension or part pension will provide a guaranteed base level of income which is supplemented with flexible account based pensions from their superannuation and other savings. If the amount of the age pension you can receive is reduced then we need to start planning now to be more self-reliant in retirement.
John is 48 and Sarah is 44, they are married and are paying off their home. Through employer superannuation and some salary sacrifice contributions they are on track to have the mortgage paid off and about $700,000 in savings by the time they retire when John is 67. Under the current rules they would receive about $17,866 per year from the age pension which means that their superannuation will make up the difference to the $60,000 per year they want to retire on.
The new assets test rules mean that John and Sarah would have their future pensions reduced by $9,692 per year. To replace that lost income from their superannuation savings they will need an extra $126,000 in 19 years’ time. If they are balanced growth investors this means they will need to save an extra $273 per month in order to maintain their current retirement plan.
As with most of these issues early action can make a real difference. If John and Sarah waited just 4 years to address the shortfall then they would need to save an extra $406 per month.
This is just one more example of why regular strategic reviews are so important. An integral part of our review process over the next 12 months will be adjusting retirement plans to take into account the new age pension rules.
The changes take effect on 1 January. Above is a short video to explain some of the changes from the Department of Human Services.
If you are concerned about how the new pension rules will impact on you or on a member of your family or you would like to look at how you may need to adjust your long term plans speak to your financial planner.
Have a question on the changes? Drop a message in the comment section below and myself or one of the team from All Financial Services can contact you to help you with your query.
All Financial Services (South) Pty Ltd, Corporate Authorised Representative No. 327529 ABN 98 131 364 353 are Corporate Authorised Representatives of Aon Hewitt Financial Advice Ltd (ABN 13 91 642), who holds an Australian Financial Services Licence (no. 239183) Level 33, 201 Kent Street, Sydney NSW 2000.