As promised, there were no new changes for superannuation. However, a number of measures affecting pensions were announced including: rebalancing asset test thresholds and ‘taper rates’; improving the integrity of social security income tests arrangements; a decision not to proceed with elements of the previously announced measure to maintain eligibility thresholds for Government payments; and a decision not to proceed with pension indexation to CPI.
“… I want to reassure all Australian workers they can have confidence in their retirement plans.”
(Treasurer Joe Hockey)
In the 2015-16 federal budget, the government reiterated that it will not introduce any new superannuation taxes during this term of government. Accordingly, no new superannuation measures were announced, including any changes to the limited recourse borrowing arrangements.
However, the budget does include certain marginal measures that were previously advised:
- Early super access for terminal illness: For those with a terminal medical condition, from July 1, 2015 the life expectancy period for full access to superannuation benefits to be extended from 12 to 24 months.
- Defined benefit super schemes: Commencing January 1, 2016 a 10% cap will be applied to the deductible amount of defined benefit income streams for the social security income test.
- Supervisory levies: These will be increased to allow full cost recovery from 2015-16.
- Lost and unclaimed superannuation: The reporting obligations will be streamlined from July 1, 2016.
The budget confirmed a number of measures affecting pensions that were previously announced.
1. Rebalance asset test thresholds and taper rate
The government intends to increase the asset test thresholds and the withdrawal rate at which pensions are reduced once the threshold is exceeded.
Asset test thresholds
The assets test threshold (“assets free area”) will be increased:
- for single home owners – from $202,000 to $250,000, and
- for couple home owners – from $286,000 to $375,000.
Pensioners who do not own their own home will also see an increase in their threshold to $200,000 more than homeowner pensioners:
- for single non-home owners: $450,000, and
- for couple non-home owners: $575,000.
The government will also reduce the maximum value of assets that can be held to qualify for a part pension. For couples, this is currently up to $1,151,500 plus the family home. Under the proposed changes, this threshold will decrease to $823,000 plus the family home.
Note however, that pensioners who lose pension entitlement on January 1, 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age.
The proposal will reverse changes to the “taper rates” introduced in 2007. From 1993 to 2007 a $3 taper rate was in place where, for every additional $1,000 in assets above the minimum threshold for a full pension, fortnightly payments were reduced by $3. In 2007, this was changed to a $1.50 taper rate.
Taxpayers impacted by these changes will be able to maintain their current level of income by drawing down less than 1.84% on their additional assets ($574,000 for a single homeowner), in a worst case scenario. These measures will apply from 1 January, 2017.
2. Improve integrity of social security income test arrangements
The government will improve fairness and equity in social security payments by ensuring that a larger proportion of a superannuant’s actual defined benefit income is taken into account when applying the relevant social security income test.
Under this measure, the proportion of income that can be excluded from any income test (the deductible amount) will be capped at 10% from January 1, 2016.
Under current arrangements, some defined benefit superannuants are able to have a large proportion of their superannuation income excluded from the pension income test.
Recipients of Veterans’ Affairs pensions and/or defined benefit income streams paid by military superannuation funds are exempt from this measure.
3. Not proceeding with elements of the measure to maintain eligibility thresholds for Australian Government payments
The Government will not proceed with elements of the 2014-15 Budget measure to maintain eligibility thresholds for Australian Government payments for three years that relate to the pension income test free areas and deeming thresholds.
The pension income test free areas and deeming thresholds will continue to be indexed annually by the CPI. Major pension related payments include the Age Pension, Carer Payment, Disability Support Pension, and the Veterans’ Service Pension.
4. Pension indexation to CPI will not proceed
The government announced that it will not proceed with the 2014-15 budget measure to constrain increases in the pension to the CPI. Pension and pension equivalent payment rates will continue to be indexed under current arrangements – by the higher of the increases in the CPI or the Pensioner and Beneficiary Living Cost Index – and benchmarked against Male Total Average Weekly Earnings.