We answered a question on assessment on pensions and income, from a couple that are clients of ours, who have made their transition to retirement.
Their question was:
“My wife and I are both retired and manage our own SMSF. We are not eligible for any Centrelink benefits. I currently have the Commonwealth Seniors Health Card (CSHC) and draw an Account-Based Pension (ABP). My wife is 62 and still has her Industry Superannuation in accumulation mode. We have other assets outside superannuation. My question is: Bearing in mind the proposed changes to the ABP being assessed as income for the CSHC, would there be any benefit for us, with respect to my CSHC card, for her to start an ABP before January 1, 2015?”
Our Answer On “Assessment On Pensions and Income”
Thanks for the question.
Eligibility to the CSHC is determined by your adjusted taxable income, which cannot be greater than $80,000 for a couple.
Under the current rules, as your wife is over age 60 she could start a tax free pension, which therefore does not form part of your taxable income. However after January 1st 2015, when the rules you are speaking of are set to change, her pension will be deemed for the Income Test purpose, as she is not eligible for the card herself at this time.
What this means, is that you need to determine whether your combined adjusted taxable income will exceed $80,000, considerate of how much income your wife will be deemed to have earned on her pension, after January 1st 2015. This calculation will be completely dependent on what her balance is at the time.
What you also need to weigh up, is that by leaving your wifes super in accumulation, all earnings are being taxed at up to 15%. Whereas when her super is converted to a pension, earnings will be 0%.
The good news is that because you are currently eligible for the CSHC, your ABP will be grandfathered and therefore for CSHC purposes, your income drawn is not included as part of your adjusted taxable income.
To round this discussion out and for the benefit of other readers, anyone who is eligible to and receiving a government pension by 31st December 2014 (IE: including Age Pension/Disability/Newstart), will benefit from their ABP being grandfathered, meaning the present rules will continue to apply to how their future eligibility to age pension is calculated.