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Are you ready for the upcoming changes to the aged pension test?

14 Dec 2016

The asset test (together with the income test) is used to determine a person’s eligibility to receive a pension. Under the asset test, if the value of a person’s assets exceeds the relevant threshold amount, their entitlement to receive a pension is reduced until they are not entitled to receive any pension at all.

On 1 January 2017 changes to the asset test for determining eligibility for government pensions will come into effect, including:

  • the thresholds (asset test free areas) for the asset test are being increased; and
  • the reduction of a person’s entitlement to the pension will be more significant once a threshold is reached.

Change to thresholds

The increases to the thresholds for the asset test are as follows:

Situation

Homeowners

Non-home owners

1 July 2016

1 January 2017

1 July 2016

1 January 2017

Single

$209,000

$250,000

$360,500

$450,000

Couple

$296,500

$375,000

$448,000

$575,000

 

Entitlement reduction

Currently the pension entitlement is reduced by an amount of $1.50 per fortnight for every $1,000 of assets over the threshold amount. Under the changes, once a person exceeds the thresholds the effect on their pension entitlement will be more significant – the reduction will be $3.00 per fortnight for each $1,000 of assets over the threshold amount. 

Effect of changes

Accordingly while the thresholds have been increased, once the threshold is met the consequences are more significant for affected persons because the reduction will be at double the current rate. This will mean that some persons will be better off as a result of the changes (particularly those with more modest non-exempt assets), however many persons will be worse off (particularly part-pensioners). 

The changes may significantly impact on some residents’ availability of funds to cover their care and living costs. It may also affect the decision or ability of new residents to enter into a particular retirement village or residential aged care facility.

What the changes mean for operators and providers

Certain assets, such as the value of a person’s home (while they or a dependent reside in it and including a right to reside in a retirement village under a lease) and a refundable accommodation deposit paid for residential aged care are still exempt from the asset test. Most other assets owned by a resident will be relevant for the asset test.

Operators and providers should consider the effect on current and future residents and operation of their village or facility. In particular, how the changes may affect affordability of care and services and the decision to enter into a retirement village or residential aged care facility.

You may wish to consider whether there are any alternative pricing methods or financial models that can be implemented to lawfully limit the effect of the changes on your current and future residents. We can assist you in that regard if required.

Residents will need to obtain their own financial advice in relation to the effect of the asset tests.

Questions

If you have any questions or require advice regarding the changes to the asset test please contact Julie McStay Director - Aged Care and Retirement Living.

This content is not intended to be legal advice.