20 May 2017
Relief is on the way for at least 100,000 retirees who recently suffered age pension cancellations. On January 1, Centrelink reduced the maximum assets retirees could hold and be eligible for the age pension.
The cut shaved hundreds of thousands off the assets test and resulted in this relatively large group having their pension concession card cancelled.
But courtesy of the federal budget, this group of retirees will now be issued with new pension concession cards to restore some of the benefits lost. So what is the pension concession card and why do so many people want it?
It is the most important card in many people’s wallets and can result in discounts and concessions worth thousands of dollars per year. The pension concession card gives people cheaper healthcare and lowers the costs of some goods and services.
Discounted prescription medicine through the Pharmaceutical Benefits Scheme is a key feature for those with the card and Sydney certified practising accountant Luke Star, from Star and Associates, says “even though some retirees have substantial savings north of $500,000, as we get older, our health changes and it seems to provide a level of comfort in knowing that medical costs will not rapidly eat into retirement savings due to the medical concessions afforded from the pension concession card”.
There are also other significant discounts outside medical benefits. Exact discounts vary state to state and also depend on which local government area you reside in, but below is a list of some of the main expenses that receive discounts:
- Council property rates and charges;
- Electricity and gas bills;
- Water bills;
- Vehicle registration;
- Licence renewal;
Even if you are not of pension age and have a high level of savings, there are a few strategies to posture and manoeuvre assets in such a way to fall under the limits for an age pension when eligible in the future. The reason to consider doing so is to receive the highly desirable pension concession card. Star says “the benefits can add up to thousands of dollars per year. So for many people, particularly those with health issues, the difference in receiving this card or not is substantial in retirement”.
In terms of deliberately reducing assets to fall under the assets test to receive the age pension and the pension concession card, Sydney financial planner Xavier Lo says “even after Centrelink reduced the maximum asset level in January 2017, the limits to receive a part age pension remain generous. There are legitimate strategies people can employ if they are just over the cap test to fall below it to receive the age pension and associated benefits”.
Even though the age pension payment may only be a few dollars per fortnight, the bigger benefit comes from receiving the pension concession card, issued to recipients of the age pension.
Lo says there are a few common ways for people approaching or in retirement to reduce assessable assets and increase the chance of being eligible for an age pension. “Gifting is one popular strategy, however gifting limits need to be kept in mind.” A limit of $10,000 per year can be gifted up to $30,000 over a five-year period to reduce assets. Any money gifted above these limits are treated as deprived assets and still counted in the asset test calculation for five years, even though the money has already been gifted away.
Of course, gifting large chunks of your retirement savings for the sole purpose of getting an age pension and pension concession card may not be a prudent move as it may leave you short in retirement.
Another popular strategy is to spend on renovations to the family home, which is not counted in the calculation when Centrelink work out your level of assessable assets for the age pension.
Lo says “doing those long overdue kitchen and bathroom renovations may not only give you a nicer house, but may result in being eligible for age pension benefits”.
The federal budget measure to reinstate the pension concession card to the 100,00 people who lost it earlier in the year comes as welcome news, however it is subject to the passage of legislation before being rolled out.
For those who are over the assets test, there are ways to reduce wealth and sneak under the maximum caps. However, one must consider whether it is sensible to do so and whether it will backfire over time, with not enough savings left to enjoy a full and financially secure retirement.
The current maximum assets people can have to be eligible for a part age pension are $546,250 for singles and $821,500 for couples who are homeowners. For non- homeowners the limits for singles are $746,250 and for couples it is $1,021,500.
James Gerrard is the principal and director of independently owned Sydney financial planning firm FinancialAdvisor.com.au.