This is the last Q&A for 2014. Q&A will return on 7 February 2015.
Q My wife and I are self-funded retirees who don’t qualify for the Age Pension due to the Assets Test. We draw income from our Allocated Pensions of approximately $110,000 a year. We own our home outright and have approximately $100,000 in Australian Shares. I understand there are changes to our eligibility for the Commonwealth Seniors Health Card (CSHC) from 1 January. We currently have the card but we are worried about losing the benefit.
A A self-funded retiree who does not qualify for the Age Pension may be entitled to receive the Commonwealth Seniors Health Card (CSHC). The CSHC provides a raft of benefits including concessional rates for medicine, concessions under the Medicare safety net, entitlement to the Seniors Supplement and Energy supplement and additional discounts and concessions on services such as transport and recreation activities offered by State and local governments.
To qualify for the CSHC, you need to be of Age Pension Age, live in Australia, be ineligible to receive the Age Pension and satisfy an Income Test.
Income for a couple needs to be less than $82,400 a year or $51,500 for a single person. The definition of income is Taxable Income, foreign income, fringe benefits and Superannuation contributions made by an employer or where you claim a tax deduction.
Here in lies the major change. As with qualifying for the Age Pension, a portion of your yearly Allocated Pension income may not be assessed as income. Up until 31 December the commencement value of an Allocated Pension is divided by your life expectancy, this is referred to as the Non-Assessable portion (NAP). Annual income drawn from an Allocated Pension up to this amount is not assessed for Centrelink purposes. Provided lump sums (commutations) are not taken, the NAP of Allocated Pension income remains non assessable into perpetuity.
From 1 January 2015 the eligibility test for CSHC changes. Allocated Pensions established from 1 January 2015, will be subject to Centrelink deeming rules for the Income Test. The current deeming rates are 2% for couples on their first $79,600 of assets and then 3.5% thereafter. No portion of the income drawn from an Allocated Pension will be exempt from assessment (no NAP). Income from other assets will continue to be counted as taxable income. Curiously, assets held in a Superannuation fund are not deemed, this is in contrast to the treatment of Superannuation held by those over 65 who have these assets deemed when applying for the Age Pension.
So under your current arrangements, as a consequence of the favorable treatment of the NAP of your Allocated Pension, you are under the income test even though your actual income is above the limit. Your existing arrangements are protected (“Grandfathered”) provided you continue to qualify for CSHC. You will lose the protected status of the NAP of the Account based Pension if you close your Allocated Pensions or you lose eligibility for the CSHC. Be careful with your foreign travel, you will lose eligibility for the card if you are absent from Australia for more than 19 weeks. .
There has been considerable media surrounding changes to the assessment of Account Based Pensions and the importance of applying for the Age Pension prior to 1 January 2015. Self-funded retirees may have ignored the issue in the false belief that it has no impact on their circumstances. This may not be the case. Anyone who is eligible to apply for CSHC should apply prior to 31 December as they may not qualify under the new arrangements from 1 January 2015.