Too good for too long, apparently…

I know the call is coming. I should pre-empt it and call first. Or just raise it during a Sunday night Skype chat with them and the grandkids.

It’s the call I should expect, from the Old Folks, when governments go and trample on their financial turf.

“My Boy! We only recently got the age pension. Are these clowns in Canberra now going to take it away from us? Didn’t they clobber us poor old pensioners last year as well? Why are we getting beaten up again? We’re old and frail, you know.”

Aah, not all true. My parents are neither old, nor frail. (Well, relatively.) And they wouldn’t call Canberra people clowns – they live there.

But they are age pensioners.

And Canberra has declared hunting season on pensioners.

Apparently, a whole lot of pensioners have had it too good for too long. Some of them shouldn’t be pensioners at all.

So says Treasurer Joe Hockey. And Social Services Minister Scott Morrison. Blame whoever you dislike more.

The problem now is this. The Howard Government, near the end of its 11-year reign, threw a pensioner party and added some extras onto the guest list.

About 110,000 extras.

You know what parties are like. When times are good, the champagne is French, the beer imported, caterers are hired and you invite everyone.

In not-so-good times, we’re drinking local bubbly and brewskis, everyone is asked to bring a plate, and fewer “everyones” are invited.

Last year, the government tried to trim the party budget. Slowly. Stealthily. Over a really, really long time. But no-one liked that plan, especially the pesky Senators. Plan rejected.

Last week, Hockey announced a new plan. Invitations rescinded for about 91,000 people. A further 235,000 will have their invitations downgraded.

Why? Those 91,000 should never have been invited, Hockey claims. And another 235,000 got too good a deal, the Abbott Government says.

It’s hard to argue against. The pension generosity kicked up a notch in 2007. And in 2017, it’s going to go back to, roughly, where it was. About 326,000 people got a pension bonus for 10 years.

So, how is this going to work?

When you apply for the age pension, you essentially have to sit two “tests” – the income test and the assets test.

If you fail either test … no pension for you!

If you pass both tests, congratulations. But you only get the score on the test you did worst at. That is, you could pass the “income test” really well, but only just pass the “assets test”. You only get as much pension as you would get from the assets test.

From 2017, it will be harder to pass the assets test.

Now, you could pass the assets test, for a part pension, if you have less than $1.151 million (for a homeowning couple) or $1.298 million (non-homeowning couple).

From 2017, homeowning couples will be cut off at around $800,000, while non-home-owning couples will be cut off at around $1 million.

The reductions have been in reasonably similar percentages for single pensioners.

It’s the cut of the top limit where a whole bunch of people are going to lose the pension completely (the 91,000). If your assets are still below that figure, then there’s a chance your pension will be reduced (the 235,000).

Bitter pill. But it’s hard to argue with the government’s line about too many people being issued invitations to the party.

If cuts have to be made – the other option is to raise taxes – then these changes hit relatively wealthier pensioners. Some will miss out completely. Some will have the money they receive reduced. But largely those who are losing it would, on the face of it, have received bonus money for the last 10 years in any case.

Those with higher financial asset balances will have benefited in the last three years from rising share and property prices. They’ve probably done okay.

If asset markets turn to poo, they’ll be able to re-apply for a higher pension.

What can you do?

Well, I wouldn’t worry about it yet. The Abbott Government does not have a good track record of getting things passed through parliament. So this one might well get junked anyway.

But, it’s also not due to come into operation for another 18 months. You’ve got time. Watch this space.

And while you’re doing that … I’ve got to call my mum.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial ( ). E:


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