This article can be also found at this Hub Pages link, Assets and pension cuts.
Welcome to our
article,
Dear readers, this original article was written a few years ago, so, a few things may have changed since then. However, most things remain the same. so, let us talk about it. In a previous article, Australian pensioners alarmed, we talked about the disastrous budget that the treasurer Joe Hockey delivered on the 13th of May 2014, in this article we are continuing to talk about the pensions cut, and the effect it will have on pensioners. Depending on what sort of pensioner you are, these changes will affect you in different ways. So, there are pensioners that their pension does not change at all, some pensioners that will be losing part of their pension, and some will lose it altogether. So, if the pensioners are upset about this change, they are right to be upset. Because Joe Hockey should have taken into consideration the effect of the budget would have on the people.
Anyhow, now let us discuss an example, about Mr. and Mrs. Day, who own two houses, they live in one house and rent the other one.
So, let us talk about, how much pension they received before, then how much they receive now, and then compare this with other pensioner, whether they are being discriminated. Anyhow, we are setting this case, in a way that is easy to understand, so, all figures are well rounded figure, and therefore they have not been worked out mathematically.
So, Mr. and Mrs.
Day have about $580,000 worth of assets beside their own residence.
Before the 1st
January 2017 change, they received about $450.00 per fortnight each.
After the 1st
January change, they will receive about $350.00 per fortnight each;
So, they will be
losing about $100.00 per fortnight each. Now because they have problems with
renting the house. When the house is not rented, it is hard to live on $350.00
per fortnight. One must keep in mind, that a single pensioner that has no
assets, receives $873.90 per fortnight, and even they complain about living a
modest decent life.
Anyhow, let us talk
about owning and renting a house, because Joe Hockey budget, is a budget aimed
at ruining the small property investor. So, these small investors must decide
now, whether it is worth to keep things as they are, or they need to change a
few things, to live their life at the same level of other pensioners. So, now
let us look, how owning and renting a house affects the pensioners, if they can
receive a government pension.
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People owning and renting a house
People believe that
owning and renting a house is the way to go. If you talk to any real-estate
agent, they will tell you that it is profitable to own a rental house. But we
must ask ourselves if it is profitable all the time, or are there times, when
it does not work out in your favour, therefore, owning a second house is not the best thing to have, which is the
case of Mr. and Mrs. Day.
As we have said, today most house owners find it hard to rent their houses,
because there are too many vacancies here in Brisbane. So, Mr. and Mrs. Day,
had to rent their house for $400.00 per week, which is a low rent if one
considers the house value. Anyhow, they hope that the tenants will pay the rent
on time and will not damage the house while they are living there. They have
worked out that as things are, after paying all the bills, they can average in
a year about $200.00 a week net rent. They must estimate a conservative figure,
because there are too many vacancies, and there have been times, when their
house has been vacant for months.
After going over
all this rental stuff, we must start to think whether there is something wrong,
with the way’s things have been set up for Mr. and Mrs. Day. So, we should ask.
Did Mr. and Mrs. Day make a mistake when they invested in this rental property?
Because they were thinking that by having a property for rent, they could be
better off when they retied.
But now that the
assets-test is changed they are shocked, because their second house investment
is more a disaster than a benefit. In facts, they are worse off, because if
they had only the house they are living in, they would have received a lot more
pension, than what they are earning from their investment. So, they could have
more time for themselves, instead of trying to run their property for rent.
Today we can only
ask, what sort of government is this? They tell the people to save their money
for their old age, so that they can live a better life. But when the people
reach their old age, they turn around, change the laws and take away that money
from you. But this is not all that we need to say; you see, they make laws that
takes away money from the people on the government pensions, but they don’t
make laws to cut their own pensions that are huge compared to the rest of us.
You see, the means test, and the assets-test does not apply to their politician
pensions, so, they can own huge properties or anything else, they can earn
anything, and they still will receive their full government pensions and other
benefits. So, there is a law for the public and a different law for the
politicians.
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What some people could do?
When the laws
change, and those properties that you have worked hard for, they don’t earn
what you expected them to earn. You must start thinking many things including
about what you want to do, and what you can do with what you have.
In the case of Mr. and Mrs. Day, they are losing so much money that they must start thinking about a different set up, so that they can receive more pension than they are receiving now.
As we have said,
Mr. and Mrs. Day, are not on the best terms, they are living together, because
divorces and changes are costly, but because of what has happened to their
pension, they may have to divorce now. Because, now that their pension has gone
down more, they have lost that financial balance, which in a way kept them
together. So, they will be forced to divorce, because, if they are divorced,
they will receive a single pension each. But that is not all, they will own a
house each, and live in their own houses, so, they have no more assets, they
will not earn any money, so, they don’t have a mean-test or assets-test to go
through to receive their pension. therefore, they will receive the full pension
each. Now let us see what difference it will make.
Today they receive
about $350.00 per fortnight each.
If they are
divorced and live in their own houses, they will receive, $873.90 each per
fortnight.
Which is a lot more
than what they receive today, the only question left here is will they do it?
Anybody that is
losing that much money will certainly do it, to make sure, let us look at those
figures again, but this time let us see, how much money they are losing in a
year, if we work both pensions together:
Now, they would
receive about $700.00 per fortnight, in a year they are receiving $18,200.00.
If they divorce,
they will receive 873.90 each per fortnight, which will be $22,721.4 each.
Or 45,442.8 per year. So, they are losing $27,242.8 government pension in a year.
If people start
divorcing to receive a full single pension in the future, you cannot blame
them, because they have been pushed from the government to do it. If the
assets-test had not changed, this would not happen.
Now, let us talk
about pensioners owning properties.
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Pensioners owing properties
The pensioners that own a rental property today are in a lot of trouble, because everything has turned against them. The government changes the assets-test and cuts the pensions down. Then the properties cannot be rented unless they rent cheap, and, they cannot sell their properties easily, because when a business makes not enough money, it is hard to sell.
But there is more,
when their rental property is sold, it is subject to the gain tax, here again the
government is robbing what is rightfully yours. They are robbing you, because
if you want to buy another property of about the same value somewhere else, you
must pay the gain tax, which is based on the difference in price, when you
bought the property the first time. If you have bought the property a long time
ago, for sure there will be a lot of gain tax. Now, I want to point out, if you
need to buy another property of the same value, for personal reasons, why you
must pay this gain tax, you really haven’t gained anything at all, because you
still have a property of the same value. But the government does not accept
this explanation, they work on the difference of the price when you bought it
the first time.
Now let us look at
some other real-estate problems. Some of you may think that I am exaggerating,
because everybody things that the properties are always going up. But I tell
you what, the boom on the property market for me is already ended, but people
are not aware of it yet. When I drive around the street of Brisbane, there are
too many signs of places for rent and for sale, when a few years ago, there
were none. So, everybody that owns real estate should brace themselves now, for
the rough ride ahead, this will also affect the pensioners that happen to own
properties.
Anyhow, we want to
conclude this article now, by saying that the pensioners are having a hard time
no matter where they turn, they find problems.
Therefore, in the
future, they better plan to own just one house, and then collect the full
pension from the government.
I believe that I have said enough in this article. So, see you in our next article, The Assets Test Dilemma.
To see more click on this link,Assets and pension cuts.
See you soon.
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