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Budget 2014 - Changes to Commonwealth Seniors Health Card

Investment Advice

Changes to the Commonwealth Seniors Health Card (CSHC)

 

The Government has announced a number of changes to the Commonwealth Seniors Health Card (CSHC). The CSHC allows self-funded retirees to gain access to medicines listed on the Pharmaceuticals Benefits Scheme at a concessional rate as well as other concessions.

 

To be eligible, a person must have an adjusted taxable income (ATI) of:

  •   $50,000 (singles)

  •   $80,000 (couples, combined), or

  •   $100,000 (couples, combined, for couples separated by illness or respite care)

    The proposed changes include:

  •   Annual indexation of the income thresholds to Consumer Price Index from September 2014.

  •   Account based pensions (ABP) that are subject to deeming will be included in the CSHC income test from 1 January 2015. Grandfathering applies to holders of a CSHC on 1 January 2015 with an ABP commenced prior to that date.

  •   Holders of the CSHC will cease to receive the Seniors Supplement beyond the June 2014 quarter. The Seniors Supplement is currently $876.20 p.a. (singles or couples separated due to illness) or $660.40 (couples, each). CSHC holders will still receive the Clean Energy Supplement.

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GEM Capital Comment

The inclusion of deemed income on account based pensions in the assessment of income to determine eligibility to the CSHC will have a significant impact on a number of self- funded retirees.

Under the proposed change, based on the current deeming rates and thresholds and assuming no other income, a new applicant will not qualify for a CSHC if their ABP exceeds $1,448,543 (singles) or $2,318,886 (couple, combined).

However, these changes will not only impact self-funded retirees with large ABP balances, but also those with lower ABP balances who have other Adjusted Taxable Income such as income from untaxed Government schemes or foreign pensions.

The proposed change has a number of implications for holders of account based pensions. The grandfathering provision essentially “locks” clients into their existing ABP provider as any change after 1 January 2015 will see the new ABP deemed for CSHC purposes.