From 1 January 2015, tax and superannuation advisers for self-funded retirees need to be careful not to implement superannuation pension strategies that could inadvertently impact their clients’ entitlements to the Age Pension or Commonwealth Seniors Health Card (CSHC). Specifically, advisers need to consider the implications of disrupting established pre-1 January 2015 superannuation account-based pensions after 31 December 2014 and potentially triggering the new social security deeming rules.
Age Pension deeming rules from 1 Jan 2015
The social security deeming rules for the Age Pension have been extended to include untaxed superannuation account-based income streams from 1 January 2015. The changes seek to ensure that all financial assets are assessed under the same deeming rules from 1 January 2015. There is no change to the assets test.
While account-based pensions in place before 1 January 2015 will continue to be assessed under the existing income test rules for the Age Pension, the pensioner must actually be receiving income support immediately before 1 January 2015, and this must continue uninterrupted from that date. Otherwise, the new rules will be triggered if income support is temporarily suspended for a period after 31 December 2014.
As such, existing account-based pensions should be reviewed before 1 January 2015 to determine whether the current rules or new rules are more beneficial for an individual’s circumstances. Likewise, those approaching Age Pension age should review their retirement plans ahead of the looming 1 January 2015 start date to test the impact for their circumstances. Heffron SMSF Solutions has set out detailed coverage of the changes from 1 January 2015, including worked examples: see M Heffron and L Mansell, “Social security treatment of account-based pensions – getting set for 1 January 2015 changes”, inTAX Magazine, October 2014 (Thomson Reuters); and the 2014 Superannuation & Financial Services Bulletin Issue 8, para .
Seniors Health Card income test
Self-funded retirees with large superannuation balances (that exclude them from Age Pension eligibility) often view their Commonwealth Seniors Health Card (CSHC) as a precious “entitlement”. Currently, an account-based pension amount received by a self-funded retiree aged 60 or over is not counted towards the CSHC income test ($51,500 for singles and $82,400 for couples from 20 September 2014).
However, legislation has also been enacted to align the CSHC income test with the social security deeming rules. Broadly, untaxed superannuation income streams will be included in the income test for the CSHC from 1 January 2015. While there is no assets test for the CSHC, the application of the deeming rules from 1 January 2015 will effectively convert financial assets (such as tax-free super pensions) into “nominal income” for the purposes of the CSHC income test.
Importantly, account-based pensions and annuities in place before 1 January 2015 for existing CSHC cardholders are “grandfathered” under the existing rules. Therefore, advisers will need to be careful not to implement strategies after 31 December 2014 that could result in a person becoming ineligible for the grandfathering exemption (and potentially losing their CSHC).
Once again, Heffron SMSF Solutions has set out detailed coverage of the Age Pension and CSHC issues to consider ahead of the looming social security changes from 1 January 2015: see M Heffron and L Mansell, “Social security treatment of account-based pensions – getting set for 1 January 2015 changes”, inTAX Magazine, October 2014; and the 2014 Superannuation & Financial Services Bulletin Issue 8, para .