Under review: Welfare spending is in the sights of the Coalition, and that means changes to the age pension.
Anyone who currently receives, or is hoping to receive, some form of benefit from Centrelink could rightfully feel under attack right now. The release of the findings of an interim review into Australia welfare system, commissioned by the Abbott government, stresses the importance of it being sustainable.
This review comes hard on the heels of three changes that the Coalition wants to make to eligibility for the age pension. Whether a person receives the age pension, and how much of the age pension they receive, depends on three tests being passed. The first is the age test, the second is the assets test, and the last is the income test. If the age test is not passed there is no entitlement to the age pension.
Currently for those born before July 1, 1952 the age test is 65. This then increases in half-yearly increments to 67 for those born after January 1, 1957. Under the Coalition’s budget measure, people born between July 1, 1958 and December 31, 1959 will have a qualifying age of 67.5. The qualifying age will then increase to 70 for everyone born after January 1, 1966.
For a person to receive the maximum age pension the total value of their assets, excluding the value of their home, must be less than $196,750 if they are single and $279,000 for a couple. For non-home owners a single person’s assets must be less than $339,250, and for a couple it must be less than $421,500.
The assets test limit for home owners at which no age pension is received is currently $758,750 for a single person and $1,126,500 for a couple. For non-home owners this asset test is $901,250 for a single person and $1,269,000 for a couple. The second budget measure plans to freeze the assets test limits for three years from July 1, 2017. By freezing these thresholds, as the value of pensioner’s assets increase over the three-year period, more people will no longer be on the full pension and some will lose their entitlement to the age pension altogether.
Under the income test where a singles person’s income is below $156 a fortnight they are entitled to the full pension, and for a couple this is $276 a fortnight. The income level at which the age pension ceases altogether is $1841.60 a fortnight for a single person and $2817.20 for a couple.
The amount of income counted under this test is not the actual income earned from financial assets but the deemed income. Financial assets include bank accounts, shares, term deposits, managed investments, and superannuation balances for people of pension age.
The deeming test imposes earnings rates on financial assets of pensioners. This is done by deeming a low income rate up to a certain asset level, and then a higher income rate above that level. The current deeming rates for single people is 2 per cent on the first $46,600 of financial assets and then 3.5 per cent for assets above this level. For couples it is 2 per cent up to financial assets worth $77,400 and 3.5 per cent on the excess.
If this final budget measure is passed the financial assets level will reduce in July 2017 to $30,000 for singles and $50,000 for couples. This will mean, based on the current deeming rates, singles will automatically be regarded as earning an extra $96 a fortnight and couples an extra $79 each. This will mean, if they are already affected by the income test, there would be reduction in the age pension for singles of $48 a fortnight and $39.50 for each member of a couple.
Max Newnham is the founder of smsfsurvivalcentre.com.au