(Please note that we have edited this article from the original version after checking a detail on the eligibility calculation. See footnote at end).
Everyone is aware that age pensioners receive a Pensioner Concession Card with its considerable range of health benefits and discounts. Part pensioners also receive the card, even if they receive only a few dollars in pension per fortnight.
This is just one more incentive for retirees to arrange their affairs to be eligible for even a small part age pension.
What about the CSHC?
Many independent retirees incorrectly assume that, because they do not receive the age pension, they are not entitled to a health card. They may be unaware of the Commonwealth Seniors Health Card (CSHC).
The CSHC provides a range of concessions due to a lower Medicare safety net and similar savings via the Pharmaceutical Benefits Scheme (PBS). It also offers bulk-billed doctor visits at the doctor’s discretion and the card allows retirees access to some state and territory concessions.
To qualify for the CSHC you must:
- have reached the pension age, but not be receiving an age pension or any payment from Veterans Affairs
- be an Australian resident living in Australia
- meet an income test (there is no assets test).
For independent retirees, the important consideration is that Centrelink only uses an income test to determine eligibility for the card.
What's the income test?
To meet the income test, the assessable income must be below the following thresholds:
- $57,761 for singles
- $92,416 for couples
- $115,522 for couples separated by illness, respite care or prison
Deeming is used in most Centrelink calculations of income in determining a range of benefits. It makes their calculations easier and discourages pensioners hiding assets in zero-interest bank accounts in order to maximise their pension.
The deeming rate was lowered again from 1 May 2020 in response to the COVID-19 pandemic. The present deeming rate is 0.25% up to a threshold of $53,600 for singles and $89,000 for couples. Anything above these thresholds is deemed to earn 2.25%. The deeming rate is subject to periodic change by ministerial directive.
Please note we have changed the article to clarify which assets are 'deemed'. See detailed footnote at the end. While assets in an account-based pension are deemed, and accumulation assets in super are excluded, taxable income (not deemed income) is used for other financial assets outside super. Someone with substantial assets in super could still qualify for the CSHC.
With deeming rates so low, it means that retirees should check if they are eligible for the CSHC. Of course, if the deeming rate goes up again, those effective asset limits will be reduced.
Financial assets include anything that produces an income:
- The market value of your super account-based pension
- The market value of any other investments such as term deposits, investment properties, shares and managed funds, outside super
Financial assets do not include the family home or the market value of your super accumulation account because they do not produce an income stream.
Be aware that there are different thresholds for couples and singles. In the event of death, the surviving spouse will have a lower income threshold for card eligibility. Without careful planning, the survivor could lose their spouse and the benefits of this health card at the same time.
According to the Retirement Income Review Report, 71% of retirees over the pension age receive the age pension, either in full or in part. They would be eligible for the pension concession card automatically because the card is linked to the pension.
Of the remaining 29% of people of retirement age who are independent, their eligibility for the CSHC will depend on the size of their super account-based pension as well as their investments outside super such as investment properties, but not the value of their accumulation fund.
An unintended consequence of the Transfer Balance Cap which forced many people to limit their account-based pension to $1.6 million and forced the excess into an accumulation fund, is that this policy change may have made many more people eligible for the CSHC than might have been otherwise.
Spending in retirement
The Retirement Income Review Report noted that retirees could have a much more comfortable lifestyle if they were prepared to spend some of their capital in retirement, not just the income from that capital.
I argued in Firstlinks Edition 386 that independent retirees need to manage many risks in retirement that age pensioners do not. These risks include market risk, inflation risk and longevity risk. For independent retirees, the prudent response to managing risk is to hoard capital against an uncertain future rather than to spend it. As the Covid-19 pandemic has demonstrated, where there is great uncertainty about the future, the rational response is to save rather than spend.
Age pensioners face minimal costs for health and age care. For independent retirees, arguably the most difficult risk to manage in retirement, is the financial cost of ill health because the timing, severity and financial impact of negative health events are so unpredictable and indiscriminate.
It suggests that, if we were serious about encouraging independent retirees to spend more of their capital, the government could take the risk of high medical expenses off the table by making the CSHC available to all retirees above a certain age, say age 75. That would give all retirees the confidence in knowing that, no matter what, their future health care costs would be contained.
The additional budgetary cost of this proposal would be small because such a high proportion of retirees, including self-funded retirees, is already eligible for a health card, but the benefit to retirees and their future planning would be the certain knowledge that it was one less risk for them to manage.
Based on announcements on 5 January 2022, the obtaining the CSHC has become more worthwhile. Up to 10 rapid antigen tests will be free for holders of this card (as well healthcare cards, low-income cards, pension concession cards and DVA cards, in total, 6.6 million people).
Jon Kalkman is a former director of the Australian Investors Association. This article is for general information purposes only and does not consider the circumstances of any investor. This article is based on an understanding of the rules at the time of writing.
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Footnote: Due to the complexity of the calculation, we quote directly from the Services Australia website below.
You must meet an income test to get a Commonwealth Seniors Health Card.
We review this test on 20 September each year in line with the Consumer Price Index.
The income test will look at both your:
To meet the income test, from 20 September 2021, you must earn no more than the following:
- $57,761 a year if you’re single
- $92,416 a year for couples
- $115,522 a year for couples separated by illness, respite care or prison.
Add $639.60 to these amounts for each child in your care. There is no assets test.
We use your adjusted taxable income to work out your eligibility for some payments or services.
Adjusted taxable income may include different types of income:
- taxable income
- foreign income
- tax-exempt foreign income
- total net investment losses
- reportable fringe benefits
- reportable superannuation contributions
- certain tax free pensions or benefits.
It may also include a deemed amount from account based income streams.
If you have a partner, their income can also affect your adjusted taxable income.
Taxable income is your gross income minus allowable deductions. It’s the income you have to pay tax on. It includes income from:
- wages and salaries
- a business
- investments
- any taxable payments you get from us
- any taxable payments you get from the Department of Veterans' Affairs
- taxable COVID-19 payments you got, including Pandemic Leave Disaster Payment, COVID-19 Consumer Travel Support Program
- capital gains, such as profit from the sale of shares or property.
Income under the tax free threshold counts as taxable income.
Please note that taxable income includes that which come from investments.
Accumulation account is not included as it does not provide an income stream