1 January pension changes

Hank Jongen General Manager, Services Australia

HI everyone. Welcome to the New Year. From 1 January 2023, there were two changes made to the Age Pension that could influence decisions you might make in the future.

Increase in the assets test exemption period for funds from the sale of your home: If you sell your family home after 1 January, you have more time to look for a new home. The amount you got from the sale that you intend to use on your new home is now exempt from the assets test for up to two years. In some circumstances, the exemption can be extended up to three years.

Even though the asset value is exempt, there will be income deemed from the funds. For properties sold after 1 January, the income will be deemed at the lower deeming rate, currently 0.25 per cent.

It’s important to know that the assets test exemption and lower deeming rate only apply to money from the sale that you plan to use to purchase (buy or build) your new home. These changes mean selling and downsizing will have less of an impact on your fortnightly pension than it did before.

Extended employment suspension period:

From 1 January, Services Australia has made it easier to get back on a pension if it stopped because you were earning too much.

If you start getting income from employment and receive $0 Age Pension for more than six fortnights, you’ll be advised your payment and income reporting requirements have been suspended.

This has always been the case, though now you’ll have two years before your payment is cancelled.

This extended period means:

• If your income reduces or stops within the two-year period, you don’t have to reapply for the pension, you can just get it restarted. So it’s much easier to get on the pension again.

• You remain eligible for your Pensioner Concession Card for the two-year period, until your pension is then cancelled.

If you and your partner are both on a pension, then you can both take advantage of the extended employment suspension period even if only one of you is working.

With the changes to the Work Bonus that came in in December last year, extending the employment suspension period makes it even easier for people on an Age Pension to earn extra income from employment if they want to.

Until next time, Hank Jongen

Cashflow is the lifeblood of anyone’s financial plan. It is important you get to know your money, understand exactly what is coming in, what is going out and where. If you are not overly disciplined when it comes to managing your cashflow, developing a budget is a holdfast way to understand and take control of your cashflow. A budget will also help you to track your spending and cancel expensive services or subscriptions that are wasteful or unnecessary. Understanding your cashflow is the foundation of a good financial plan.

Start saving

Once your cashflow is under control you will be able to understand how much you can potentially save. Whether you are saving for your first home, an investment property, a car, a holiday or any other cost, developing a savings plan is a great way to keep you accountable and help you meet your target.

Setting up an automatic transfer into your savings account will eliminate the desire to spend unnecessarily. It is important to make sure the amount you are saving is realistic, achievable and sustainable. It is also important to have an emergency fund on top of your savings for unexpected expenses.

Investing surplus cash

If you are in the favourable position of having money left over after your expenses and savings, you might consider investing surplus cash into assets. Investing your money into assets such as shares, property or bonds can potentially reward you with financial growth and/or income over time. Returns from assets provide another means for funding things such as a holiday, children’s education or retirement.

When investing your money, it is important that the structure in which you hold your investments is aligned with your goals. Different structures have different trade-offs, for example Superannuation has preservation rules compared to nonsuperannuation structures. Having the correct structure is equally as important as the investment itself.

Review your debt

With interest rates at the highest rate since 2013 it is a good time to shop around or ask for a better rate on your home loan. Additionally, if you have a car loan or personal loan (which generally attract a higher interest rate compared to a mortgage) you might benefit from consolidating these loans into one.

Plan and set goals

No matter what stage of life you are in, developing a financial plan for the future could potentially be the difference between achieving your financial goals or not, whether that is an early retirement, being debt free, or paying less tax.

While we have only touched the surface here, the above strategies are a starting point for mastering your money. The world of personal finance can be confusing and daunting, talking to a professional Adviser at Elevate Wealth will help make sense of it all.

Any general advice in the publication has been prepared without taking into account your objectives, financial situation or needs. Before you act on any general advice in this publication, you should consider whether it is appropriate to your individual circumstances. Please seek personal advice prior to acting on this information.

Damian Gibson

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