Federal Budget 2015 proposed changes to asset test

Age Pension asset test changes

From 1 January 2017, the following changes to the pension asset test have been proposed:

  1. increase the ‘asset free areas’ for both homeowners and non-homeowners.
  2. increase the asset test taper from $1.50 per fortnight to $3 per fortnight per $1,000 of assets over the lower threshold.

According to the government the proposed changes will result in some people either completely losing their age pension entitlement or having their entitlement to a part pension reduced. Conversely, other people may see a small increase to their entitlement. For example, the government has forecasted approximately:

  1. 91,000 will lose entitlement to the pension
  2. 235,000 will have their pension reduced
  3. 170,000 will receive a pension increase.

Asset free area changes

The proposed changes to the asset free area (the lower assets test threshold) are:

  1. For homeowners – the asset free area is proposed to increase from $202,000 to $250,000 for singles and from $286,500 to $375,000 for couples.
  2. For non-homeowners – the asset free area is increasing from $348,500 to $450,000 for singles and from $433,000 to $575,000 for couples.

For those with lower levels of assets, these changes may result in an increased rate of age pension.

Asset test taper

The asset test taper rate (the amount by which a person’s pension entitlement decreases under the assets test) is proposed to increase from $1.50 per fortnight to $3 per fortnight per $1,000 of assets over the lower threshold. Under these proposed changes the asset test taper rate will return to 2007 levels and will result in a substantial reduction in the upper assets test threshold.
The proposed changes to the asset free area and asset test taper are summarised below:
Proposed-upper-and-lower-asset-test-thresholds
The following tables and graphs illustrate the increase/decrease in age pension at various levels of assessable assets for couple and single homeowners. Age pension is based on 1 January 2017 rates.

Homeowner couple

Couple-homeowner-increase-or-reduction-in-pension
The reduction or increase in pension income for couples is illustrated below:
graph-showing-increase-or-decrease-in-pension-for-couple-homeowners

Homeowner Singles

Single-homeowner-increase-or-reduction-in-pension
The reduction or increase in pension income for singles is illustrated below:
graph-showing-increase-or-decrease-in-pension-for-single-homeowner

The asset and income test

The above only takes into account the assets test. When considering the impact of the proposed asset test changes, it is important to consider the interaction of both the asset and income tests. At lower levels of assets it’s the income test that reduces pension entitlement, rather than the asset test. For example, for single homeowners (assuming assets do not include a ‘grandfathered’ account based pension), only those with financial investments between $240,000 and $295,000 receive an increase in age pension. Those with financial investments between $202,000 and $240,000 who might be expected to receive an increase due to the higher asset free area miss out as they are income tested.

If deeming rates return to more historically normal levels of say 2.5% and 4%, the result is quite different. There may be no increase in age pension at lower levels of assets as the income test results in the lower rate of pension. The result is that the increase in the asset free area may not provide any increase in age pension benefit.

Concession Cards

The government estimates that approximately 12% of pensioners will lose entitlement to the pension as a result of the changes to the asset test. These people will automatically be issued with a Commonwealth Seniors Health Card, or a Health Care Card for those under pension age.




This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Information in this presentation is accurate as at 12 May 2015. In some cases the information has been provided to us by third parties.  While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way. Extracts from Colonial First State Budget summary May 2015 have been used.