Commonwealth Seniors Health Card – Do I qualify?

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The Commonwealth Seniors Health Card (CSHC) is a concession card issued to a person who is old enough, but not entitled, to receive either an Age Pension or a Veterans Affairs service pension.  Card holders are entitled to concessions in relation to their health care and the purchase of prescription medication.  Also, depending on location, card holders may also be able to access state or local government concessions as well.

The CSHC, unlike the pension, is not subject to an assets test. In other words, the value of the assets you have invested or own will not stop you from qualifying for the CSHC. However, the CSHC is subject to an income test.

The income test considers both your adjusted taxable income and, if you do have an account-based pension, the assessed deemed income based on the pension balance.

To pass the income test, the combination of your adjusted taxable income and any deemed income assessed on an account-based pension needs to be less than:

  • Single $55,808 p.a.
  • Couple $89,290 p.a. (combined)
  • Couples living separately due to illness $111,616 p.a. (combined)

These thresholds are adjusted on 20 September each year.

The adjusted taxable income is based on your taxable income (evidenced by your notification of assessment from your last tax return).  This taxable income amount is adjusted by any investment losses plus any reportable superannuation contributions, employer fringe benefits or foreign income.

If the notification of assessment references your final year of employment or the last year that your business was operating, you are able to provide an estimate of your income; providing, of course, you are no longer working or operating your business.

Added to this adjusted taxable income is the deemed income on any account-based pension that you may have.  As an example, if the value of your account-based pension was $1.5 million dollars, for a single person the first $53,000 of the balance would be assessed as earning 0.25% and the remaining $1,447,000 would be assessed as earning 2.25% meaning the total deemed income on the pension would be $32,690.  It is important to note that the actual income being drawn from the account-based pension has no bearing on the income that is assessed.

Therefore, provided your adjusted taxable income or the estimate of your income is less than $23,118 for that year, you would be entitled to a CSHC.

I should point out that if one member of a couple reaches the appropriate age and does apply for a CSHC, the partner’s adjusted taxable income is still taken to account, even if they do not yet quality for their own CSHC. The total combined income as a couple would need to be less than $89,290.

Over the last twelve months, the deeming percentage rates have reduced substantially and I believe there may be people of qualifying age with large account-based pensions who may now be eligible for a CSHC. For example, a couple both of qualifying age with no other investments or income other than their account-based pension income stream would each be entitled to a CSHC even if they had a combined balance of $4 million.

For a healthy person, the CSHC may not seem to offer many concessions, but the difference in prescription prices compared to those who do not have a CSHC can be substantial.

If you are unsure if you are entitled to a CSHC, speak to someone who can look at your circumstances and advise you of your correct entitlement.

 

 

Source:  Mark Teale | Centrepoint Alliance

Aged Care – it’s complicated, and emotional

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This story highlights the complexities of aged care and the financial and emotional stress that can arise for not just one person, but in this case, two.

Here is a brief outline of the circumstances.

  • Mum, Anne is 87 years of age and not in very good health. For the last 6 years she has been cared for by her daughter, Jayne who is now 61 years of age.
  • Anne is in receipt of a full age pension; her only assets are her home which she has lived in for over 50 years (because of its location is worth over $1 million) and $43,000 in a bank account.
  • Her daughter Jayne, is single, a qualified nurse and has not worked for the last 6 years while she has cared for her mum. She is in receipt of a Carer Payment and a Carer Allowance. Jayne does not own a house and has lived at home with her mum since her father passed away 20 years ago.
  • Anne’s health has been in continuous decline, and she now needs to enter residential aged care.

What happens next?

Anne enters residential aged care as a low means resident, meaning she does not have to pay a Refundable Accommodation Deposit (RAD). Her only cost is the basic daily fee of $52.25 per day or $731.50 per fortnight. Anne is in receipt of the full age pension $944.30 per fortnight, so there does not appear to an issue.

At the time of her entering aged care, Anne’s home is exempt because Jayne is still residing in the home, has done so for many years, and is receiving an income support payment – the Carer Payment. Under the legislation Jayne is classified as a “protected person”.

After a period of 14 weeks the Carer Payment ceases as Jayne is no longer caring for her mum and is therefore no longer entitled this payment. Jayne then decides she is going to return to nursing and commences work at her local hospital, continuing to reside in her mum’s house.

Unfortunately for everyone, life is about to become a little more stressful.

As Jayne is no longer in receipt of an income support payment, mum’s home becomes an asset for the purpose of calculating the aged care fees.

Anne’s status as a low means resident remains and she does not need to pay a RAD, however she now is required to pay a Daily Accommodation Charge (DAC) of $58.19 per day or $814.66 per fortnight on top of the basic fee. Mum’s total fees now are the Basic Daily Fee of $52.25 per day plus the DAC of $58.19 or $1,546.16 per fortnight. Mum’s only source of income is the full age pension $944.30 per fortnight, therefore she is just over $600 a fortnight short of being able to pay her fees.

Jayne, who is now working, decides she will pay the difference from her salary, which solves the problem in the short term.

However, two years after mum entered residential aged care, she loses her pension because of her assets, her one-million-dollar home has become an asset for the purpose of calculating her age pension entitlement.

Mum’s cash in the bank has reduced to just over $20,000 and even though Jayne is still working, her salary will not cover her own living expenses and Anne’s total aged care fees. Anne’s fees are no longer around $600 a fortnight short in paying her fees, she is now short $1,546.16 per fortnight.

The options available are not many.

They could sell the home, which is incredibly stressful for Jayne. Even though she has an enduring power of attorney and could sell her mum’s home, she is reluctant. It’s not the financial perspective, but the emotional and sentimental impact of selling the family home. After all, this is her mum’s home and she has also lived in the home for over 20 years.

