Important changes to the Centrelink age pension in 2017

From 1 January 2017, there are some important changes to the Centrelink age pension changes that could impact your benefits and warrant some pre-emptive action.

What’s changing?

The lower asset threshold that determines your eligibility for the full Centrelink age pension will increase. This threshold varies, depending on your relationship status and whether or not you own a home. It is also indexed periodically by the Government. To find the current thresholds visit .http://www.humanservices.gov.au/

The age pension payable will also be reduced by $3, for every $1,000 you hold in assets above this threshold. The current reduction amount, known as the ‘taper rate’, is $1.50 per $1,000.

How will these changes impact your entitlements?

Currently, your age pension entitlements are assessed under both an income and assets test and the impact of these assets test changes will depend on a range of factors. Generally speaking, you will:

not be impacted if your assessable assets are well below the current and 2017 thresholds, at which the full pension entitlement starts to reduce
receive higher payments if you only have assets which are not classified as ‘financial investments’, and your age pension entitlement is determined by the assets test
receive lower payments if your financial investments are above the current threshold whereby the full pension starts to reduce, but below the amount that will apply from 1 January 2017, and lose your entitlement altogether if your assets exceed the threshold from 1 July 2017 where the age pension payments will cease completely.

Broader implications

The thresholds apply exclusively to home-owning couples and the dollar values would be different if you are single and/or not a home-owner. The best way to determine how you may be affected is to make an appointment with your adviser to review your financial position. The earlier you do this, the more you may be able to take advantage of strategies that could retain your current entitlement, increase your entitlement and improve your overall financial position.

Strategies that could help you

Strategies you may benefit from could include:

  • improving or upgrading your home
  • pre-paying your funeral expenses, and
  • gifting money within the permitted limits to relatives or others.

But great care should be taken when considering strategies that could dramatically lower your assessable assets, as they may be short-sighted. For example, if the income test deeming rates (which are at historically low levels) were to rise significantly the benefits of reducing your assessable assets, could be reduced considerably. To find out how the changes could impact you and discuss strategies that may assist you, contact your Adviser.

Source: NAB Group

 

Australian with Super Age pension eligibility concern

If you are an Australian approaching retirement with Superannuation and you are concerned about what your age pension eligibility may be there are a number of things that you can do.

Obviously you can see your local financial planner and they will be able to assist with strategies that will assist you in maximising your age pension benefits.

You can contact Centrelink and ask to see a Financial Information Service (FIS) officer and they will explain to you what the rules are and what strategies you should consider to maximise your age pension entitlements. The FIS officers cannot give advice however they can explain the types of products or strategies that you can use. They will generally then tell you to go and see a financial planner to get more advice if they feel that you will benefit from getting detailed advice directly related to your circumstances.

There are also calculators on the ASIC website and hopefully we will be able to build links into our site here so that you will be able to get the information that you require here without going elsewhere however the smart money website has good calculators and you can copy  the address and put it in your browser and that will give you some good information.  https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/super-and-pension-age-calculator

We certainly think there is great benefits in taking specialist advice relating to your retirement planning however there is nothing wrong with doing some base research before you engage a planner as having some base knowledge will always be of great assistance to you.

 

Annuities as part of Retirement Income

This was a great ABC interview with Challenger CEO Brian Benari. We use annuities in our retirement plans for clients to produce secure income in retirement.

The tone of this interview in the early stages suggests the government may change the rules regarding the use of annuities in the future. Are you planning to receive 100% lump sum to repay your home loan at retirement ? That may not be a good plan. The Government after concentrating for the past 20 years on getting money into superannuation are now starting to ponder what should be done with that capital at retirement.

What the Government does not want (Liberal or ALP) is people taking large home loans for big houses just before retirement and then using the super balance to repay the home loan and then having no assessable assets and then get the full age pension. This was never the plan for superannuation and there is not a lot of evidence that this has happened in the past however the government certainly does not want this to happen in the future.

This is not a good strategy anyway as you would have an expensive house and no money to enjoy living in the home or travelling or doing anything else and certainly the Murray review has triggered the Government to give some consideration to what superannuation should look like in the future.

What do you think

 

 

http://www.abc.net.au/news/2015-11-02/challenger’s-ceo-on-superannuation-system/6906626

 

 

Annuities as Retirement income strategy

This was a great ABC interview with Challenger CEO Brian Benari. We use annuities in our retirement plans for clients to produce secure income in retirement.

The tone of this interview in the early stages suggests the government may change the rules regarding the use of annuities in the future. Are you planning to receive 100% lump sum to repay your home loan at retirement ? That may not be a good plan. The Government after concentrating for the past 20 years on getting money into superannuation are now starting to ponder what should be done with that capital at retirement.

What the Government does not want (Liberal or ALP) is people taking large home loans for big houses just before retirement and then using the super balance to repay the home loan and then having no assessable assets and then get the full age pension. This was never the plan for superannuation and there is not a lot of evidence that this has happened in the past however the government certainly does not want this to happen in the future.

