The 2018 Federal Budget

This post provide a quick overview of the 2018 Federal Budget as it relates to pending or actual early retirees. Not many measures impacting early retirees were announced in this budget, but those that were can only be described as beneficial. Let’s have a look at the most important ones.

The Pension Work Bonus

If you are on the Aged Pension, you can now earn an additional $50 per fortnight without a reduction in pension. We discussed the original pensioner earnings limitations in the Australian Super and Age Pension Rules post.

The Pension Loans Scheme

We discussed this in the Downsizing post. The Pensions Loans Scheme is a Government-run reverse mortgage scheme for pensioners, which, until now was only available under these circumstances:

• You (or your partner) must be over Age Pension age.
• You must have equity in Australian Real-estate.
• You must not be drawing the full age pension.
• Your ineligibility for the full age pension must not be due to both the assets test and the incomes test.

If you were eligible:

• The most you could receive is the difference between the Age Pension and your present part Age Pension (which may be zero). The amount is paid fortnightly (i.e. it cannot be taken as a lump sum) and is not taxable. So, for example, if you are not eligible for the Age Pension at all, you could receive up to the Age Pension.

As mentioned in the original post, these rules are pretty restrictive and would only really apply if you have illiquid assets in addition to your PPOR which you cannot access to cover living expenses.

In the new scheme, there is no longer the restriction that you are not drawing the full age pension, and also the amount that you can borrow is the amount that brings you up to 150% of the Age Pension. So, for a couple at present rates, this would be approx $53,360.

I predict that this scheme will be quite popular as the interest rate is lower than private schemes (but does have the restriction of the amount you can borrow, e,g, no lump sums).

Works Test and Super Contributions

In the Australian Super and Age Pension Rules post we mentioned that “you cannot make non-concessional contributions to Super if you are over 65 unless you pass the works test.”.  You can now contribute to Super during the first 12 months after 65 if your Super balance is less than $300K without having to satisfy the works test.

How will these measures affect us?

As usual, we will look at how these measures will affect us.

The new Pension Loans Scheme looks attractive and something we could use, depending on how long we are looking at staying in our current residence and how much funds we need. It’s something we would assess further into retirement.

The other measures don’t really impact us.

Conclusions

The 2018 Federal Budget does not have any major impacts on pending or actual early retirees. The most significant one is the updated Pensions Loans Scheme, which, depending on circumstances, could be quite attractive.