by Olivia Long

Happily retired and thinking of taking a leisurely cruise around the Mediterranean? Well, you might need to think again. From the beginning of the new calendar year, a stricter regime takes effect for the Commonwealth Seniors Health Card (CSHC). Although there is a grandfathering clause in place, pensioners will need to remain alert to ensure they continue to enjoy the card’s considerable financial benefits.

How has this come about? Quite simply, legislation that was part of the last federal budget means new applicants for CSHC will need to include superannuation pension income when assessing their CSHC eligibility, in the same way, for example, that they have had to include dividend income from shares.

The CSHC is a benefit for those retirees who don’t qualify for the age pension, which, it is fair to assume, would include a considerable number of SMSF members. It gives them access to discounts on prescription medicines, lower fees on medical services as well as travel allowances.

About 300,000 retirees hold the card – and all could potentially be affected. But before going into that detail, let me explain how the card works.

The income threshold is about $80,000 a year for a couple and about $50,000 a year for singles. As I explained it used to be that income received from an untaxed superannuation fund was excluded when eligibility for the CSHC was being assessed. That, of course, changes on 1 January when the eligibility rules become much stricter.

So how to keep your benefits? In brief:

  • You must be already eligible for the CSHC before 1 January 2015 which means that you are already 65 or over and your current level of income is under the threshold
  • You must have your superannuation pension account (pension) in place before the deadline if that account is to receive an exemption.

So anybody thinking of setting up a pension in the next year should think seriously about moving it forward to meet the 1 January deadline.

But, remember, once you have committed to an SPA, you are locked in.

The new rules mean that if you change an existing pension, and that includes changing your provider, even for other purposes such as estate planning, you will lose the grandfather exemption. That’s right, if you want to move from one fund providing you with a pension to another, that qualifies as stopping and starting your pension. And there goes your exemption.

Not many people realise that if eligibility for the card is lost, even for a short period of time, the grandfathering for the account-based pension is lost. And this can occur even if a person travels overseas for six weeks – hence my...

Mediterranean cruise warning!

Although you can get them back when you get back home, the exemptions on grandfathered super pensions will be lost. Even If the pension is 'reset' via a stop and restart then this is still considered a new pension and grandfathering is lost.

Right now it’s critical that trustees who have transferred most of their assets into their super fund to review how they are structured. Certainly they need to understand that a pension needs to be established before 31 December 2014 to guarantee grandfathering. By my reckoning that’s about 10 weeks away so there’s no time to lose.