Should you have confidence? How the Budget affects your retirement plans
In the 2015/2016 Federal Budget, Treasurer Joe Hockey assured Australians that they could ‘have confidence in their retirement plans.’ He was quick to announce that there would be no changes to tax on super (for now). But he did propose some changes to the way the age pension is allocated and, depending on your asset level, these could have a significant impact on your retirement plans.
Under the proposed changes from 1 January 2017, the assets you can own (in addition to your family home) and still qualify for a full pension will increase – from $286,500 to $375,000 for couples, and from $202,000 to $250,000 for singles. Higher thresholds apply for non-homeowners. At the same time, the maximum value of assets you can hold and still qualify for a part pension would be reduced, and the taper rate would double, meaning that for every $1,000 in assets you hold above the threshold, your fortnightly payments would be reduced by $3 (currently $1.50).
This means that while a homeowning couple can currently have up to $1,151,500 of assets (in addition to the family home) and still qualify for a part-pension, from 1 January 2017 this amount will fall to $823,000 (for singles this cut-off falls from $775,500 to $547,000). Again, higher thresholds apply for non-homeowners.
If the changes are passed (which now appears likely following a deal with the Greens), pensioners who are better off will be required to spend more of their private savings to maintain their current income levels, while the government will continue to support lower income retirees. According to the government, 91,000 retirees will no longer qualify for the age pension, and 235,000 will have their pension reduced.So what about Joe Hockey’s claim that Australians could have confidence in their retirement plans? Well, that differs from person to person. Those with reasonable asset levels are the worst affected, as they’re the ones who will have their pension cut or reduced. If you’ve been working towards a modest retirement, assuming the age pension would make up a certain percentage of your income, you may need higher levels of private savings to make sure you have enough income to maintain your lifestyle for the same period. The bottom line is you’ll need to save more, which might mean pushing back your retirement and putting stricter saving measures in place now.