Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 180

Pension winners and losers from 1 January

The biggest changes to the pension asset test in 10 years will occur in two months, on 1 January 2017.

Whenever the government makes such drastic changes it creates winners and losers, while some that stay the same will worry about the changes nonetheless. If you’re a pensioner the important thing is to know which bucket you fall into and make a plan for how best to deal with it. If you’re a financial adviser, communicating with your clients about the changes and the impact on them and putting strategies in place to minimise the consequences are imperative.

What is changing?

Currently the asset thresholds (ignoring the value of an owner-occupied home) are:

  • Single Homeowner $209,000
  • Single Non-Homeowner $360,500
  • Couple Homeowner $296,500
  • Couple Non-Homeowner $448,000

The fortnightly pension payment reduces by $1.50 for every $1,000 over the assets test threshold. To put it into context, if a pensioner exceeds the asset test by $100,000, their pension reduces by $150 per fortnight, or $3,900 p.a. If they can earn more than 3.9% p.a. on that asset then they may be better off investing the money rather than taking the pension.

Post 1 January 2017, the asset thresholds will increase to:

  • Single Homeowner $250,000
  • Single Non-Homeowner $450,000
  • Couple Homeowner $375,000
  • Couple Non-Homeowner $575,000

But here's the sting. When assets exceed the new threshold, the pension will be reduced by $3 per fortnight for every $1,000 excess of assets. So if assets exceed the new threshold by $100,000 the pension would reduce by $300 per fortnight, or $7,800 p.a. Those assets would need to earn more than 7.8% p.a. for the pensioner to be better off. This will not be easy to achieve and may result in some people reducing their assets and putting the money into their family home to achieve a better pension outcome (although this may reduce available liquid assets by $100,000).

Don’t forget the income test

Of course, the pension is calculated under two tests: an asset test and an income test (with the one that produces the lowest pension entitlement being applied). In all the hype about the asset test changes it is important not to forget the income test. The government has not reported any changes to the threshold or taper rate for this.

The income test does not assume a portfolio of purely cash and fixed interest. The current deeming rate on the amount above $49,200 (single) or $81,600 (couple) is 3.25%, a rate of return that is hard to get in cash or term deposits. The income test reduces pension entitlement by 50 cents per dollar above the income threshold (about $4,264 for single and $7.592 for a couple), regardless of whether it is actual income or deemed.

Let’s look at some examples, starting with a winner …

Betty is a single homeowner with $248,000 of assessable assets outside her home.

Her pension entitlement now is $819 per fortnight, and post 1 January 2017 her pension will be $877 per fortnight if the majority of Betty’s assets don’t produce income: for example cars, caravans, boats, vacant blocks of land and trusts don’t produce taxable income.

But what if Betty’s assets were primarily income producing? If she has $240,000 in investments and $8,000 in personal assets, then she is still a pension winner but her pension will increase by only $4 per fortnight not $58.

Now let’s look at those who will stay the same, which is basically anyone who is currently receiving the full pension. Why? Because the changes will increase the asset test thresholds but anyone on a full pension is already under the required level.

Kevin is a single homeowner with $130,000 in investments and $20,000 in personal assets. He is entitled to $877 per fortnight under the asset test and the same under the income test. From 1 January 2017, his pension will remain the same.

As an example of how people will lose out under these changes, Fred and Shirley are homeowners with $600,000 in investments and $50,000 in personal assets.

They currently receive $792 per fortnight of pension entitlement (combined) and they earn $15,000 p.a. from their investments, meaning that their combined annual income is a little over $35,000.

Post 1 January, their pension will drop to around $497 per fortnight (combined), which means that their combined annual income (assuming they continue to earn $15,000 p.a. from their investments) will be around $28,000.

The major consequences

There are a couple of key messages the government is sending to retirees in these changes. The first is that the means-testing arrangements are likely to get tougher not easier and the second is that cash and fixed interest investments are not risk free.

If investment returns are not sufficient to meet the cash flow needs of retirees, they will be forced to dip into their capital. Sure, if the investments are in cash or term deposits, they are not at risk of the same volatility as they are in shares. However, the irony is that avoiding the potential drop in the value of the investments due to market volatility doesn’t mean they are preserving the value of their capital. It’s just that the retiree is eating it, not the market.

The bottom line is that retirees need to take more responsibility (and maybe a little more risk) in meeting their retirement income needs. While these changes are the biggest we have seen in nearly 10 years, don’t expect they will be the last for another decade.


Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers specialising in aged care. This article is for general educational purposes and does not address anyone’s specific needs.


Bob Spermon
November 27, 2016

I wonder if the politicians are going on the same deal as the rest of Australia. Or will they still be giving themselves $200.000 plus every year when they retire?
Remember this next time you go to the polls.

