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The Australian Government uses the means-test as a way of managing thepension budget. Changes in Age Pension policy impose difficulties in retirementmodelling due to policy risk, but any major changes tend to be `grandfathered'meaning that current retirees are exempt from the new changes. In 2015, twoimportant changes were made in regards to allocated pension accounts -- theincome means-test is now based on deemed income rather than accountwithdrawals, and the income-test deduction no longer applies. We examine theimplications of the new changes in regards to optimal decisions forconsumption, investment, and housing. We account for regulatory minimumwithdrawal rules that are imposed by regulations on allocated pension accounts,as well as the 2017 asset-test rebalancing. The new policy changes are modelledin a utility maximizing lifecycle model and solved as an optimal stochasticcontrol problem. We find that the new rules decrease the benefits from planningthe consumption in relation to the means-test, while the housing allocationincreases slightly in order to receive additional Age Pension. The differencein optimal drawdown between the old and new policy are only noticeable early inretirement until regulatory minimum withdrawal rates are enforced. However, theamount of extra Age Pension received for many households is now significantlydifferent due to the new deeming income rules, which benefit slightly wealthierhouseholds who previously would receive no Age Pension due to the income-testand minimum withdrawals.

The 2015-2017 policy changes to the means-tests of Australian Age Pension: implication to decisions in retirement