On the 11th of May 2021, Australians listened carefully as Treasurer Josh Frydenberg handed down a budget that was designed to repair the economy and get us through the challenging COVID times.
When a budget is handed down, it takes some time to digest and really work out who will most benefit from it. In this budget, there was a definite focus on older Australians.
A spotlight was put on the Aged Care sector and repairing the gaping holes in the system that is meant to care of us when we most need it. In response to the final report of the Royal Commission into Aged Care, the Australian Government has promised to deliver a $17.7 billion aged care reform package*.
But it’s not just about Aged Care, focus is also on trying to keep older Australians comfortably at home for as long as possible, give them more flexibility to contribute to super and access their wealth for retirement living.
In short, some of the highlighted changes include:
- Abolishing the work test for voluntary non-concessional and salary sacrificed super contributions for those aged 67 to 74.
- Improving the pension loans scheme
- Expanding eligibility for downsizer contributions
- Giving older Australians the choice to move out of legacy retirement products.
What does this mean for you? The following article outlines each of these points to shed some light on how over older Australians can benefit.
The Superannuation Work Test
Currently, if you want to make voluntary contributions to your super once you turn 67, you must be able to demonstrate that you have been gainfully employed for 40 hours or more in any 30-day period in a financial year. This is called the work test.
The budget is set to scrap this work test, which gives much more flexibility to those older Australians to make non-concessional contributions or salary sacrifice contributions to their super, allowing them to save on tax and bolster their retirement savings via superannuation.
Pension loan scheme changes
The Pension Loans Scheme allows older Australians to get a loan from the government to supplement their retirement income.
The Pension Loans Scheme is available to aged pensioners and self-funded retirees who own property in Australia. The payments are not taxable and not assessable under the Age Pension means test. It can be described as a ‘reverse mortgage’, accessed via Services Australia allowing property owners to stay in their home, access the equity that sits in the property without needing to repay the debt while they are living there. The debt is usually recovered upon sale of the house once the owner has passed away or at such time the owner wishes to repay the debt.
The changes proposed in the 2021 budget aims to increase the uptake of this scheme. There seems to be a lack of awareness for the scheme and therefore the government plans to promote and actively advertise the scheme to raise the awareness.
As part of raising the awareness, they have also increased the attractiveness of the scheme in ways:
- They’ve introduced the ability to access two lump sum payments to be accessed within a twelve-month period, up to a total value of 50% of the maximum rate of the aged pension. This means that if needed pensioners can access the money for larger, perhaps unexpected expenses.
- The introduction of a ‘no-negative equity’ guarantee which means that borrowers will not need to repay more than the market value of their property.
The total amount of pension plus loan available will still be capped at 150% of the maximum rate of Age Pension. This means any advances taken will reduce the maximum fortnightly loan amount a person can take over the rest of the year.
Based on current Age Pension rates, a single person could receive lump sum payments of up to approximately $12,385 per year, and couples combined could receive about $18,670.
Downsizer contribution to superannuation
A downsizer contribution relates to people making one-off, post-tax contributions to their super from the proceeds of selling their family home. While this already exists, the eligible age to do this was 65. The government has proposed that the age will be reduced to 60 years of age.
This change allows older Australians the opportunity to downsize earlier and potentially make a lifestyle change that will give them a better quality of life and less maintenance of a large house and land.
The offshoot benefit for younger families is that it will free up stock of larger houses for young families who need the space.
The downsizer contribution scheme was introduced in the 2017 budget and has already been taken up by some, however, research by National Seniors Australia indicated that Australians were more likely to make the decision to downsize at a younger age of between 50 and 65, so hopefully this change will be the catalyst to increasing the uptake of this scheme.
Amnesty from legacy retirement products
As with many products and services within the financial services industry, consumers have demanded flexibility and are not keen to be locked into legacy products that no longer present a benefit.
Legacy products include market-linked (Term Allocated Pensions – TAPs), life-expectancy and lifetime pension and annuity products commenced with any provider (including SMSFs), but exclude Flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme. Currently, these legacy products can only be converted into another like product.
As part of the 2021 budget, Frydenberg has given a ‘get out of jail free’ card for retirees locked into these legacy products. It allows customers to exit these retirement products and move their money into a super fund or new more flexible product without penalty. However, if you are thinking of doing this, you will need to start thinking about it now, as the amnesty is only valid for two years.
These budget changes could be opportunities for you to review and amend your financial plans. If you don’t have a financial plan, learn more about setting up one for yourself.
- Budget fact sheet on superannuation changes.
* Budget for aged care reform – https://www.health.gov.au/news/budget-delivers-177-billion-for-once-in-a-generation-change-to-aged-care-in-australia