Federal Budget and EOFY
—-
While many of the biggest changes are still a few years away, the 2014 Budget is set to have a big impact on Australia’s retirees. Here’s an overview of the three most important changes if you’re retired or about to retire
1. Changes to the Commonwealth Seniors’ Health Card
How it works today
The Commonwealth Seniors’ Health Card gives self-funded retirees concessions on Pharmaceutical Benefits Scheme (PBS)-listed medicines, lower out-of-pocket hospital expenses plus a range of other benefits, like transport concessions.
Currently, the card is available to you if you’re a single retiree with an adjusted taxable income up to $50,000, or you’re in a couple with a combined income up to $80,000 (or $100,000 if you are separated by illness or respite care).
Retirees without big account-based pension balances, but who have other Adjusted Taxable Income, could miss out on the valuable concessions that a Seniors’ Health Card provides.
What’s changing
From 1 January 2015, account-based pensions (ABPs) will be subject to deeming and the deemed amount will be included in the card income test. While this won’t affect you if you already have an account-based pension and you currently hold a card, it will stop many new retirees from getting a card.
But from June 2014, card-holders will no longer receive the Seniors’ Supplement, currently worth $876.20 a year for singles or couples separated due to illness and $660.40 a year (each) for couples living together.
On the bright side, from September 2014 the income thresholds used to test eligibility for the card will be indexed to the Consumer Price Index (CPI), so they will automatically increase in line with inflation, rather than remaining the same until the Government decides to change them.
What it means for you
If you’re a self-funded retiree, or soon to become one, you may notice a big impact. Based on current deeming rates, single retirees with pension accounts worth more than $1,448,543, and couples with a combined pension account worth $2,318,886, will no longer be eligible for new cards.
You could also be affected if you receive other Adjusted Taxable Income, including payments from untaxed Government schemes or foreign pensions, even if you have a lower pension balance.
And if you’re an existing cardholder, you might find yourself effectively locked into your current account-based pension provider. That’s because changing providers after 1 January 2015 will lead to the new pension being deemed for card purposes.
2. Pensions to be indexed to CPI
How it works today
Currently, a number of pensions are increased every six months in line with changes in Male Total Average Weekly Earnings, the Pensioner and Beneficiary Living Cost Index or CPI, whichever is higher. They include the Age Pension, Disability Support Pension, Carer Payment, Bereavement Allowance and Veterans’ Affairs pensions.
What’s changing
From 1 September 2017, these pensions will increase in line with changes in CPI only.
What it means for you
Because wages generally climb faster than CPI, this change is likely to see pensions increase more slowly, significantly eroding pensioners’ purchasing power over time.
3. Deeming rate thresholds to fall
How it works today
The deeming rules are used to calculate retirees’ incomes to decide whether they are eligible for the Age Pension and other benefits. The rules assume investments earn a certain amount of income, regardless of the amount they actually earn.
Currently, the rules for single retirees assume that the first $46,600 of their financial investments earn 2% per year, with amounts above that threshold assumed to earn 3.5% per year. Similar thresholds apply for couples: a combined $77,400 for pensioner couples and $38,700 each for couples where both members are receiving Government allowances.
What’s changing
From 20 September, 2017, the deeming thresholds will be reset to $30,000 for singles and $50,000 for couples (for both pensioners and allowance holders). That means a larger portion of retirees’ investments will be assumed to earn income at the higher rate.
What it means for you
The changes will make it harder to qualify for an Age Pension and other allowances because more of your assets will be assessed for the purpose of the income test.
Older people subject to income-tested residential aged care or home care fees may also be affected.
This measure will also impact holders of account based pensions affected by recent legislative changes that will see account based pensions subject to deeming rules from 1 January 2015.
Keep in mind though that these changes are still only proposals, and could be altered before they are passed into law. And don’t forget, if you need any advice, you can consult your financial adviser.
—-
End of financial year strategies
With the end of the financial year fast approaching, it’s a good opportunity to have your super savings reviewed by a superannuation expert. A simple conversation today could help you build for a better lifestyle tomorrow – as well as keep a few more tax dollars in your pocket this financial year.
Do you want to boost your super and reduce your tax?
Salary sacrificing could help boost your super and reduce your tax at the same time. Concessional (pre-tax) contributions (including Super Guarantee Contributions which you may receive from your employer) are capped at $25,000 (under age 60) and $35,000 (age 60 and over) for the 2013-14 financial year.
Did you earn less than $48,516 this financial year?
If you make an after tax contribution to your super before 30 June 2014 you may be eligible for the Government co-contribution of up to $500.
Do you have a lump sum to invest?
You could consider making a personal after-tax contribution of up to $150,000 during the 2013/14 financial year to help boost your super (until age 65, and/or from age 65 to 74 if you meet the work test).