The pandemic-induced economic crisis has produced both great challenges and great opportunities.
The Federal Government has responded both swiftly and generously across a number of financial channels to help households get through the current uncertainty. The effect of these changes can be seen across the superannuation system and government entitlements, but there are nuances for the aged pension and aged care systems, including:
When calculating aged pension payments, Centrelink will use two tests – the assets test and the income test.
Assessable assets in most cases are calculated based on market values, so if COVID-19 has negatively impacted the value of one’s investments, property or super, you may be eligible to receive an aged pension or have a current payment increased.
Assessable income is calculated by either looking at the actual income earned or applying a deeming rate. In response to COVID-19, the government has lowered the deeming rates for a single person to .25 per cent on the first $53,000, and 2.25 per cent for every $1 above. Current cash rates are very low, so it’s unlikely you will be earning 2.25 per cent. It’s therefore important to make sure you are maximising your earnings potential on investments within your risk tolerances, as it will not negatively impact your aged pension payment.
It’s worthwhile considering the value of an aged pension in the current environment. Aged pension thresholds dictate a loss of $3.00 per fortnight for every $1,000 you have over the asset test threshold. In other words, it costs you $78 a year to keep an extra $1,000 in the bank, which is effectively a 7.8 per cent earnings rate. A full single aged pension is $24,551 per annum, at current cash rates of 1 per cent, you would need $2.45 million in the bank to earn an equivalent income. Restructuring your current assets to take advantage of an aged pension can result in a lucrative payment based on today’s cash rates.
Prior to COVID-19, the choice of either paying a Refundable Accommodation Deposit (RAD) or Daily Accommodation Payment (DAP) could be calculated with more certainty where a client’s asset base supported either option. Most lump sums for aged care are funded from either the family home or investment assets. Today, both of those asset pools may have experienced reductions in capital values.
The choice is now more difficult; should you pay the 4.10 per cent DAP interest rate and keep those investment assets, or liquidate assets and accept a potential capital loss?
Both share and property markets have recovered faster than anticipated. If this trend continues, it makes the decision to liquidate assets important and potentially very costly in the long term.
Every individual’s situation is now likely to have changed and should be carefully considered.
To ensure the right outcome, it is best to seek the advice of experts to help guide your decision making.
This article was written by Luke Robson from HLB Mann Judd Brisbane.