This article covers the benefits to holders of the Commonwealth Seniors Health Card
A client who runs his own dry cleaning business came to see me last week. Barry was in a bit of a state. He told me it had suddenly dawned on him he wasn’t far off retirement and had been reading all these stories in the paper about how much a person needed to have in super for a comfortable retirement.
The final straw was when Barry started putting feelers out about selling the business he’d shed blood, sweat and tears over for so long. Buyers were only prepared to pay half what he thought it was worth.
The Commonwealth Seniors Health Card (CSHC) provides self-funded retirees and workers over pension age with concessions on prescription medicines and a range of other benefits, such as:
- Bulk-billed doctor appointments (at the doctor’s discretion).
- Lower PBS Safety Net threshold.
- Concessions on health, transport and education costs provided by state governments.
- Retail discounts and concessional rail travel on some services.
Eligibility for the CSHC is subject to an income test which has recently undergone significant amendments. Since 1 January 2015, changes to the way the income test is applied have made it a little more difficult for new applicants to qualify for the CSHC.
The changes apply to:
- New applicants for a card who have an account based pension.
- Current card holders who start a new superannuation pension or change pension providers.
- Existing card holders who travel overseas for longer than 19 weeks.
Current card holders who do not make changes to their account based pensions are not affected.
What has changed?
From 1 January 2015 account based pensions are included in the CSHC income test in the same way as non-superannuation financial investments. The income is calculated using Centrelink’s deeming rates, not the actual payments received from the account based pension.
The aim of these changes is to ensure that people with similar incomes are treated consistently. Prior to these changes it was possible for retirees to hold very large sums of money in account based pensions and still be eligible for a CSHC.
Who is eligible?
The CSHC is available to those who have reached Age Pension age but do not qualify for a payment from Centrelink or the Department of Veterans’ Affairs.
Singles are eligible for a CSHC if their annual income is less than $52,273. For couples combined, the limit is $83,636. Account based pensions are included in the calculation of this income.
For a single person relying entirely on financial investments for their income, the first $48,600 of their investments is deemed to earn 1.75% per annum, and any amount above this, 3.25% pa. At these rates, a retiree can have total financial investments of up to $1,607,046 and be eligible for the card.
For a couple, and assuming investments are split reasonably evenly, the first $80,600 is deemed to earn 1.75% pa and the remainder 3.25% pa. So combined, a couple will need to have less than $2,572,584 in financial assets to qualify.
Be aware that figures quoted may not be so clear cut. Other factors can come into play when determining eligibility, including which year’s income Centrelink will apply the test.
Current holders of a CSHC who go overseas for more than 19 consecutive weeks will lose the card. On their return they will have to apply for a new one, and the new rules will apply.
Retirees who commenced an account based pension before 1 January 2015 and who transfer this to a new pension will also be assessed under the new rules.
Another aspect to be cautious of is that deeming rates can change. Although these have recently reduced, if rates increase so will the amount of deemed income and card holders who are close to the income thresholds may lose their cards.
While it is possible to construct financial strategies that can help people qualify for a CSHC, these may be detrimental to their long-term financial position. It is therefore important to talk to us so we can examine your overall situation, and advise on the best course of action.