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Do you qualify for this help in the crisis?

Among the many stimulus measures introduced by the federal government, deeming rates have been cut. This means a couple with up to $4 million in superannuation could be eligible for the Commonwealth Seniors Health Card (CSHC) and all the associated benefits. It also means that some age pension recipients will get a boost.

Many more qualify for this benefit

Consider this scenario:

1. A couple have the bulk of their savings held equally in super, and they are drawing a pension. The money they draw out of super is not taxable so it does not appear on their tax statement (this confuses a lot of people, as only account-based pensions are assessable for the income test).

2. This couple also has a smaller amount of savings in their joint bank account earning negligible interest. So although interest received is taxable, in reality, tax is close to zip.

3. For the CSHC eligibility test, the couple can receive a total combined income of $89,290.

As they receive zero income from their bank account, we then look at how big their super can be, before their deemed income is more than the threshold of $89,290.

The maths works like this:

  • The first $86,200 is deemed to earn 0.25% under the new deeming rates, so the first $86,200 of super savings contributes only $215.50 to the threshold of $89,290.
  • The balance is deemed to earn 2.25%. Working backwards from the capacity still left in the test, $89,290-$215.50=$89,074.50.
  • So at 2.25%, $89,074.50 is the interest on a sum of $3,958,866.66. Put these super balance amounts together, then the upper limit is $4.045 million.

Note, that the Transfer Balance Cap (TBC) on account-based pensions is $1.6 million (soon to be indexed to $1.7 million), so a couple is only likely to hold a combined account-based pension balance of more than $4 million if their investment performance has delivered a solid increase.

How many people realise they can have over $4 million in assets (other than their family home) and be eligible for a CSHC?

Additional context

Here is some extra perspective:

  1. Prior to deeming rate changes in 2019, the upper limit for a couple’s super savings (assuming no other taxable income) was about $2.8 million, then with the July 2019 changes it went to $3.03 million, and now $4.045 million (and $2.526 million for a single person)
  2. Meanwhile, the stimulus payment of two lots of $750 is available to holders of the CSHC. New applicants will miss the first payment, however they will be eligible for the second payment if they hold the card as at 10 July.
  3. Application is via myGov or using a downloadable form.
  4. Note that new applicants will have to go through a process to establish identity, but this can be done by phone, which makes things a bit easier.

Essentially, a couple with no other assessable income can have very high account-based pension balances (after May 1) and still be eligible for the CSHC and they may be able to receive the card before 10 July and collect the $750 stimulus payment.

Also, by my calculation, a CSHC offers savings of up to $1,180 a year due to a lower Medicare safety net, potentially more than $1,300 in support via the Pharmaceutical Benefits Scheme, and more savings based on the likelihood of bulk billing via medical practitioners who receive a higher payment if they bulk bill concession card holders (like CSHC).

Other benefits add up

From state to state there are other benefits such as the $250 Regional Seniors Travel Card and a $200 energy rebate in NSW, both of which have to be applied for).

Combined with the stimulus payment, a NSW couple in a regional area could receive more than $2,500 each in medical cost support, $250 each in Regional Seniors Travel Card, stimulus payments of $1,500 (each), and a $200 rebate on energy costs.

That could add up to more than $8,700 worth of support this calendar year, even with a superannuation balance of more than $4 million.

Consider also that if a couple has cash at the bank earning 2% (which is ambitious), they need to have about $4.5 million to get an income to the threshold amount to exclude them from eligibility for the card.

Throw in reduced dividends this year, reduced rental income from rental properties, reduced part-time work opportunities etc—and a lot of retiree couples who do not receive the age pension could easily be eligible for the Commonwealth Seniors Health Card.

 

Brendan Ryan is a financial adviser and Founder of Later Life Advice. This article is for general information purposes only and does not consider the circumstances of any person. People should make their own enquiries to confirm eligibility for anything described in this article.

 

10 Comments
John
May 24, 2020

Brendan,
Very good article. Most helpful once you review guidelines and understand your point on deeming rates applied.

Mikhail Tupitsyn
May 22, 2020

Bryan, thanks for taking the time to add these clarifications in the article. We are on the same page regarding your main message - CSHC has value for retirees and the test criteria for the card are very generous (even more so after the recent deeming rate changes). My point was to highlight some of the specific but important details about CSHC assessment. Because of the significant differences between CSHC and age pension eligibility assessment, many people misunderstand how CSHC works and incorrectly think they are not eligible.

