As many as 1.42 million people could be eligible for higher age pension payments after the coronavirus crash.
The problem they face is that they need to apply to a wildly overstretched Centrelink to get access.
Currently there are about 1.1 million Australians on part age pensions because they have too many assets to allow them to qualify for the full pension.
A further 318,000 people lost the right to a part pension or had it reduced when the government changed the taper rate for asset values in 2017.
“Given the heavy falls on share markets, a pensioner couple who had $600,000 before the crisis could have seen their assets fall to $400,000, which means they would be eligible for a full pension,” said Ian Henschke, chief advocate with National Seniors.
“There is also a large group of about 100,000 who lost their part pension when the taper rate was increased who might now be able to claim a part pension,” Mr Henschke said.
The taper rate for part pensions was increased from $1.50 to $3 for every $1000 held in assets above the asset test limits from the beginning of 2017.
Paul Versteege, policy chief with the Combined Pensioners and Superannuants Association, said pensioners needed to take stock of their situation.
“If you find your investments have fallen you can ask Centrelink to re-asses your assets,” he said.
If the value of your fund has gone down you might find you are in a different pension bracket and get a pension increase, or start to get the pension for the first time.”
“A lot of people did that during the GFC but it could be hard to engage with Centrelink in the current environment,” Mr Versteege said.
Long queues have formed at Centrelink offices and its associated website has crashed as newly unemployed people seek assistance.
An extra benefit from reassessment of a pensioners assets would come from the reduction in deeming rates on assets held by pensioners.
The government cut the lower deeming rate to 0.5 per cent and the upper rate to 2.5 per cent.
Those lower rates are notionally applied to income earned on assets held by pensioners with the government assuming assets earn these returns for calculating the pension incomes test regardless of their actual earning rate.
The first rate applies to assets owned by couples up to a value of $86,000. The second rate is applied to asset values above that.
The changes are likely to benefit 900,000 people on different government welfare payments and will cost Treasury about $900 million.
These changes will be applied automatically without beneficiaries have to do anything.
Superannuation fund members looking to take advantage of the new provisions that will allow them to take up to $20,000 from their super fund if they lost their job or their business revenues are hard hit needed to take into account their insurance needs, said Ian Fryer, research chief with Chant West.
“A lot of people who take that option might be in low paid jobs and end up taking out all their super balance,” Mr Fryer said.
If that’s the case they will lose their insurance as well.
Default superannuation provides basic life and incapacity insurance cover and losing this could leave workers and their families exposed to accidents, illness and death if they lose it unwittingly.
“Even if you don’t take out all their super, recent changes mean that if you have less than $6000 in your super fund you have to opt in to insurance and a lot of people will not know that,” Mr Fryer said.
That would mean that if an account falls below $6000 and a member does not opt in they will find themselves with no insurance cover.
Cost of withdrawals
Mr Fryer said that while the government had estimated the $20,000 withdrawal measure as likely to see $27 billion removed from the super system, “I think it will be a fair bit higher than that.”
While the system overall will be able to deal with the withdrawals some funds whose members face large scale job losses could need support.
“The RBA or the ATO could say ‘ok we expect you to be able to pay out 3 to 4 per cent of your funds but if it is more than that we will help you out and you can repay it in 12 months or so’,” Mr Fryer said.
While wealthier retirees may take advantage of the government’s reduction of the minimum annual drawdown to between 2 and 7 per cent a year its effect would “be dwarfed by the right to withdraw $20,000,” Mr Fryer said.
“It might see one hundredth of the funds taken out with the $20,000 withdrawals remain in the system.”
Highlighting that the benefits would flow largely to the wealthy, research house Rice Warner observed “the top 100 self-managed super funds hold $79 billion and the decision will ensure they will hold about $2.5 billion extra in their funds for at least another year.”
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