Nick Bruining Q+A: Commonwealth Seniors Health Card is a silver lining when you can’t get an age pension

Question

I am a 76-year-old retired single homeowner. I also have household chattels, a car and about $1.2 million in superannuation, which is in pension mode and pays me a regular income.

I am also the sole shareholder in a private company that has various investments worth about $800,000, from which I receive franked dividends each year.

Some of my friends have suggested that I’m eligible for a pension, but I don’t think I qualify.

Am I missing something?

Answer

Unfortunately no, and even the increase to the age pension means test thresholds to apply from July 1 won’t be sufficient to get you under the upper cut-off limits.

Using Centrelink’s method of calculating assessable income, the value of the pension fund is caught under the deeming calculations, and then, most likely, added to the grossed-up dividends you received for the past 12 months from your company applied to the following 12 months.

On this test, your Centrelink-assessable income will be about $38,000 a year, deemed, added to last year’s dividends.

Of far greater significance, however, is your assessable asset value. On the financial assets alone, a grand total of about $2 million means you are more than $1.25m over the asset test upper cut-off limit of $733,500.

While you won’t be eligible for pension payments, you should be entitled to the Commonwealth Seniors Health Card. This card is not asset-tested but subject to an income test.

While complicated, actual payments from the pension fund are ignored but the value of your income stream fund is deemed and then added to your grossed-up income from the company. Bank interest, foreign pension income, employments income and other share dividends also need to be added.

If that total is less than $101,105, you would qualify for the CSHC.

Note that this threshold will be indexed on September 20.

When combined with a WA Seniors Card, you would receive almost all of the discounts an age pensioner enjoys on things like prescription medicines, rates, water supply charges and other WA-based costs.

The State Seniors card is issued to WA residents over the age of 65 who work fewer than 25 hours a week.

Question

Can you please clarify how the family home is treated under the asset test?

My father is about to move into residential aged care after our mother died a few months ago.

There is some confusion over how much age pension he will receive because we will have to sell the home to cover the cost of the refundable accommodation deposit.

Answer

As there will be no one eligible living in the home after the move, you have up to two years to decide what to do. The value of the home remains exempt under the means-testing system for Centrelink purposes for that period of time.

If you decide to rent the property out, the rental income, less operating expenses, will become assessable income, and if total income exceeds $226 a fortnight (from July 1) the age pension payment will be reduced by 50¢ per $1 over.

Once you father moves into aged care he will be required to pay the RAD. If unpaid, the amount is converted into a daily accommodation payment.

While each individual case is different, injecting the RAD money as soon as possible is likely to be the best overall option. Once that is done, no DAP is payable.

While the RAD itself is not means tested, any funds left over after you sell the home and pay the RAD will be assessed by both Centrelink and My Aged Care. This may result in a reduced fortnightly pension and additional daily care fees.

You should seek specialist financial advice from a competent financial adviser or an aged care specialist officer, who operate from many Centrelink offices.

The service is free but they will be unable to give you advice on how to invest the proceeds of the house sale.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association