Richard Livingston, The Sydney Morning Herald
Last month was budget month. It was a noisy affair, as ambulances rushed to a budget emergency, sirens wailing, running over low-income earners, medical patients and the elderly en route.
You probably saw that the pension age is increasing – from 67 to 70 between 2025 and 2035 – delaying access for those currently aged in their teens to mid 50s. But what you might have missed, while busily dodging the shrapnel flying off exploding promises, is that many people in their 60s who are about to retire will lose at least some of their aged pension come January 1 next year.
At the moment, superannuation isn’t subject to the same ‘deeming rules’ that apply to financial investments like shares and term deposits. Superannuation pensions get largely ignored (due to a fixed ‘deductible amount’) and many people on small to medium balances collect both a super pension and the aged pension. Under new laws passed before the budget (last November), this will change, with the deductible amount going and the deeming rules extended to super accounts.
In some cases you could argue that this is the right result. If we’re going to take income from elderly pensioners, and whack them $7 each time they have a prescription renewed, it’s fair enough that those with a reasonable super balance should also take a hit.
But this change doesn’t target those with a lot of super. The ‘deeming rules’ – which assess you, for Centrelink purposes, as earning income based on your assets – are a function of interest rates, which are currently suppressed. If interest rates return to more ‘normal’ levels, someone with a super balance less than $100,000, whose retirement planning has long factored in the aged pension, could find themselves missing out on some of it under the new rules.
What should you do about this change? The important thing to note is that (for those already on the aged pension, or some other payments) the new rules will only apply to super pensions commenced, or changed, from January 1. So if you’re already taking a super pension and the aged pension, they won’t affect you unless you make a switch.
Perversely, if you’re on the aged pension and have a decent super balance – for instance, a couple drawing $50,000 super pension from a $1 million account – the new rules are also unlikely to affect you, since you’ll be assessed for the aged pension under a different test (the Assets Test).
But if you’ve got a smaller super account and you’re about to commence a super pension, you could find yourself missing out. Some people might be better off under the new rules – for instance, those drawing down large proportions of their super balance (who’ll no longer be assessed on the large amount they’re spending, but the amount they’re ‘deemed’ to earn). Most won’t.
If you’re close to retirement, speak to your accountant, administrator or advisor and think about starting your super pension and applying for the aged pension before the end of the year. So long as you don’t change it in future, the new rules won’t apply.
The practical consequence of this is that you’d better be happy with the super you’ve got come New Year’s Eve. The exemption for existing super pensions, and the inability to change your super without losing it, will effectively lock many retirees into their current superannuation provider. Happy days for the finance industry, tough luck for retirees.
Richard Livingston is the managing director of Intelligent Investor Super Advisor, an online service providing advice on superannuation and investing. This article contains general investment advice only (under AFSL 282288).
Disclaimer: This editorial provides general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your particularly investment objectives, financial situation and individual needs. Charter Financial Planning and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this editorial. Charter Financial Planning Limited ABN 35 002 976 294 AFSL Licence No. 234665. Principal Address 750 Collins Street GPO Box 2830AA Melbourne VIC 3000.