Brisbane Friday 18 March 9.30 AM
This is a most unusual newsletter because it is written in real time. Every morning when I wake up my first job is to look at the overseas markets and this morning I was delighted to find most everything seemed to be up. This was in the wake of America’s interest rate rise yesterday. This should flow onto our share markets today. It’s about time we had a good share rally – it’s been a nervous few weeks with the war in Ukraine going on.
The next good news was the front page of today’s Australian Financial Review.
It said that the upcoming op federal budget will usher in the post-pandemic shift towards debt reduction and portray an economy recovering so quickly that taxes may need to be cut within several years, in addition to the already-legislated stage three tax cuts.
In a speech to outline the fiscal strategy underpinning the March 29 budget – and to put budget management front and centre of the forthcoming election campaign – Treasurer Josh Frydenberg will announce the beginning of spending restraint and the use of revenue to stabilise and reduce debt levels.
With new figures on Thursday showing unemployment dropping to 4 per cent for February, the lowest in almost 14 years, Mr Frydenberg will say a combination of lower-than-expected welfare payments and higher tax revenues means the bottom line will show a “substantial improvement” on the most recent forecast of a $99 billion deficit. Gross debt as a proportion of GDP will also peak lower and earlier than predicted. The budget update released in December forecast that this would peak at 50 per cent towards the end of this decade before stabilising and then beginning to decline.
“The Australian economy has recovered strongly and now has real momentum,” Mr Frydenberg says.
“The initial phase of our fiscal strategy has delivered on its objective, with full employment in sight.
“With our recovery well under way it is now time to move to the next phase of our fiscal strategy. This will see a focus on stabilising and then reducing debt as a share of the economy.
Going into the election, Mr Frydenberg will confirm that the Coalition will maintain its long-held policy of capping the tax-to-GDP ratio at 23.9 per cent.That ratio fell during the pandemic when much of the nation was relying on JobKeeper and other assistance. The mid-year budget update released in December forecast tax receipts to remain below the 23.9 per cent cap across the medium term, or the next 10 years.
That takes into account the $19 billion-a-year stage three cuts, which will begin on July 1, 2024. Deloitte Access Economics estimates the ratio is as high as 23.7 per cent and Mr Frydenberg will say on Friday that the Coalition will act as necessary to maintain the cap.
“This imposes a discipline on the expenditure side of the budget and is consistent with the Coalition’s values of cutting taxes, not increasing them, enabling Australians to keep more of what they earn,” he says in the speech.
Despite the shift to spending restraint, he confirms that the budget will contain moderate measures to help with current cost-of-living pressures.
The Australian Financial Review revealed on Thursday that this would most likely be in the form of one-off cash payments to pensioners, welfare recipients and low- and-middle-income earners.
Today’s newsletter is just a special bulletin. Its purpose to give you the details of the latest pension changes which take effect on 20th of March, and also give you the tools to do your own calculations. The age pension calculator on my website has been updated with these changes. So don’t forget to use it.
The amount of age pension payable is adjusted twice a year. The current adjustment which commences from 20 March is an increase in the age pension, not an adjustment to the taper rates, but it does flow through. The levels at which the pension starts to reduce, both for the asset test and the income test have remained unchanged, but the effect of the increased pension means the cut-off points, when no pension is payable have increased. This could enable more people to get an age pension because the asset test cut-off number is now higher. A summary of the changes is as follows.
I would like to acknowledge the great work done by MyPension Manager who prepare the charts for my website, and which really give you a great overview of the way the pension works. Their website is mypensionmanager.com.au and I recommend them without reservation to anybody who is trying to get advice about pensions at a reasonable cost.
From 20 March 2022 a single pensioner can earn $180 a fortnight and still be eligible for the full single pension of $987.60 a fortnight, including all supplements. They can also earn $150 a week from personal exertion – this is not included in the income test. Once income exceeds $180 a fortnight, the pension reduces by $0.50 for every additional dollar earned.
