Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 113

Adapting to new pension asset testing

Despite the rumours, superannuation and negative gearing were left untouched in last month’s Budget. However, the government announced a change in attitude to wealthy pensioners by amending the pension asset test thresholds and taper rate from 1 January 2017.

By increasing the level at which the pension starts to reduce due to assets, and by steepening the taper rate itself, they managed to increase the pension for many less affluent recipients while reducing it, or even removing it, from the wealthy ones.

Impact of the changes

For a single homeowner, the base will rise from $202,000 to $250,000 and for a homeowner couple it will rise from $286,500 to $375,000. The cut-off points will be around $535,000 for single homeowners, and $810,000 for homeowner couples.

These are approximate numbers, as the changes will not take effect until 2017, and the thresholds will be increased on 1 July each year by the CPI.

This will hit retirees with substantial assets hardest. An age pensioner couple with $750,000 of assessable assets should currently be receiving $602 a fortnight pension. Under the new rules, this would drop by $430 a fortnight, or $11,180 a year. That’s going to have a big impact on their budget.

Many people make the mistake of valuing non-investment assets at replacement value – they should be valued at second hand value. This would put a figure of $5,000 on most people’s furniture. The new taper figures mean that every $10,000 of assessable assets has an effect of $780 a year on the pension. Overvaluing your car and furniture by $50,000 will cost you $3900 a year in pension, whereas spending $100,000 on travel and house renovations (thus reducing your assets) will increase your pension by $7800 a year indexed for life. That's equivalent to a capital-guaranteed return of 7.8% per annum on your money.

You can also reduce your assets by gifting part of your money away, but seek advice before you do so. The Centrelink rules allow gifts of only $10,000 in a financial year with a maximum of $30,000 over five years. Using these rules a would-be pensioner could gift away $10,000 before 30 June and $10,000 just after it, and so reduce their assessable assets by $20,000.

A couple could also invest $12,000 each in funeral bonds, which are exempt under the assets test.

May not be the end of the changes

I was discussing the changes on radio recently and a listener pointed out that under the proposed rules, a person with $900,000 in assets would get no pension whatsoever, and if their money was in the bank earning 3%, the income generated would be just $27,000 a year. They contrasted this with the situation of a full pensioner with minimal assets, who would be getting $34,000 a year indexed.

It’s a valid point, but as I said to the listener, the person with $900,000 would be taking a very high risk if they kept their money in cash. They should have a diversified portfolio, which hopefully should be giving them at least 6%.

Yes, I am well aware that many retirees are risk averse – this is why I have been urging my readers for years to get acquainted with growth assets like shares at as early an age as possible. Doing this means they won’t panic and sell out when the market has one of its normal downturns.

One last piece of advice – be wary of spending unnecessary money just to get a higher pension. The fact that the government has been forced to back away from the hard decisions in the Budget is a clear indication that it may be many years before Australia's finances are restored – further cuts to welfare must be expected.

 

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. See www.noelwhittaker.com.au.

 

RELATED ARTICLES

12 tips for ‘aged care season’

Biggest change in the Aged Care Interest Rate since the GFC

Survey responses on pension eligibility for wealthy homeowners

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.