Centrelink changes to impact retirees
We usually discuss a range of financial issues in our monthly articles. This month we’ve decided to focus on the Centrelink changes as they will affect those retirees in your community or those that will be applying in the near future. Even if you aren’t receiving Centrelink you’ll appreciate the looming problem for many retirees.
Considering the significance of the changes to the Age Pension asset test from next January, we’re surprised that people are not taking action now to investigate solutions for what will be a major cash flow problem for many Centrelink recipients.
From 1 January 2017 the Age Pension asset test limit for a homeowner couple will be reduced from $1,175,000 down to $823,000. Currently a couple with $823,000 of assets outside their home receive a combined pension of $520.15 per fortnight or $13,523.90 per year. From 1 January 2017 this will be reduced to zero!
Single Aged Pensioners most affected
We believe that those most affected will be single Aged Pensioners, as their asset test upper limit will reduce from $788,250 to $547,000. This could mean losing $361.65 per fortnight or $9,402.90 per year in cash flow if their assets are valued at $547,000 on the 1st of January 2017.
The situation is even worse when a spouse dies. The remaining spouse becomes a single Aged Pensioner and the financial impact is even more severe. Assuming that person has the same assets as they did as a couple, they will be completely cut off if their assets are greater than the new maximum single threshold of $547,000 from January 1st.
Changes put pressure on retiree’s investment performance
The changes mean that many pensioners will be far more reliant on their investments to make up for the shortfall. These changes come at a time when interest rates are falling and there’s growing uncertainty with global financial markets. It could be a double whammy for many, especially single Aged Pensioners.
Pensioners will require advice around innovative and effective income solutions. The family home will become possibly their most important asset, especially in times of reduced cash flow and economic uncertainty. Many face reducing their living standard or fearing they live too long and run out of money.
Reverse Mortgage a possible solution?
One possible solution is a Reverse Mortgage, which is designed specifically for retirees where few other options are available. They can be designed to pay regular income, provide capital for those one off expenses, or simply as a facility to draw down on when funds are needed. Best of all, the loan can be set up to not affect Centrelink payments.