Regulatory topics stumping advisers revealed

Pain points for advisers include the $4,000 increase to the ‘work bonus’ for pensioners, which serves to incentivise Australia’s seniors to earn more income from work, and the eligibility rules for downsizer contributions, according to questions posed to BT’s technical team by financial advisers.

Tim Howard, technical consultant at BT, said: “The eligibility rules and concessions for the age pension have evolved over time. Overall, social security measures for senior Australians can be complex, so any updates to the regulations can result in the need for advice.”

BT said its technical services team fields over 2,000 queries from advisers every quarter.

The rate of inflation, increase in income thresholds for Seniors Health Card, and federal budget announcement on increasing childcare assistance, were also driving questions from advisers from October to December 2022.

Issues for older Australians

Age-pension-eligible Australians can now earn up to $11,800 from working without reducing their pension, up from the previous figure of $7,800. Pensioners have up to December 2023 (extended from the original June 2023 deadline) to utilise the additional $4,000 in their income bank.

Mr Howard explained that while the increase to the work bonus income bank is a welcome one for many clients, how it actually works across this current financial year, and the next one is resulting in queries from advisers. 

“They are seeking clarity on how their clients are impacted individually.”

Moreover, the Treasury Laws Amendment (2022 Measures No. 2) Act 2022 has now passed, lowering the eligibility age for downsizer contributions from 60 to 55.

Clients also need to have owned their home for 10 years or more, though Mr Howard cautioned that the consequences of selling the principal home should be weighed carefully.

“Downsizing can ease cost-of-living pressures for many Australians; not only does it free up money, [but] the maintenance costs for a smaller home are also usually lower. In addition, the ability to make up to $300,000 in downsizer contributions to super tax-free can boost retirement savings significantly,” he said.

“However, as part of retirement planning, clients who are receiving an age pension, or expecting to down the track, should be made aware of how age pension means testing may be impacted.”

Also of note for advisers serving seniors is the substantial increase in the income thresholds for the Commonwealth Seniors Health Card, which gives seniors access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme.

Effective from 4 November 2022, the income threshold for singles is now $90,000, up from $61,284, and for couples, it is $144,000, up from $98,054.

Inflation affecting indexation

Mr Howard also drew attention to the current inflationary environment, which could have a significant impact on a number of legislated thresholds that use regular indexation to ensure the amounts stay in line with inflation.

Superannuation thresholds, for example, could be affected.

BT said that based on current inflation, the general transfer balance cap, which is currently at $1.7 million, would be raised to as high as $1.9 million from 1 July 2023, unless legislative changes are introduced.

Mr Howard said: “If you have clients who are planning to start a retirement income stream before 30 June 2023, it is worth considering if this would lead to the best outcome for them”.

“Would they be better off delaying the commencement of the income stream until after 1 July 2023 so they can gain the maximum indexation benefit?”

Childcare assistance

Additionally, Mr Howard explained that advisers with clients who have young families need to be taking into account the substantial increase to the Child Care Subsidy (CCS) rates, applicable from July 2023. 

CCS rates will increase from 85 per cent to 90 per cent for families with a combined income of less than $80,000. The CCS will be reduced by 1 per cent for each additional $5,000 of annual income.

Mr Howard said: “Although the CCS increase is not effective for another six months, it’s not too early for busy parents to start planning for any adjustments to their household budgets and work commitments in the new year. Any extra support relating to childcare costs would be a welcome reprieve for many.”