From 20 March 2022 a pensioner couple can earn $320 a fortnight combined and still be eligible for the full pension of $1488.80 a fortnight, including all supplements. They can also earn $150 a fortnight each from personal exertion – this is not included in the income test. Once income exceeds $320 a fortnight, the pension reduces by $0.50 for every additional dollar earned.
From 20 March 2022 the full pension is available, under the assets test, for homeowner singles whose assessable assets are under $270,500 – for homeowner couples the number is $405,000. The numbers for non-homeowners are $487,000 and $621,500 respectively.
Once assessable assets exceed the lower threshold, the pension reduces by $3 fortnight for each $1000 by which assessable assets exceed the lower threshold.
A single homeowner can have up to $599,750 of assessable assets and receive a part pension – for a single non-homeowner the lower threshold is $816,250. For a couple, the higher threshold to $901,500 for a homeowner and $1,118,000 for a non-homeowner.
I’ll give you a quick refresher of the way the pension system works. You are tested on both an asset test and an income test and the one that gives you the lowest pension is the one they use. There is a pension calculator on my website www.noelwhittaker.com.au to enable you to do your own calculations.
Money in superannuation, and financial investments such as bank accounts and shares are assessed at their current value and are also given a deemed income. There is a deeming calculator on my website. Just bear in mind the income test is of no relevance if you are asset tested.
Everybody is allowed a basic income before the pension starts to reduce but on top of that a person can earn $150 a week from employment or from their own business without any effect on their pension. Once again this is only relevant if you are income tested. For example, if a couple had assessable assets of $780,000, plus their own home, they would qualify for a pension of $181.90 under the assets test. But if you look at the charts you could see that they could earn around $2600 a fortnight with no effect on their pension because they are asset tested. This is an area of confusion for many people.
Cars, caravans, furniture and personal effects are all counted for the asset test but don’t make the mistake of using replacement value when you listing them for Centrelink. Personal effects and furniture should be valued at what you would get from them at a garage sale on a wet day. This puts a limit of $5000 on these items for most people. Similarly, cars and caravans are valued at wholesale second hand value.
You can reduce your assessable assets by spending money on home renovations, and travel, and also give away $10,000 a year with a maximum of $30,000 over five years.
People who are over the assets test and wish to get a part pension, often to get the pensioner concession card, could investigate one of the new lifetime income products whereby only 60% of the initial value is counted for the asset test. Let’s assume a couple had assessable assets of $1 million which takes them over the $901,500 limit at which no pension becomes payable. If they invested say $300,000 in one of these new products their assessable assets would fall by $120,000. At that asset level they would get a fortnightly pension of $106.80 each, the income from the product they have just invested in, and the pensioner concession card. Just bear in mind that these are lifetime products so make sure you take expert advice before you commit to one. They are increasing in popularity, and have the full support of the government. They are discussed in great detail in my book Retirement Made Simple.
Other concession cards
The Commonwealth Seniors Health Card (CSHC) is prized by self-funded retirees because it offers a range of concessions from the federal government. However, access to concessions from state and local governments is usually limited.
There is another card, the Low Income Health Card (LIHC), which is not generally understood, but which can provide access to additional concessions. These benefits vary from state to state, but in some cases can be valuable. There are also some private businesses that offer concessions to LIHC holders.
A person can have both cards if they meet the eligibility criteria.
For the LIHC you must be an Australian resident who is living in Australia, and have income below the cut-off points. The same requirements apply for the CSHC but in addition, you must be of pensionable age, and not be receiving any income support payment from Centrelink or Department of Veterans Affairs. There is no assets test at all for either card.
Both cards are income tested but the income limits and definition of income are different. The one factor common to both is that deemed income from account-based pensions is included. Because deeming rates have become so low many retirees can hold substantial amounts in an account-based pension and still satisfy the income test for both cards.