Jayne considers borrowing against the value of the home and paying a Refundable Accommodation Charge (RAC) of $433,500 to the aged care facility to ensure mum no longer has to pay the DAC. The money borrowed and secured against the value of the home will reduce the value of Anne’s assets to below the threshold and she could then be entitled to an age pension of $591 per fortnight.

Mum’s aged care fees will change to the Basic Daily Fee of $52.25 per day, with a Means Tested Care Fee of $18.27 per day, making the total fee payable $987.28 per fortnight.

Jayne would then be responsible for both the short fall in her mum’s aged care fees as well as the mortgage repayments on mum’s home.

In this particular scenario, Jayne had not spoken to anyone before mum had to enter aged care and so she had no idea of the decisions she would have to make. As such, she was not prepared either financially or emotionally with the issues she had to face.

The aged care legislation is complicated but more than that, it is exceedingly emotional, and people should be prepared for and aware of the decisions that they may need to be make before they have to make them.

Talk to an expert who understands what is required so that you are prepared, and nothing comes as a shock. Don’t leave it until the last moment, decisions made under emotional stress are generally not made with the clearest of heads.

 

Source:  Mark Teale | Centrepoint Alliance

Account based pensions and the age pension

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Would the rate of Centrelink or Department of Veterans’ Affairs age pension increase if the amount being paid from an account-based pension reduced?

The answer is very much a case of “it depends”. There are several factors that need to be considered:

1. If the full rate of age pension is being paid (i.e. currently $1,423.60 per fortnight, including supplements – for a couple, or $944 per fortnight, including supplements – for a single person), reducing the level of pension payments from an account-based pension will not result in a change to the rate of age pension being paid.

2. If a part age pension is being paid and the age pension is assessed under the assets test, a reduction in the level of income being drawn is unlikely to result in an increase in the rate of age pension.

However, if the account balance of the super pension has reduced as a result of a downturn in investment markets, it is worth informing Centrelink of the new balance as this may result in an increase in the rate of age pension (as a result of the level of assets that exceed the assets test threshold having reduced).

As a guide, the age pension for a couple (combined) reduces by $3.00 per fortnight for each $1,000 of assets that exceed the asset test threshold. The asset test threshold for a couple that own their own home is currently $394,500. Conversely, if the level of excess assets reduces, the age pension for a couple will increase by $3.00 per fortnight for each $1,000 reduction in the excess assets.

It is a fine balancing act and some caution needs to be exercised. A reduction in the level of assets may result in the age pension now being assessed under the income test, rather than the assets test. If this occurs, the following comments will be applicable.

3. For account-based pensions being assessed under the income test, the date the pension commenced to be paid is an important factor.

If the account-based commenced after 31 December 2014, and/or if the age pension commenced to be paid after that date, reducing the amount being paid from the account-based pension will not have any impact on the rate of age pension being paid.

4. However, if the account-based pension, and the age pension have both been continuously paid since before 1 January 2015, reducing the income drawdowns from the account-based pension may result in an increase to the rate of age pension paid by Centrelink.

In these cases, the amount of income counted under the income test is the actual income payable for the financial year, less an amount referred to as the deductible amount.

The deductible amount is calculated when the pension first commences and is based on the opening balance of the account-based pension, divided by the relevant number. The relevant number is the life expectancy of the pensioner, or reversionary pensioner (if nominated – in which case the longer of the two life expectancies is used). Once the deductible amount is established, it remains constant for the life of the account-based pension unless lump sums withdrawals are made, in which case the deductible amount is recalculated.

For example, if a 65-year old male commenced an account-based pension (with no reversionary pensioner being nomination) on 1 December 2014, and the opening account balance was $450,000, the annual deductible amount will be $24,272. ($450,000 ÷ 18.54). This amount will be deducted from the actual income being received from the super pension to determine the amount of income assessable under the income test. Therefore, if the level of income being received from the super pension is greater than the deductible amount, reducing the actual income being drawn will result in an increase in the rate of age pension.

Taking this example one step further, if the income being drawn from the account-based pension was (say) $40,000 per annum, only $15,728 ($40,000 – $24,272) would be counted under the income test.

If the super fund were requested to reduce the annual income payments from $40,000 to (say) $30,000, the amount assessed under the income test would reduce from $15,728 to $5,728. This would result in an increase in the amount of age pension being paid.

Having said that, if the level of income being drawn from an account-based pension is less than the deductible amount, a reduction in the level of income being received would not result in an increase in the rate of age pension being paid as the income received from their account-based pension is not affecting the level of age pension being paid. Likewise, there would be little value in reducing the income from the account-based pension to an amount less than the deductible amount, other than perhaps, to preserve money in the superannuation environment.

Therefore, where a person is receiving less than the full rate of age pension, and their super pension is an account-based pension, a reduction in the amount of income being drawn may result in an increase in the age pension entitlement provided the account-based pension commenced to be paid before 1 January 2015.

If this situation applies, and the super fund is being requested to reduce the level of income payments, it is important to ask the super fund to issue an amended “Details of income stream product form (SA 330)” and for this to be given to Centrelink to enable the reassessment of the age pension to be made.

In summary, and increase in the rate of age pension being paid by Centrelink may increase where:

1. A part age pension is being paid and is being assessed under the assets, and there has been a reduction in the account balance of the account-based pension, or:

2. A part-age pension is being paid under the income test and an account-based pension commenced to be paid before 1 January 2015, and the level of income being drawn from the account-based pension is reduced.

If you have questions about your superannuation or Centrelink and Veterans Affairs’ pensions, speak with a qualified financial planner.

 

Source: Peter Kelly | Centrepoint Alliance