New pension regulations stir advice queries

Yasmine Raso

Senior Journalist, Financial Newswire

18 January 2023

Changes to the age pension work bonus, downsizer contribution eligibility and other social security measures have become major discussion points for financial advisers, according to BT Financial Group.

Australians eligible for the age pension can now earn up to $11,800 from working after the ‘work bonus’ income was temporarily increased by $4,000 to keep up with rising cost of living expenses and encourage them to continue or return to the workforce to alleviate labour shortage pressures.

“The eligibility rules and concessions for the age pension have evolved over time,” Tim Howard, Technical Consultant at BT, said.

“Overall, social security measures for senior Australians can be complex, so any updates to the regulations can result in the need for advice.

“While the increase to the work bonus income bank is a welcome one for many clients, how it actually works across this current financial year, and the next one, is resulting in queries from advisers.

“They are seeking clarity on how their clients are impacted individually.”

The eligibility age for individuals to make downsizer contributions to their super from the proceeds of selling their home has now been legally reduced from 60 to 55 years, after the Treasury Laws Amendment (2022 Measures No. 2) Act 2022 came into effect from 1 January.

“Downsizing can ease cost of living pressures for many Australians: not only does it free up money, the maintenance costs for a smaller home are also usually lower,” Howard said.

“In addition, the ability to make up to $300,000 in downsizer contributions to super tax-free can boost retirement savings significantly.

“However, as part of retirement planning, clients who are receiving an age pension, or expecting to down the track, should be made aware of how age pension means testing may be impacted.”

This also tied into the question of whether the general superannuation transfer balance cap, which is the amount that can be transferred to tax-free retirement income streams, would increase as a result of regular indexation based on current inflation.

This could take the number as high as $1.9 million from 1 July, unless legislative changes are put in place to keep the cap at its current amount of $1.7 million.

“If you have clients who are planning to start a retirement income stream before 30 June 2023, it is worth considering if this would lead to the best outcome for them,” Howard said.

“Would they be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit?”