Date posted: 8/05/2018 5 min read

Government makes retirement planning slightly easier for retirees

Four good minor changes

In brief

  • Government helps retirees with some good simple changes to retirement system
  • We provide some ideas for further reform

The government has tonight improved the retirement income system for many retirees.

None of the changes are earth shattering.  They make the system moderately easier to use.

Work Test Concession for those aged at least 65 but under 75 with lower balance super

A lower superannuation balance is defined as below under $300,000.

Those within the above age range and super balance amount will be able to make voluntary super contributions in the first year they do not satisfy the current annual work test – that is, at least 40 hours of work in less than 31 consecutive days.This rule will apply in the following ways:

  • The $300,000 test will be determined by the ATO using the Total Super Balance definition calculated at the end of the previous financial year
  • It apply to personal deductible, salary sacrifice and personal after-tax contributions.  The new carry forward unused concessional contribution cap rules will also be available if a taxpayer can claim it.

Conceptually we welcome this measure however we think the post 65 super contribution rules are unnecessarily complicated.  We think this measure increases this complexity.

The government should consider removing the work test for those aged under 75.  Most retirees find it a silly rule and it’s hard to disagree with them.

Age Pension Employment Income Threshold Increased

From 1 July 2019 this threshold will be increased from $250 to $300 per fortnight – that is, a 16.6% increase – and the self employed will also be able to access this concession.  This is the first increase in this amount of working income allowed and are great moves!

But we note that since this measure was introduced in 2009 consumer inflation has increased by over 19% and average wages have increased by 31.3%.  

We note that the age pension increases each March and September by the greater of consumer inflation or wage increases.

So working retirees are unfairly penalised.

The government should provide real incentive here and increase this amount each half year by age pension increases.

Pension Loan Scheme – aka, Government Reverse Mortgage Product – Access Expanded

A reverse mortgage is a product that allows an older home owner to borrow money and secure the debt using a mortgage over their house.  Typically the interest on the loan is capitalised and on death, or leaving the house to move to assisted living, the house is sold and the loan repaid.

For many years the government has offered a reverse mortgage style product called the Pension Loan Scheme but only allowed limited access.

From 1 July 2019, it will permit unlimited access to this product for all retirees and increase the amount of money that can be paid from it – up to $11,700 (single) and $17,787 (couples) per annum.  The amount paid is tax-free.

The maximum that can be paid is based on a person’s age, how long they wish to receive payments, value of their home and the amount of age pension they receive.

The government has said that its current interest rate – 5.25% per annum – will continue to apply to existing and current loans.

We welcome these changes because since the GFC the private reverse mortgage market has struggled for wholesale funding and retiree interest.

Search related topics