Pensioners use home renos to beat government cuts
INVESTING $100,000 on a home renovation or spending down superannuation are just two of the strategies being considered as age pensioners prepare for new federal government legislation due to come into effect from January 1.
The changes will affect 495,000 Australians of whom 170,000 will see payments increased while a further 326,000 will lose all or part of their pensions.
The looming impacts are the central subject of every gathering of independent retirees according to Noosa financial services advisor Rob McGregor.
He warns that while there are a number of strategies that could be deployed to minimise the impact of the changes, people should think and take advice before they act.
The new rules will increase from $1.50 to $3 the amount deducted from pension payments for every $1000 a recipient is above the asset threshold.
A home owning couple can now only have $375,000 in assets - excluding the family home - before their pension begins to reduce. It cuts out altogether when assets including superannuation exceeds $816,000.
Mr McGregor says potential strategies to reduce assets could include paying to renovate the family home.
Not only would this reduce the assets by which pension payments are assessed but it would increase the value of the home which is exempt.
Someone with $800,000 of assessable assets who spends $100,000 on their house would be $7800 better off in pension payments after the changes.
"That's a guaranteed return of $7800 per year and the extra value created into the home could also be tapped into by using a regular income from a reverse mortgage," Mr McGregor said.
"This could potentially add another $5000 per year, giving total extra income of nearly $13,000.
Strategies to limit non-family house assets are essential.
The doubling of the "taper rate" means those near new thresholds who don't will take a heavy pension hit.
Catholic Super has assessed the impacts.
It believes those couples with around $460,000 in assets excluding the family home will not be impacted and should see no change to pension income.
Home owning couples with assessable assets close to the new full age pension threshold of $375,000 will receive the biggest boost while those whose assets are close to the $816,000 complete pension cut off will see their payments reduced most significantly.
Home owning single pensioners with assets around $290,000 should see little change while those close to the full age pension threshold of $250,000 will benefit most.
Single home owners whose assets are close to the part age pension threshold of $547,000 will be significantly impacted.