This is not a good strategy anyway as you would have an expensive house and no money to enjoy living in the home or travelling or doing anything else and certainly the Murray review has triggered the Government to give some consideration to what superannuation should look like in the future.

What do you think

http://www.abc.net.au/news/2015-11-02/challenger’s-ceo-on-superannuation-system/6906626

Salary Sacrifice to Super or Repay home loan what is best

It was good to see the Channel 7 news in Perth show a good Financial Planning story in the Sunday night news on 26 July 2015 relating to salary sacrificing to super or repaying your home loan and what is best.

 

 

Have a look at the story and you might also see some familiar faces and very happy 25 year clients who are very happy with the financial advice they have received during that time despite a lot of economic calamities.

Common Retirement Issues – Retirement spending

A recurring discussion i have with people in retirement revolves around spending money on themselves be that for holidays, new cars and other comfortable items around the home.

This is not with every person or couple however with a good number of people there is an issue they have even though they may have looked after their own families, possibly financially looked after their parents as they too got older and some have been in business and employed people to assist them in raising their families. Now at retirement they have a good level of assets which have the capacity to produce reasonable retirement income.

This is the golden years of life and these people have the assets and the time free of past obligations however there is a strong restriction on their lifestyle. The restriction is their own thought process and value system.

Remarkably there is approximately 10-20% of people that find it very difficult in retirement to spend money on holidays, new cars air conditioners and lots of other life comforts etc and this is because they feel that spending money on themselves is “selfish”. This comes from couples or even worse singles. How can a single be selfish with their own money ? What else can you do with your money if you cannot spend it on yourself.

These people are happy to give their money to their children or take the children on holidays to where ever the children want to go however will not go to places that they have always dreamed of because they feel selfish.

The other condition that rears its head at retirement after 40 or 50 years of work is the people that “Feel Guilty” spending money as they are not earning any money. This is  difficult  at retirement allowing that you could be retired for over 30 years so that is a long time to feel guilty.

How will you prepare for retirement and how will you feel when you finally stop work. You will be surprised at how difficult it is to stop work and rely on these things called assets to look after you in retirement. You will also get very sensitive to how much things cost and whether you are spending the income that your assets are producing or you are now eating into the capital that you have accumulated.

We work with people pre retirement to try and get them accustomed to the casflow from investments and to see that the income coming through well ahead of retirement irrespective of the headlines or what you see in the media.

Plan for your retirement before you get there. Plan how much money that you need to sustain your lifestyle and then work out what assets you have and how long will they last during your retirement. If you dont have enough money it is better to know that 5 years before retirement than 2 weeks after. When you have time you can take action to improve things and that includes spending money on yourself for things that you enjoy doing.

You have one life and if you are lucky enough to get close to retirement you need to relax and enjoy yourself and enjoy the assets that you have accumulated as that is the reason you saved your money in the first place.  Dont feel guilty you are not selfish you are human and you will not go from a careful or frugal person to a spendthrift so your children will inherit good money and you can have a good time as well.

Remember: it is never too early to start planning.

 

Superannuation funds and poor service

Imagine you have been in your employer superannuation fund for over 40 years. You are now looking to turn on your superannuation pension to assist in paying down your home loan. Your adviser who is experienced in these matters advise that there are funds around that are more cost effective than your employer fund and they normally offer much better client experience.

Given the importance of getting the pension payment is more important than the choice of fund the paperwork is taken to the employer fund in the last week in May to roll the superannuation to pension and requesting a pension payment before the end of June.

You would think in this age of technology that would be enough time for a super fund provider to roll a persons superannuation fund to a pension fund in the same stable and have a pension payment prior to the 30 June.  4 weeks you would think that is plenty of time.

Unfortunately this fund say they cannot get their systems organised to get a pension payment out within the month. If the person wanted to take a lump sum payment that would be okay however a pension payment is not possible. Is it only me or is that nonsensical.

What sort of service is this for the members of the fund.

Beware of your fund they are not all the same. Some offer good customer service and others think the money is theirs and not yours and you should not take the money out for any purpose. You deserve a fund that is happy to have you as a client and will respond to your requirements as quickly as possible. There is plenty of them around happy to have you as a member.

 

Actuaries say fix super now !!

What the hell are the actuaries on about when they say fix super now ? What is wrong with super that needs to be fixed. When you read the article you find the article is not about superannuation at all it is about tax.

What the actuaries are talking about is increase the tax on superannuation for the high income earners. They want to reduce the definition of a high income earner from $300,000 pa to $180,000 pa.

My question is if you increase the tax on superannuation contributions wont that reduce the amount of money in superannuation ? Is that at odds with the objective of superannuation which is to grow a larger pool of assets to fund retirement. That is the purpose of superannuation.

The actuaries are confused when they say fix super now. What they are saying for reasons known only to them is that the Government should use higher superannuation contribution taxes to fix the budget black hole. Now that superannuation has grown from basically $0 to approx $2 trillion dollars over 25 odd years now is not the time to encourage Governments to start taking more money out of the superannuation system. Where will it stop and who trusts the government to look after them in retirement.