CSHC: The income limits are 57,761 for a single, $92,416 for a couple combined and $115,522 for a couple separated due to illness. The income includes Adjusted Taxable Income (ATI) and deemed income from account-based pensions. If a couple had $2.5 million in superannuation in account based pensions, and an ATI of $25,000 per annum, they would qualify easily because the deemed income would be $54 470 [JP1] a year which when added to their $25,000 per annum give them a total income for CSHC purposes of $79,470. And remember that money in superannuation in accumulation mode is not counted because it produces no taxable income and is not subject to deeming for CSHC purposes.
LIHC: Qualification is established by measuring assessable income over an eight week period before the claim is made. The initial eight week limits are $5152 for a single and $8,856 for a couple. This equates to an annual figure of $33,488 and $57,564 respectively. The card is valid for one year after which a fresh application must be made – the income limits are more generous for the renewal. They become $6440 for a single and $11,070 for a couple.
The income test is based on the Centrelink definition of income rather than taxable income and includes salary or wages, deemed income on financial investments on account based pensions and income support payments. A quirk in the regulations is when couples are applying, and neither receive a pension, the deeming thresholds are applied to each member of the couple separately and are then added together.
Jack and Jill are of pensionable age. He has $1.4 million in an account-based pension and she has $800,000 in an account based pension. They receive no pension because they are over the assets test. They apply for the CSHC in January 2022. Their ATI was just $5000 being dividends from shares worth $60,000 which are owned by Jack. The deemed income from their $2.2 million in account based pensions is $47,720 a year making total income for CSHC purposes of $52,720. They are way under the cut-off figure for a couple and so easy qualify for the CSHC.
They also decide to apply for the LIHC to obtain additional concessions from state and local governments and some private businesses. To be eligible their combined income in the eight week period before claiming must be below $8,856. Because they do not receive any age pension the demining is calculated on each member of the couple separately. For Jack this includes his account based pension and the shares, while for Jill it is just her account based pension. The deemed income is $30,428 for Jack and for $16,928 for Jill. This totals $47,356 a year or $910.70 per week. This means for an eight week period their total income is $7,285.60. This is under the cut-off figure so they qualify for the LIHC as well as the CSHC.
I appreciate this is somewhat complex but it could be worth taking the time to understand it. Everybody likes a concession.
I do know you love the jokes at the end of my newsletter so I am including one even though this is a special bulletin.
The roundest knight at King Arthur’s round table was Sir Cumference. He acquired his size from too much pi.
I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian.
She was only a whisky maker, but he loved her still.
A rubber band pistol was confiscated from algebra class because it was a weapon of math disruption.
The butcher backed into the meat grinder and got a little behind in his work.
No matter how much you push the envelope, it’ll still be stationery.
A dog gave birth to puppies near the road and was cited for littering.
A grenade thrown into a kitchen in France would result in Linoleum Blownapart.
Two silk worms had a race. They ended up in a tie.
Time flies like an arrow. Fruit flies like a banana.
A hole has been found in the nudist camp wall. The police are looking into it.
Atheism is a non-prophet organization.
Two hats were hanging on a hat rack in the hallway. One hat said to the other, ‘You stay here, I’ll go on a head.’
I wondered why the baseball kept getting bigger. Then it hit me.
A sign on the lawn at a drug rehab center said: ‘Keep off the Grass.’
A small boy swallowed some coins and was taken to a hospital. When his grandmother telephoned to ask how he was, a nurse said, ‘No change yet.’
A chicken crossing the road is poultry in motion.
It’s not that the man did not know how to juggle, he just didn’t have the balls to do it.
The short fortune-teller who escaped from prison was a small medium at large.
The man who survived mustard gas and pepper spray is now a seasoned veteran.
A backward poet writes inverse.
In democracy it’s your vote that counts. In feudalism it’s your count that votes.
When cannibals ate a missionary, they got a taste of religion.
Don’t join dangerous cults: Practice safe sects!