Lower deeming rates and self-funded retirees

The government has finally announced lower deeming rates - and it’s not just age pensioners who stand to benefit.

Self-funded retirees are now assessed as earning less from their superannuation balances - and this will mean more Australians are eligible for the Commonwealth Seniors Health Card.

The Commonwealth Seniors Health Card (CSHC) can be worth more than $3000 each year - depending on where you live, and how much you use medical services covered by Medicare, the Pharmaceutical Benefits Scheme and Ambulance Services. 

The reality is this - as you age, you are more likely to benefit from having the card - so it is better to apply sooner than later if you are eligible.

In NSW the CSHC means access to the Seniors Energy Rebate worth $200 and the Regional Seniors Travel Card worth $250 - meaning that most card holders start with a $200 rebate, just for making the effort to apply. (Make sure you read our road test on how to apply here)

The hurdles to getting what you are entitled to

The Commonwealth Seniors Health Card was introduced in 1994.

About 380 000 Australians have been issued the CSHC - giving them some of the Commonwealth health benefits available to roughly 2.5m Australians who are receiving a full or part age pension.

To make the most of this entitlement you will need to know:

  1. The age to apply - it is now 66.

  2. Whether you are eligible - and it’s not that straight forward (see below)

  3. How you can use it - it’s not that clear

Unfortunately it’s not a case of this card turning up in the mail. You will need to make the effort to apply, and be diligent in knowing when to make it clear you have the card.

This is part of the challenge for Australians in later life - the system is complicated, and you have to apply, be organised and make realistic plans.

Fortunately there are some smart, low cost ways to make your nest egg work for you - like using industry funds and low cost index funds.

We help you get organised, get good value from your nest egg, and make the most of your entitlements.

Reading about deeming rates is not that interesting for everyone. If you just want a quick conversation about getting the value from the system you are entitled, as well as running a health check over how your nest egg is managed - why not just make contact. I am always keen to chat!

Meanwhile - read on for some detail on how more self funded retirees with superannuation savings will now be eligible for the Commonwealth Seniors Health Card.

The CSHC income test and the deeming rate

The government uses an income test to work out eligibility for the CSHC. 

Superannuation assets are captured in the test via deeming. This can be confusing.

The income test can be broken down into 4 parts:

  1. Income as shown on group certificates

  2. Overseas income (that may not show up on your group certificate)

  3. Losses and super contributions (that would reduce taxable income)

  4. Deemed income from allocated pensions.

For most people, it is a matter of checking how much taxable income they have (and remember, pension payments from super are NOT taxable income), and then looking at deemed income from super.

Add these together and you have an “adjusted taxable income” that is compared to a threshold when applying for the card.

Deemed income from allocated pensions is lower

The government explanation of the calculation of deeming rates can be found here.

In simplified terms - the government expects your superfund assets to earn about 3% per year. 

For Australians in later life, who are being assessed on how much they are earning on their superannuation savings - this is a good deal when you consider a conservative investment strategy in the last financial year should have earned double that amount.

For a couple, the government will issue you a Commonwealth Seniors Health Card if your adjusted taxable income (according to the test) is less than about $88k, and for a single, less than about $55k.

Consider a couple with a superfund of $1.5m, paying them an income. For the CSHC test, the pension payment is not taxable, and the $1.5m is deemed to be earning about $43.2k - just under 3%. Meanwhile, if the couple had their funds invested in balanced funds over the last 3 years, their return would likely be greater than 6% - and they are not paying tax. In this situation, the deeming rate looks like a pretty good deal.

If the couple had $1.5m invested in joint names (i.e not in super), they would likely be paying tax - and would likely be earning enough income to be ineligible for the CSHC.

What is interesting, is that a could can have just under $3m in their superfund, and their deemed income amount qualifies them for the CSHC. 

It may be time to redo your numbers

With interest rates at an all time low, a changing entitlement system, and new opportunities with investment choice - like industry funds and index funds - is it time you had a checkup?

Later Life Advice helps Australians plan their spending while maximising entitlements and seeking out smart, low cost investment services.

I would be delighted to check the health of your setup.

Brendan Ryan