To say now is the time to fix super is misleading. There is nothing wrong with superannuation and this article has everything to do with budget repair and nothing to do with superannuation and it is no wonder the public get concerned where you have reputable organisations making cheap politically motivated statements about superannuation that have nothing to do with superannuation at all or how well it is going.

Here is a question for the actuaries to consider, If the superannuation system was to grow from $2,0 Trillion dollars to $6.0 Trillion in the next 30 years what would be required for that to happen and how would that impact the government, its tax collections and Centrelink payments? That is something that would be useful to know and is right in the zone of the professional actuary.  Superannuation is only ever discussed in Australia in light of taxes and that is totally misrepresenting the value that superannuation brings to the Australian economy.

The actuaries should not be lowering themselves into cheap political statements that do very little in the short term to fix a massive problem being government spending and the Governments complete lack of control over their spending. That would appear to be government on both sides of the spectrum.

Keep superannuation as a retirement incomes strategy and not a government deficit solution.

Life incidents and TPD and Income Protection Insurance

It is late in the last quarter of an amateur footy match and the scores are close. The pressure is on and a finger gets hurt during a tackle. It hurts a bit however the adrenaline is flowing so play on. Later that night there is not a lot of movement in the finger however no pain. No pain is good however no movement not so good. Off to hospital next morning and outcome is it is not broken so wait to see if the movement returns over the next 6 -8 weeks otherwise surgery will probably be required as in that case it is likely to be a ruptured tendon and that can only be repaired surgically should that be the case.

In this case the player has medical training and knows that if the tendon has been ruptured it should be repaired ASAP as the longer you wait the less chance of full movement being returned to the finger. This person is a Physiotherapist so it is very important that full movement is restored to the finger otherwise they will not be able to do their job with the same effectiveness as previously. Imagine if they were  a surgeon.

This highlights the difference in an insurance context between own occupation Total Permanent Disablement insurance cover (TPD) and Any Occupation TPD. As a physio or surgeon restricted movement in your fingers make it difficult or impossible to do the normal duties of the occupation that you have been trained to do. You could do other occupations even within the hospital environment such as being an Orderly or general cleaning however that is not what your years at Uni was about.

Imagine if the footballer had TPD cover Own Occupation in their super fund. In this case they have the correct insurance however in the wrong place. Being a footballer you can imagine they are under 30 years of age. Being a Physio or a Surgeon it is not hard to see if the one injured finger was two or three fingers there is no hope of working again in their profession so they get the TPD payout from the insurer however they cannot get the money out of the superannuation fund as it does not meet a condition of release from the super fund based on the SIS legislation as they are not Totally Permanently Disabled under the any occupation definition.

It is very important to have the right cover for you in the correct place and a call center or online application will not give you that advice. It also depends on  your job. I am a financial planner and had a business partner some years ago that lost two fingers and restricted movement in a third finger after an incident with an angle grinder on the weekend. (underlying message of this blog is dont have a life on the weekend) and that made no difference to his working life when he eventually returned to work after his recuperation and IP claim however would be devastating to someone in a different occupation where you need to use your hands and fingers such as some medico’s dentists and a lot of tradies.

That brings us to the income protections policy (IP). The standard in a lot of big employer funds is that you get your salary continuance after a 90 day wait. A lot of times there is also a set amount of cover that you are protected for however it has no relevance to your monthly income and in a lot of cases will not meet your home loan repayment let alone your normal cost of living.

In this case the person will be off work for 6 weeks after the surgery or 42 days. They could have a personal Income protection policy that commences a payout after 30 days and also provides benefits if you go back to work on limited duties. In that case it could payout the difference between your income on limited duties and the monthly amount that you are covered for. Income protection or salary continuance cover (two names for the same thing) is very important to have as it works together with the TPD insurance and assists in covering the gaps. In this real case the person is 22. What happens if the finger injury does not heal as it should and it has a material impact on their capacity to do their job. In that case they would not have paid the HECS on the Physio degree and can no longer work as a Physio. The HECS is still due and you dont have the earning capacity anymore.

If you imagine the surgeon or physio that can no longer work in their profession because of an injury they could work at a Uni as a lecturer however that income could be less than what they would earn in private practice in their profession. In that case the professional may have received an Own occupation TPD payout and they could also receive a top up from their Income Protection policy if the income that they earn in their new job or occupation is less than what they were earning when they were a physio or a surgeon.

The question you need to ask yourself is ” Do i have an occupation that i studied for or had specialised training to get my qualification ?” (Eg how does a bricklayer go with limited use of the fingers although insurers have different issues with bricklayers and IP)  If that answer is yes then you should look at having own occupation TPD not any occupation and that policy should be in your own name.

When considering your insurance options you should always assume that something happened yesterday to give rise to you making a claim. With that in mind what do you want to happen next.