Christmas has come early for many self-funded retirees!
Last week the Prime Minister announced extraordinary and unexpected changes to eligibility for the Commonwealth Seniors Health Card (CSHC). This card is prized by seniors because it gives substantial concessions for pharmaceutical benefits and public dental work.
Anybody drawing an age pension is not eligible for the CSHC they receive the pensioner concession card instead.
What makes the CSHC different from most concession cards is that there is no assets test. There is an income test, but even before the changes, it could be fairly described as generous.
The income test takes into account your adjusted taxable income (ATI) plus the deemed income from any part of your superannuation from which you are drawing a pension. Currently, the income cut-offs are $57,761 a year for singles, and $92,416 a year for couples.
Think about Bill and Margot, who have a taxable income of $10,000 from investments outside super, as well as a total of $1.5 million in super, all in pension mode. Their income for CSHC eligibility would be $41,970 a year, made up of their ATI of $10,000 and which is the deemed income of $31,970 on their superannuation. They qualify easily.
The deeming rates used are the same as those used for the age pension income test. The announcement changing CSHC eligibility was accompanied by a promise that the deeming rates would be frozen for two years, so that age pensioners would be unaffected by any interest rate rises.
The changes just announced by the Prime Minister take the single cut-off to $90,000 and the couples cut-off to $144,000. These new limits will come into place on 1 July 2022.
Jack and Jill have a share portfolio of $900,000, producing an income of $34,000 a year, plus franking credits of $10,000, so their ATI is $44,000 a year.
They also have very large superannuation balances, but since the Turnbull government restricted the amount that could be held in the tax-free pension mode to $1.6 million back in 2016, they are most unlikely to have more than $1.7 million each in pension mode, unless their super fund has been performing spectacularly well.
The deemed value of their super would be $74,720 a year which, when added to their ATI, gives them a total income for CHSC purposes of $118,720. So this year they are over the cut-off for the CSHC, but next year they and a huge number of other self-funded retirees will be able to pick up a CSHC and its generous concessions.
Because its virtually impossible for a couple to have more than $1.7 million each in pension mode, the deemed income is virtually capped at $74,720 a year. This means there is space for a couple to earn another $69,000 a year and still stay under the $144,000 limit.
When you run the numbers, its hard to think of any scenarios where the people you are modelling do not fit the eligibility criteria. It may have been simpler to just give the CHSC card to everybody and save Centrelink all the paperwork.
Naturally, Labor quickly announced they would support both the new CHSC criteria, and the freezing of the deeming rates.
Freezing the deeming rates for pensioners is a worthwhile initiative in itself, but its hard to understand the rationale for giving the top 1 per cent of wealthy people in the country access to a pharmaceutical concession card. Australia is now heading for $1 trillion in debt, which at some stage will need to be repaid.
So why is our federal government offering not only middle class welfare, but upper class welfare?
I guess the reality is that senior Australians are the fastest growing group in Australia, and they all vote. But a concession once given is very hard to take back. The irony is that neither major party gets an electoral advantage: they're both offering the same concessions.
Noel answers your money questions
From time to time you have mentioned that if a person's death was imminent their attorney could withdraw all their superannuation, deposit it in their bank account to avoid the 15 per cent plus Medicare levy tax on death if their superannuation was left to a non-dependent.
I did not know an attorney could do that, but if I withdrew all my super before age 75 and re-contributed $330,000 as a non-concessional contribution, would that not achieve the same result?
It's not quite that simple. For starters, if you have both taxable and non-taxable components in your super, you can't elect what components will be included when you make a withdrawal. Therefore, a withdrawal of $330,000 could consist of both taxable and non-taxable component.
Furthermore, even though a non-concessional contribution forms part of the non-taxable component, its earnings will form part of the taxable component. Your strategy could reduce the effect of the death tax by increasing your non-taxable component, but it is not a perfect solution.
I am seeking clarification with respect to the Centrelink gifting rules for the age pension. Suppose a person gets a part age pension and also an income from their superannuation fund. Because they spend less than they earn their cash on hand will increase, and as I understand it, they are required to advise Centrelink whenever the balance increases by $2000.
As a result the pensioner progressively loses some of their age pension and so are punished for being frugal and for not spending all their income. Should the pensioner decide to make a gift to family members which would reduce their savings so that pension was not affected, would Centrelink take a dim view?
Or does Centrelink only worry about gifts made at the start of the pension, or if substantial assets were acquired by windfall such as an inheritance?
You can reduce your assessable assets by making gifts of up to $10,000 a year, with a limit of $30,000 in five years. Furthermore, you could spend money on travelling, or improving your home. I'm sure a resourceful person such as yourself could find a good use for the spare money. You could even stock up on your groceries.
I'm a single bloke age 68 and had to sell my house because of divorce. I have $1.2 million in superannuation plus a car and furniture. I'm currently renting at a cost of $24,000 a year, but am considering buying a home for around $800,000. Would this be a good option? I figure it may make me eligible for a pension.
If you buy a house, you will have free rent for the rest of your life and as you point out become eligible for a part single age pension. If your assessable assets were $380,000 your pension would be $659.10 a fortnight. To me buying the home is a better option as it gives you life time accommodation security as well as a part pension and the benefits go with that.
We are both 84 and on a part pension. We gifted $10,000 on June 25, 2021 and a further $10,000 on July 3, 2021. I am of the understanding that the maximum allowed by Centre Link is $30,000 over a three year period. Is this for each pensioner or for a couple?
Our wills are drawn that all our assets go to the surviving partner on the death of one of us. But now I have heard that the survivor may lose the age pension if this happens. To prevent this happening should we change our wills and leave the bulk of the estate to our two sons? Is there an inherent risk in that plan?
Luckily you have cottoned on to this sooner rather than later. The asset cut off point for a couple is currently $901,500 and for a single just $599,750.
I suggest you take advice about changing your wills so that the surviving spouse received at least a part pension when the other person dies. The gifting limits of $10,000 are per couple or per person. A couple does not get double this amount.
- Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org
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