AFTER introducing tougher financial measures for seniors in 2017, the latest Federal Budget was ostensibly designed to please.
It didn't contain any nasty surprises for seniors, as such, but rather a series of measures focused on giving retirees a financial boost. Yet, all of the changes announced are not due to come into effect for another year.
They include an expansion of the Pension Work Bonus (PWB) and the Pension Loans Scheme (PLS), allowing pensioners to earn more from paid work, and helping older workers to re-enter the workforce.
Pension Work Bonus
From July 1, 2019, the PWB will increase to $300 per fortnight, up from $250 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test.
This is in addition to the income-free area, which is currently $168 a fortnight for a single pensioner and $300 a fortnight (combined) for a pensioner couple. So, a single person with no other income will be able to earn up to $468 a fortnight from work and get the maximum rate of Age Pension.
Pensioners will also continue to accrue unused amounts of the fortnightly PWB, which can exempt future earnings from the pension income test. The maximum accrual amount will increase to $7800 per year.
The government is also extending eligibility for the PWB to earnings from self-employment. That means a pensioner can earn $7800 per year through self-employment without impacting their pension.
To ensure the PWB only applies to actual engagement in work, there will be a 'personal exertion' test. It is not intended that the PWB would apply to income associated with returns on financial or real estate investments.
Pension Loans Scheme
From July 1, 2019, the government will expand eligibility of the PLS to all Australians of Age Pension age, including maximum rate age pensioners, and increase the maximum allowable combined Age Pension and PLS income stream to 150 per cent of the Age Pension rate.
Full rate pensioners will be able to increase their income by up to $11,799 (singles) or $17,787 (couples) per year by unlocking the equity in their home. PLS participants have the flexibility to start or stop receiving PLS payments as their personal circumstances change, and generally repay the loan once their home is sold.
Existing age-based loan to value ratio limits will continue to apply. This means that PLS holders will not be able to owe the government more than what their home is worth. The current PLS interest rate of 5.25 per cent per annum will apply to existing and new loans.
The measure will give older Australians more choice to draw on the equity in their homes to support their standard of living in retirement.
Re-entering the workforce
The government announced it will provide incentives to businesses to hire workers aged over 50, encompassing wage subsidies for employers worth up to $10,000.
A Skills and Training Incentive also will provide up to $2000 for workers aged 45 - 70 at risk of being made redundant through technological or economic change to undertake reskilling or upskilling.
Work Test Exemption
From July 1, 2019, Australians aged 65 to 74 with a total superannuation balance below $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
The work test exemption will give older Australians additional flexibility to contribute more into superannuation as they move into retirement.
Total superannuation balances will be assessed for eligibility at the beginning of the financial year following the year that they last met the work test.
Existing annual concessional and non-concessional caps ($25,000 and $100,000 respectively) will continue to apply to contributions made under the work test exemption.
Individuals will also be able to access unused concessional cap space to contribute more than $25,000 under existing concessional cap carry forward rules during the 12 months.
As bring forward arrangements for non-concessional contributions are not available to those 65 and over, individuals will not be able to access bring forward non-concessional contributions under the work test exemption.
Things to do before June 30
- Make sure you make your minimum pension payment before June 30.
- If you don't meet the minimum pension payment, the Tax Office deems your super fund to have not been in pension for the whole financial year, meaning you'll pay tax on income and gains for that period.
- If you had more than $1.6 million in pension or transition-to-retirement pension on June 30, 2017, you were able to then potentially take advantage of the Capital Gains Tax relief provisions that were outlined to soften the blow of the new Transfer Balance Cap of $1.6 million.
These decisions need to be made soon, if they have not been made yet.
Tony Kaye is the editor of listed financial services company InvestSMART. www.investsmart.com.au