Nick Bruining: Cashed-up seniors hope for deeming rate relief to keep Commonwealth Seniors Health Card

Analysis by Your Money of a probable increase to Centrelink’s deeming rates is likely to see well-off seniors with hefty superannuation balances lose access to the coveted Commonwealth Seniors Health Card.

Single seniors are likely to be hit hardest. But making a few subtle tweaks to your finances could mean you remain eligible.

The CSHC is issued to seniors aged over 67 who fail to qualify for an age pension because of Centrelink’s asset means test. While still subject to a relatively generous income test, multi-millionaires with properly structured investment portfolios usually qualify.

Cardholders receive Pharmaceutical Benefit Scheme drugs for the same $7.70 co-payment rate as pensioners and other income support recipients.

Depending on which State you live in, other discounts may apply.

In WA, when combined with the State Seniors Card, virtually the same discounts apply to government-based services as though you hold a Pensioner Concession Card. This includes discounts on local government charges, water and transport.

To be eligible for a State Seniors Card, you need to be a WA resident, aged over 65 and working less than 25 hours a week..

For couples, the combined income test cut-off threshold for the CSHC sits at $152,640. For singles it’s $95,400. These figure are indexed to the consumer price index on September 20 each year.

CSHC assessable income is different to Centrelink’s income for benefit payment purposes and the Australia Taxation Office’s methodology. In essence, it combines elements of both.

Taxable income from investments is included and take into account the grossed-up value of dividends, foreign income, interest and rental receipts. Normal tax deductions apply in this case, including property expenses.

Money held in superannuation in accumulation phase is ignored, as are withdrawals from super. Money in retirement phase is captured under Centrelink’s deeming system, but actual payments and withdrawals are ignored.

Those deeming rates were frozen in the midst of the COVID-19 pandemic.

Currently, the first $60,400 for singles is deemed to be earning 0.25 per cent a year and 2.25 per cent for all amounts above this amount. For couples, the combined lower threshold limit is $100,200. These levels are indexed on July 1.

Challenger’s head of technical services Andrew Lowe told Your Money earlier this year that the deeming rates are set by the government and are loosely linked to market rates.

“While deeming rates are not directly tied to the Reserve Bank’s cash rates, the last time cash rates are where they are today, the upper deeming rate was about two percentage points higher than where it is today,” Mr Lowe said.

A couple, each with the maximum permitted $1.9 million in an account-based pension currently has deemed CSHC income of just $83,496. A single with $1.9m has $41,452. Both are currently under the current CSHC cut-off thresholds.

A return to deeming rates last seen when the RBA’s cash rate was 4.35 per cent would increase the lower rate to 3 per cent and the higher rate to 4.5 per cent.

Were that to occur, our couple would now have CSHC assessable income of $169,497 and our single would have $84,594.

The couple would lose their cards altogether and the wriggle room of other income that a single could earn beyond the deemed income shrinks to just $10,806

Remember that other taxable income is also counted. That means the CSHC could be cancelled with much lower ABP balances.

One simple trick to reduce CSHC assessable income would be to switch some of the ABP money back to accumulation phase and drag the deemed income under the cut-off thresholds. While that might give you access to the CSHC, remember that fund earnings in accumulation phase are taxed at 15 per cent instead of zero, which applies to super money in retirement phase.

But a reprieve could be in the offing.

With next month’s Federal Budget likely to contain a number of pre-election sweeteners, affected seniors and even income-tested part-pensioners will be keeping a keen eye on any announcements regarding deeming rates.

“The politics of changing the deeming rate is diabolical,” Mr Lowe said.

“I suspect a big change on July 1 would be remembered at the next election. So perhaps, any future change is modest, incremental or delayed.”

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