Harty
May 21, 2020

For the CSHC eligibility test, the couple can receive a total income of $89,290.
My understanding is that $89,290 refers to taxable income, which for dividend income earners includes franking credits, thus reducing the actual income to considerable less.

Brendan Ryan
May 22, 2020

Harty,

The income test includes your taxable income - which would include franking credit as you mention, and also includes other ways that taxable income may be reduced - such as by adding back rental losses, employer benefits and superannuation contributions.

Note that if you were receiving franking credits as part of dividend income in your investments in an account based pension - this income is not counted, as the balance is deemed.

Brendan

Mikhail Tupitsyn
May 21, 2020

This article is confusing several things.
1. The only asset which is deemed for CSHC eligibility is the account-based pension (ABP). The cap on the ABP is $1.6M. It is impossible to have $4M in the ABP.
2. If super is still sitting in the accumulation account, it is not assessed at all for CSHC purposes.
3. All other investments are not deemed. Rather, the actual income generated from these investments is assessed.
In summary, new deeming rates only change deemed income from $1.6M of the maximum ABP amount and allow retirees to have slightly more investment or other income.

Peter
May 21, 2020

If the ACB was set up prior to the introduction of the cap you could have an unlimited amount I believe.

Mikhail Tupitsyn
May 21, 2020

Not really. "If you were receiving a retirement phase income stream(s) on 30 June 2017, you should have reduced the combined value to the $1.6 million cap otherwise you would have been liable to pay penalty tax on any excess. The new cap applies to everybody that has taken their superannuation as an income stream. If you were already in retirement with an income stream when the cap was introduced on 1 July 2017, your transfer balance cap will apply to the amount of superannuation interests that supported your retirement income stream as at 30 June 2017." https://www.superguide.com.au/retirement-planning/liberals-1-6-million-cap-pension-start-balances

Brendan Ryan
May 21, 2020

Mikhail,

You make a good point about the ABP cap of $1.6m. However, it is actually feasible, that investment returns could have increased the value of the ABP above the cap - subsequent to the transferral. I agree it is unlikely that a couple could have more than $4m in combined ABP holdings - an outlier case, but possible (and I have heard of a few cases of ABPs greater than the cap based on investment performance).

I also take your point about not being clear about super in accumulation not being counted - this is a really good opportunity to reduce assessable income for the test.

As for your third point, I think I am clear on that.

My point for the article is to draw attention to the fact that high superannuation balances can co-exist with eligibility for the CSHC - and recent changes leave more room for income outside of super.

I am passionate about helping later life Australians make the most of all entitlements - and I think the test for the CSHC is often misunderstood, or people can be confused with the impact of their assets upon their eligibility.

My focus is encouraging people to clarify why they ARE NOT eligible, if they think they are not, in order to mobilise should things change - and things are certainly changing currently.

Further - the Commonwealth Seniors Health Card is had to value for a lot of people - and I put some effort into doing that in this article. It is a very important part of the government support piece for a lot of people - and I think many more people who are confused about eligibility.

Finally - holding a Commonwealth Seniors Health Card allows more than just a lower Medicare Safety Net and access to the Pharmaceutical Benefits Scheme. However finding out about what the card can offer is difficult. As an example, in NSW the State Government offers a $200 rebate for electricity account holder who have a Commonwealth Seniors Health Card. Recent figures show only a 10% take-up - because people are not finding out about these programs, and making it through the application process. This is a focus of my business - the task of making sure all entitlements are understood and claimed - and getting to the bottom of CSHC eligibility is an important part of this.

Bruno Firriolo
May 21, 2020

Based on the information on the Services Australia website the deeming calculation in this article only applies to a couple who already receive an eligible government pension (in which case they would already get the same benefits as the CSHC). For non-government pensioners the Services Australia website says :
"If you’re a member of a couple and neither of you get a pension
The first $43,100 of each of your own and your share of joint financial assets has a deemed income of 0.25% per year. Anything over $43,100 is deemed to earn 2.25%."
Therefore, the reader needs to apply the correct deeming calculation to determine if they are entitled to the CSHC

Mick Ryan
May 21, 2020

The calculation of the deeming rate is if you’re a member of a couple and neither of you get a pension the first $43,100 of each of your own and your share of joint financial assets has a deemed income of 0.25% per year. Therefore if you are a couple you get $43,100 each which is $86,200 for a couple as long as you have at least $43,100 in assets each.


 

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