Media Release: Up to 300k part-pensioners likely to be worse off following 1 Jan asset test changes

30 November 2016: Australian retirees will need to quickly rethink their retirement income approach if they are to maintain their standard of living in 2017, according to a new paper by fund manager and pensions specialist Plato Investment Management Limited.

Dr Don Hamson, Managing Director of Plato Investment Management, says that while the 2015 Budget Papers state 170,000 pensioners will be better off after the new asset test changes are implemented, up to 300,000 part-pensioners are likely to be worse off as they lose pension entitlements1.

The looming changes compound a raft of new super rules just passed by the Government last week, which from 1 July 2017 will see Australians working longer to maintain their retirement income levels.

Under the asset test changes, which start from 1 January 2017, a home-owning couple will lose access to a partial aged pension if they hold over $816,000 in assets, a reduction of $350,000 from the current rules. Similarly, a single home-owner will lose access to a partial aged pension if they hold over $542,500 in assets – a reduction of over $250,0002.

The reason for this change is the doubling of the taper rate: currently, the aged pension reduces by $1.50 per fortnight for every $1,000 in assets above the full pension assets test amounts. This will double to $3 per fortnight, or $78 per year. In effect, this means the new taper rate assumes pensioner assets earn 7.8% p.a.

Dr Hamson believes it will be imperative for part-pensioners to review their investment portfolios prior to 1 January if they hope to maintain their lifestyle living off the income generated from their assets.

“In our low-return world, we believe most asset classes will likely struggle to deliver 7.8% p.a in returns, especially the conservative asset classes such as cash and fixed income favoured by many in the pension phase.”

“Pensioners wanting to maintain their income may need to consider the return potential of the Australian and global equities markets, and use investment strategies that prioritise income, as well as tap-into their status as ‘tax-free’ investors, harnessing the benefits of franking credits to deliver stronger returns.”

Realising the increasing pressure on retirees to fund a decent retirement, Plato has developed a range of investment strategies that aim to specifically cater to people in the pension phase of life – aiming to deliver high yield and tapping into the potential of franking credits to improve returns.  The approach has proven popular with large super funds offering pension solutions, as well as with advisers looking to help clients maximise their income in retirement.

Dr Hamson said that while he estimates the S&P/ASX200 could generate yields of approximately 6% per annum in the near term, a fund designed specifically for the needs of retirees can potentially deliver higher income levels despite the current market environment.

“The Plato Australian Shares Income Fund, for example is managed specifically for low tax investors, and has delivered an after fee income of 9% p.a3. and a net total return of 12.7% p.a. since inception4 to end of October this year, partly as a result of effective use of franking credits,” concluded Dr Don Hamson.

For further information on the impact of the asset changes on pensioners, please find Plato’s white paper ‘Analysing the 2017 Asset Test Changes’ available here, or view Dr Hamson’s recent webinar which covers the issue here.

About Plato Investment Management Limited

Plato Investment Management Limited is an investment management firm specialising in objective-based global and Australian equity investment solutions for wholesale and retail investors.  Plato has a particular focus on managing money for retirees who have distinctive tax and income requirements.  Majority owned and operated by its investment staff, Plato is supported by its minority equity partner, Pinnacle Investment Management Group Ltd a leading multi-affiliate investment management firm. For more information please visit www.plato.com.au

[1] http://www.superguide.com.au/smsfs/300000-retired-australians-to-lose-some-or-all-age-pension-entitlements

[2] www.humanservices.gov.au/customer/enablers/assets

[3] Includes accrued but not yet distributed dividends and franking credit as income.

[4] Fund inception date is 9 September 2011. Performance figures include franking credits, and are after applicable fees, costs and taxes. Past performance if not a reliable indicator of future performance.

Plato Investment Management Limited ABN 77 120 730 136 (‘Plato’), Corporate Authorised Representative (No. 304964) of Pinnacle Investment Management Limited ABN 66 109 659 109 AFSL 322140.

Any opinions or forecasts reflect the judgment and assumptions of Plato and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained in the information are estimates only.  Such projections or estimates are subject to market influences and contingent upon matters outside the control of Plato and therefore may not be realised in the future.  The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. This communication is for general information only. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice relevant to their particular circumstances, needs and investment objectives.

Interests in the Plato Australian Shares Income Fund (ARSN 152 590 157) (‘Fund’) are issued by Pinnacle Fund Services Limited, ABN 29 082 494 362 AFSL 238371, the Responsible Entity of the  Fund. The Responsible Entity is not licensed to provide financial product advice. Plato is the investment manager of the Fund. A copy of the most recent Product Disclosure Statement (‘PDS’) for the Fund can be located at www.plato.com.au/retail-funds.  You should consider the current PDS in its entirety and consult your financial adviser before making an investment decision. Pinnacle Fund Services Limited and Plato believe the information contained in this communication is reliable, however its accuracy, reliability or completeness is not guaranteed. Past performance is not a reliable indicator of future performance.

About Plato Investment Management Limited

Plato Investment Management Limited is an investment management firm specialising in objective-based global and Australian equity investment solutions for wholesale and retail investors.  Plato has a particular focus on managing money for retirees who have distinctive tax and income requirements.  Majority owned and operated by its investment staff, Plato is supported by its minority equity partner, Pinnacle Investment Management Group Ltd a leading multi-affiliate investment management firm. For more information please visit www.plato.com.au

[1] http://www.superguide.com.au/smsfs/300000-retired-australians-to-lose-some-or-all-age-pension-entitlements

[2] www.humanservices.gov.au/customer/enablers/assets

[3] Includes accrued but not yet distributed dividends and franking credit as income.

[4] Fund inception date is 9 September 2011. Performance figures include franking credits, and are after applicable fees, costs and taxes. Past performance if not a reliable indicator of future performance.

Plato Investment Management Limited ABN 77 120 730 136 (‘Plato’), Corporate Authorised Representative (No. 304964) of Pinnacle Investment Management Limited ABN 66 109 659 109 AFSL 322140.

Any opinions or forecasts reflect the judgment and assumptions of Plato and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained in the information are estimates only.  Such projections or estimates are subject to market influences and contingent upon matters outside the control of Plato and therefore may not be realised in the future.  The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. This communication is for general information only. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice relevant to their particular circumstances, needs and investment objectives.

Interests in the Plato Australian Shares Income Fund (ARSN 152 590 157) (‘Fund’) are issued by Pinnacle Fund Services Limited, ABN 29 082 494 362 AFSL 238371, the Responsible Entity of the  Fund. The Responsible Entity is not licensed to provide financial product advice. Plato is the investment manager of the Fund. A copy of the most recent Product Disclosure Statement (‘PDS’) for the Fund can be located at www.plato.com.au/retail-funds.  You should consider the current PDS in its entirety and consult your financial adviser before making an investment decision. Pinnacle Fund Services Limited and Plato believe the information contained in this communication is reliable, however its accuracy, reliability or completeness is not guaranteed. Past performance is not a reliable indicator of future performance.

 

 

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