Ken Gersbach
November 27, 2016

Yes that's right attack the pension. When these shocking governments need money to prop up their lunatic policies they go straight to pensions or the health budget.

Anne Powles
November 25, 2016

Perhaps it should also be related to pensioner age. There is quite a difference between a pensioner aged in the 60s and the need to continue to preserve some assets and a pensioner in the 80s who has obviously less worries about dipping into capital.

SMSF Trustee
November 07, 2016

"It is possible to earn 5% pa with absolutely minimal risk."

No it isn't! The risk free rate of return is 1.5% at the moment. For a ten year cash flow return that has no risk to the cash flows, but some mark to market volatility, the return is 2.4%. (IE 10 year government bonds)

Anything that will earn more than that carries risk. The risks are manageable, and it's possible to put a good portfolio together that over time can be expected to deliver 5% pa, but it's wrong and irresponsible to say that 5% is achievable without risk taking.

If I could find 5% risk free I'd be there for sure, but it's not possible.

rudi horvat
November 07, 2016

I did say minimal risk.
Government guaranteed [<$250K]term deposits pay up to 3.3% p.a. Rated direct bonds will take deposits as low as $10,000 and pay from 3.5 to 5.5% p.a. Highly rated income funds are delivering returns in excess OF 5% p.a. Well diversified long term investments can in deed be expected to return 5% p.a. with low volatility [low risk] over a 10-20 year periods.
My point is, that even if you earned 3% p.a. [term deposits] in the current environment. It is all about preservation of capital in retirement rather than overreaction to government or market uncertainties.

rudi horvat
November 06, 2016

Don't overreact . Think about it.
$100k draw down over 20 years is $5k p.a. plus interest. and it is possible to earn 5% p.a. with absolutely minimal risk. You also then recive increasing pension as reduction in assets occurs.
You retain your capital control and not take crazy risks, including greater exposure to investment risk.
Of course you are better off using your hard earned retirement savings and retaining your options then letting the market wipe it out.

Mark Hayden
November 05, 2016

..."Those assets would need to earn more than 7.8% p.a. for the pensioner to be better off"...this is, I believe, a terrible headline/hook by Graham, Chris or Rachel. To illustrate my point: Person A has $100,000 and eats into a bit of their capital to replace the Age Pension but is still better off than Person B. At end of year 1 Person A has $96,000 (say) and Person B has zero. And the rate of them eating into their capital slows down as Person A get more Age Pension each year.

SMSF Trustee
November 05, 2016

But your residence doesn't generate cash flow. How does its value make one bit of difference to your ability to fund daily living?

Melinda Houghton
November 04, 2016

I still find it incredibly inequitable that there is no upper cap on the non-assessed principle residence. It is very unfair for someone with a house worth $400,000 to lose age pension with the same amounts of other assets as someone with a house worth $1,200,000. In many suburbs of Melbourne, many people have decided to have lower value houses but have more cash to top up their retirement. This is now backfiring on them. Whereas those in high value properties can have their cake and eat it too.
Crazy. All they would have to do would be put an upper cap on the principal residence exemption to bring equity back to the equation. e.g. your house is exempt up to $750,00 or $1,000,000. Over that is assessed.

November 04, 2016

Spend $100k on a round the world trip for two and be $5300 a year better off for the rest of your life - the $7800 extra pension you receive less the $2500 you lose in term deposit interest on your $100k.

That's better than any annuity currently available.

My main concern with these changes is that it encourages pensioners to hide assets - the $100k in cash hidden under the mattress is also leaving you $5300 a year better off.

We should never put anyone in this situation, particularly old people who sometimes don't think completely rationally.

A couple retiring with $850k will no longer get a pension. If they want the closest equivalent to a pension, an indexed lifetime annuity, they will get around $28k per year to live on for the rest of their days. If they had never saved anything and were on a full pension, they would have $34k a year to live on.

This doesn't really encourage anyone to save for their retirement, does it.

November 04, 2016

Editor note: We don't recommend this but open it in the interest of debate.
I'm 67 and not a gambler BUT a friend of mine suggested picking a reasonably capable horse at the races at say 10 to 1 - use 100k of your Super by putting 50k to win and 50k a place bet. In the worse case if you lose the lot you still get the $7,800 extra pension for life (or $5,300 for life depending on how you look at it). The Government has not thought this through - us "middle roadkill group of 300,000" are not stupid!!

November 03, 2016

This pension change will backfire. Put your money into your home and take it out of other assets and earn 7.8% in extra pension. Easy.


Leave a Comment:



Biggest change in the Aged Care Interest Rate since the GFC

Three good comments from the pension asset test article

Survey responses on pension eligibility for wealthy homeowners


Most viewed in recent weeks

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

Latest Updates


The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.


Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.


The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.


The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.