Sheena Stow-Smith from PensionHelp answers reader questions about super pensions and the Commonwealth Seniors Health Card.
Q: I commenced my compulsory pension drawdown in my SMSF in 2012. I couldn’t apply for a Commonwealth Seniors Health Card at that date as I hadn’t reached the official retirement age at that time. My birth date is 01/09/1951. My question is, am I entitled to be exempt from the deeming being applied to my current super balance, as my pension had started well before the new rules came into effect?
A: Unfortunately, no. From 1 January 2015, account-based income streams are included in the income test. Assuming you were granted the card from as early as you eligible date, your Age Pension age in Sep 2016, you would fall under the current assessment. The current income test for claims of the Commonwealth Seniors Health Card (CSHC) is:
- Your annual adjusted taxable income, plus
- Deemed income from any account-based pensions.
This would include any pensions you have commenced inside an SMSF or any other retail provider, regardless of the start date.
Any amount you have retained in the accumulation phase (not drawing an income) would not be deemed.
Grandfathering provisions may apply to some already in receipt of the card benefits.
A person who is an owner of an account-based pension purchased before 1 January 2015 and held a CSHC on 31 December 2014 will not have their account-based pension included in the income test for as long as they:
- continue to hold a CSHC, and
- retain the same account-based pension.
If the person ceases to be the holder of a CSHC for any period of time, their account-based pension will be subject to the income test if they become a CSHC holder again. If they purchase a new account-based pension after 31 December 2014 or roll over an existing account-based pension into a new account-based pension after 31 December 2014, their new pension will be subject to the income test.
Q: Could you please advise if superannuation pensions (in the pension phase), form part of the assessed income for the purpose of determining eligibility for a Commonwealth Seniors Health Card? Does it form part of the income from all sources?
A: As mentioned above, the current income test for new claims of the Commonwealth Seniors Health Card is:
- Your annual adjusted taxable income, plus
- Deemed income from any account-based pensions.
So yes, this would include any super pensions you have commenced regardless of the start date.
Q: My wife has a sizeable super account-based income stream (an allocated pension), which she has had since 2002. We each have a Commonwealth Seniors Health Card (CSHC), which we have held for over 10 years. Income is not deemed on the allocated pension, because it is grandfathered under the 1 January 2015 changes. I understand that, if she now changes the income stream, deeming will apply and we could lose our CSHC under the income test.
My question is, what constitutes a change?. We are considering a change of provider because her present provider continues to underperform. If we simply change the provider to say Australian Super, will income be then deemed on the allocated pension balance or is there a way to avoid this? It seems most unfair, and surely not intended by the legislation, that we could lose our CSHC because a change was forced by our current provider so underperforming.
A: Let me answer your question in two parts.
What constitutes a change?
If you purchase a new account-based pension or roll over an existing account-based pension into a new one, your new pension will be subject to the income test. So yes, rolling over your wife’s pension would be considered a ‘’change” (see example 3 below).
The following examples show who is and isn’t eligible for a CSHC.
Example 1: Irene has a CSHC on 31 December 2014 andan account-based income stream.
Irene is 75 years old, married, and the holder of a CSHC on 31 December 2014. Irene has an account-based income stream, which was purchased before 1 January 2015. Because of the grandfathering provisions, Irene is NOT affected by the changes to the treatment of account-based income streams in the CSHC income test, which came into effect from 1 January 2015.
Example 2: Jasmin claims CSHC on or after 1 January 2015.
Jasmin is single and turned 65 on 15 January 2015. Jasmin is a self-funded retiree and is drawing down on her account-based income stream. Under the CSHC income test that began on 1 January 2015, Jasmin’s account-based income stream is assessed under the deeming rules.
Example 3: Sachin changes his account-based income stream after 1 January 2015.
Sachin is 80 years old, single and the holder of a CSHC. Sachin has an account-based income stream, which he purchased in 2008. Because of the grandfathering provisions, there is no income assessed by Centrelink from this income stream product. However, Sachin decided to move his existing account-based income stream to another account-based income stream product. As a result, he loses his grandfathering status for this product, and the account balance of his new account-based income stream is assessed under the deeming rules.
Example 4: David and his partner Deb both own an account-based income stream.
David is aged 68 and the holder of a CSHC on 31 December 2014. David has an account-based income stream. Under the CSHC income test, David’s account-based income stream is NOT assessed and is grandfathered. However, his partner Deb, who turned 65 in February 2015, has an account-based income stream which is not grandfathered and is assessed under the deeming rules.
Example 5: Ron has an account-based income stream with a reversionary provision with his wife Julie as the nominated beneficiary.
Ron is aged 85 and is the holder of a CSHC on 31 December 2014. Ron’s account-based income stream is grandfathered and not included in the CSHC income test.
Ron’s account-based income stream reverts to Julie on his death. If Julie is a CSHC holder at the date of reversion, the account-based income stream will continue to be excluded from the CSHC income test.
Managing under performance
Exceptions to the deeming rules applying to the CSHC can only be applied for failed financial investments, not for periods of underperformance.
Failed financial investments are considered for deeming exemption using the following guidelines:
- the policy intent will not be compromised by the granting of an exemption,
- the financial investments are not operating to provide any returns, and
- investors have no access at all to the investment capital.
Some investments may experience short term difficulties to achieve their performance targets. Deeming exemptions are provided for financial investments that have failed fundamentally, not for those in short term difficulties.
You can contact a Deeming Exemptions Officer, at deeming@dss.gov.au to ask for an assessment if you feel a current provider is considered a failed financial investment.
To summarise: I feel you may be disadvantaged and loose the grandfathered provisions if you decide to switch providers. This may mean weighing up the current and future benefit the Commonwealth Seniors Health Card offers and the potential for higher performance from a different pension provider. It may be possible to move part of the funds to another provider if the amount transferred keeps your deemed and adjusted taxable income below the below thresholds:
| Situation | Adjusted Taxable Income and Deemed Income from Account based pension from 1 Jan 2015 | |
|---|---|---|
| Cut out Income: Single | $57,761 | Increases by $639.60 for each dependent child |
| Cut out Income: Couple | $92,416 combined | Increases by $639.60 for each dependent child |
| Cut out Income: Couple separated by illness | $115,522 combined |
I would recommend you seek financial advice to proceed with any changes to help you weigh up your options and achieve your goals.
This article was originally published on Age Pension Guide.
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