The Government says that over 90,000 older Australians will benefit from changes it recently introduced to Parliament.
The Government has introduced the Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Bill 2018 to the House of Representatives. The measures it contains were announced in the 2018/19 Budget as the ‘More Choices for a Longer Life — finances for a longer life’ package.
If the Bill passes, the measures are set to take effect on 1 July 2019.
Increase and expand Pension Work Bonus
The Bill would increase the Pension Work Bonus – an exemption from the pension income test for employment income – from $250 to $300 per fortnight, allowing pensioners to earn up to $7,800 a year without impacting their pension. The measure will also be expanded to self-employed retirees and independent contractors or consultants
Minister for Families and Social Services Paul Fletcher said the change to the Pension Work Bonus would give over 90,000 older Australians a “better deal”.
“The increased Pension Work Bonus will mean that pensioners who work will be able to keep more of their pension. The self-employed will be eligible for the Pension Work Bonus for the first time,” he said.
Expand Pension Loans Scheme eligibility to everyone of Age Pension age
The Pension Loans Scheme (PLS) would also be expanded to everyone over age pension age. The PLS allows those eligible to increase the rate of their pension by borrowing the difference, secured against real estate – usually recovered when the property is sold or from their estate.
Currently the PLS is open to people of eligible age who cannot receive the Age Pension because they don’t pass either the income or asset test. The Bill would open the PLS to those people who don’t pass both tests.
The maximum amount that can be borrowed per fortnight would be increased to 150% of the full pension – allowing people already receiving the Age Pension to access the PLS.
“By expanding the Pension Loans Scheme pensioners will be able to enjoy a higher standard of living in retirement by receiving additional fortnightly payments in the form of a loan,” said Minister Fletcher.
“The expanded Pension Loan Scheme offers pensioners a higher living standard because you can borrow against your home and receive a fortnightly payment through Centrelink.”
“For the many senior Australians who own a home but would like a higher income to live on in retirement, this scheme offers a way to draw on the value of their home to fund that higher income, conveniently delivered through Centrelink rather than needing to enter into a reverse mortgage through a bank.”
New means and asset tests for pooled lifetime income streams
The Government brought in regulations starting on 1 July 2017 allowing for the development of new retirement income products. The Government now wants to change the social security asset and means tests so they are more appropriate to these new products.
“The existing means test rules for lifetime income streams were made for simple income stream products, such as lifetime annuities. Continuing to use them for the wide possible range of complex products that are expected to emerge under the changes to the SIS Regulations in the near future would leave the income support system open to exploitation, and could distort people’s financial decisions in retirement,” says the Explanatory Memorandum (EM) to the Bill.
Minister Fletcher said the new rules would make sure that pooled lifetime retirement income streams “are fairly and consistently assessed”.
“These changes will encourage the development of new types of financial products in the superannuation system, improving choice and flexibility for retirees.”
Under the rules, 60% of the payments from a pooled lifetime income stream will be means tested as income.
“This reflects that part of the payments made by the income stream are a return of a person’s initial investment amount, and therefore not income,” says the EM.
For the assets test, 60% of the purchase amount will be assessed at first, decreasing to 30% when the ‘threshold day’ is reached – which is calculated based on life expectancy.
The Bill is currently still before the House of Representatives. Today, Thursday 6 December, is the last sitting day for 2018. The first sitting of 2019 is on 12 February.