As you would have heard, January 1 marked the start of a host of changes to the age pension.
Most of you would no doubt be well versed in the changes to the assets and income tests.
But there is one change that few people realise, and it could have an impact on pensioners who move into an aged care facility.
Under the old rules, a pensioner living in an aged care facility could rent out their former home and the income would be exempted from the income test for their age pension – as long as they paid some of their aged care costs periodically.
The former home was also exempted indefinitely from the social security pension assets test in those circumstances, whereas pensioners usually have the value of their former home assessed under the social security pension assets test after they have been in aged care for two years (unless the home is occupied by their partner, in which case it will continue to be exempt).
However, on January 1 that changed.
There are no longer exemptions for pensioners entering aged care, which means any rental income they receive will be included in the income test for the age pension.
That’s definitely something to keep in mind if you or a loved one are entering aged care this year.
The good news is the changes won’t apply to residents who entered aged care before January 1. They will still be able to have rental income from their former home exempted from the income test.
The changes bring aged care residents in-line with other pensioners, who have rental income from their home counted under the income test.
A Department of Social Services spokesperson said the changes helped ensure the pension system was “sustainable into the future” and made the pension means test “fairer and better targeted.”
“The income test exemption had already been removed from the Aged Care Income Test for those who entered aged care after 1 January 2016,” the spokesperson told Starts at 60.
“This change has simplified the social security system by aligning the pension income test treatment of rental income with the Aged Care Income Test.”
According to the Department, while those affected by this measure may lose some or all of their pension, that loss will be offset by the income from renting out their former home.
“The operation of the pension income test free area, and pension taper (withdrawal) rate of 50 cents for every dollar over the free area, means that pensioners are better off in terms of their total income while earning income from rent than when they are not receiving additional income,” a spokesperson said.
“If their former home is assessed under the social security assets test after two years, a pensioner in aged care has the option of renting out their former home to produce an income, or selling it and investing or drawing down the proceeds.
“The two year period provides time for those entering aged care to make decisions about their former home. If the home is occupied by their partner, it will continue to be exempt from the assets test.”
The changes will cause 330 pensioners to receive less pension this year, will 12 pensioners will lose their pension altogether.
In two years’ time that figure is expected to jump to 2900 people losing part of their pension, and 670 losing their pension altogether.
It’s expected the change will save the Federal Government $117.1 million over the forward estimates.
Councils on the Ageing Chief Executive Ian Yates told Starts at 60 the change wouldn’t have a huge impact.
“We in the sector generally thought it’s not an unfair thing,” he said.
“It’s about equity between different situations – why should one piece of income be excluded?
“This is consistent with trying to make the aged care fee system fairer.”
The changes come at a time when the aged care system is under review.