The federal government has struck a deal with the Greens to push through its budget commitment to deliver $2.4 billion in savings through reform to the pension asset test.
The Coalition-Greens deal secured yesterday will mean around 170,000 pensioners with modest assets will get $30 a fortnight more in their pension pay packets, but many wealthier individuals will now fail to qualify to for the pension altogether.
The current $1.1 million asset cut-off for a couple on top of the family home will be reduced to $823,000. The cut-off for a single will be $547,000, down from $775,500
The Minister for Social Services, Scott Morrison, has confirmed those who lose access to the part pension as a result of the increase to settings put in place by the Howard government in 2007 will be guaranteed access to the Commonwealth Seniors Health Card.
“The measure will rebalance the Pension Assets Test parameters by increasing the assets test free areas to support pensioners with low levels of assets and increase the taper rate by which a pension is reduced, once the free areas are exceeded,” Morrison said in a statement.
In exchange for its support, the Greens have forced the government to commit to a full review of Australia’s retirement system. The commitment will see the consultation period for the tax white paper be extended by six weeks to July 24.
“I commend the Australian Greens and their new leader, Senator Di Natale, supported by Senator Siewert, for their constructive engagement with the government on this measure,” Morrison said.
But David Lane, director of Wealth Management at Pitcher Partners, told SmartCompany the agreement puts superannuation back on the table in terms of the tax paper process and creates even more uncertainty for small business owners.
“From our point of view, it’s concerning that governments look at super like it’s a big pot of money they can get their hands on,” Lane says.
The agreement between the two parties came as Labor yesterday said it would move to block the legislation, saying the government had not been upfront about the full impact of the cuts.
“Independent analysis shows that these new cuts will affect half of all new retirees within ten years,” said Labor leader Bill Shorten in a statement.
Shorten said the changes will mean some single pensioners will be $8000 out of pocket a year, while some couples will lose approximately $14,000 a year.
“If you’re on a pension, if you will rely upon a pension in the future – the Liberals are coming after you,” said Shorten.
Lane says a significant number of small business owners will be affected by the changes.
“There would be a lot of people in that bracket and also many small business people out there that have built up their wealth through their small business in that bracket,” Lane says.
He says many small business retirees will have to start reconsidering their investment strategies, especially given low interest rates are not generating strong returns.
“A lot of people who are recently retired put all their money in the bank in cash and think it’s safe. With low interest rates and inflation, it’s actually a long-term risk,” he says.
Lane recommends small business owners look at diversifying investments, considering retirement housing options and plan for a retirement income that will last 30 years.
“The reality is that $823,000 is not a large amount of money when you include super and other investments,” Lane says.
“In many cases a lot of people will either have to start looking at changing their investment mix or look at changing their lifestyle,” he adds.