According to the independent news and analysis website The Conversation, retirees are changing their spending habits in response to the 2015/16 Budget – in particular, as a reaction to the proposed changes to assets test thresholds.
There are many accounts of retirees ‘spending up a storm’ despite the fact that research shows that most pensioners usually live quite frugally. According to the Association of Superannuation Funds of Australia (ASFA), many pensioners actually live below what is considered the ‘modest’ retirement standard of $23,469 for a single and $33,766 for a couple who own their own home.
Under the proposed 2015/16 Budget changes, retirees who do not own their own home will be better off from an increase in their threshold to $200,000 over those who own their own homes. Homeowner couples will not receive a pension if their assets exceed $823,000, and could have a lower living standard than homeowner couples with only $375,000 in savings.
So, contrary to typical advice given to many retirees, several financial advisers are proposing that part-pensioners now re-invest their superannuation savings into upgrading to a more expensive family home in order to bypass the limitations that will occur under the proposed asset test changes.
“Clever people can work out how to get around Scott Morrison’s new pension rules,” financial analyst Ross Greenwood explains. “Just before you reach pension age you buy something that is not subject to the assets test. That something is a new house.”
“So in this case the people with $800,000 sell their current home and buy a new home that is $400,000 more expensive, so they reduce their assessable assets to $400,000,” Mr Greenwood continues. “And they get a 75 per cent pay rise in retirement.”
This means we may see a swathe of retirees investing in new homes, with retirees selling off income producing assets, such as stocks, in order to do so. The apparent change in retiree spending may see potential government revenue gains, that would otherwise be derived from the proposed asset test changes, estimated at $2.4 billion over five years, dissolve completely.
Read more at The Conversation.
Read more at www.propertyobserver.com.au
Read more at The Daily Reckoning.
Opinion: Retirees wise to changes
Wealthier retirees, it seems, have wised up to the fact that the 2015/16 Budget changes are more than likely to deliver benefits to the less well-off but not so much for those who have accumulated some assets in their lifetime.
With asset free areas set to rise from $202,000 to $250,000 for single homeowners and from $286,500 to $375,000 for couple homeowners, and the asset test taper rate doubling from $1.50 per fortnight ($38 a year) per $1000 to $3 per fortnight ($78 per year) per $1000, it’s no surprise that some pensioners will invest their retirement savings into property, or spend on big ticket items such as extended overseas holidays, rather than have their hard-earned cash chipped away by taxes.
Any income derived from savings will be heavily taxed, meaning there is less incentive to save, especially considering that term deposit return rates are currently only slightly higher than the rate of inflation.
Of course, the risk of investing in property at the moment is that the housing bubble may well burst, leaving retirees with a dud investment. And considering the current state of financial advice in this country, can retirees actually trust the counsel of financial advisors?
It’s a rocky road to travel, to be sure, but hopefully, once the proposed changes actually occur, more information and sound, trustworthy advice will become available in order to help retirees make the best decisions on how to spend, or invest their retirement savings. In the meantime, whilst the powers-that-be figure it all out, maybe a holiday is a good idea.
What do you think? Will the proposed changes to the assets test influence the way you spend your money? Do you have any suggestions for how the government can attain a more effective pension and superannuation system?
