Business News

Pensions need immediate start for CSHC grandfathering

Financial advisers with SMSF clients wanting to take advantage of the grandfathering rules applying to the Commonwealth Seniors Health Card (CSHC) should commence pensions for those individuals immediately, according to an industry expert.

“If people are uncertain and haven’t started their pensions yet, then maybe now’s the time to do it. This is just another added driver to advise clients to switch entirely into pension phase,” Heffron SMSF Solutions head of customer Meg Heffron told the Heffron Advanced Training Day 2014 in Sydney last week.

“So if you’ve got a client who has the card and have just got some money hanging around in accumulation phase, switch them into pension phase to lock in the grandfathering beyond 1 January 2015.

“If they find having a pension is giving them too much income, which is often the reason people don’t move entirely into pension phase, at some point in the future you can wind that back.”

New legislation governing the CSHC will be implemented from 1 January 2015, whereby deemed income from superannuation pensions will be included as part of the eligibility test for individuals wanting to have the card.

However, the grandfathering rules contained within the new legislation mean if an individual has a CSHC and a pension in place as at 31 December this year, their pension income will continue to be exempt from the eligibility test for the card.

The new CSHC income thresholds, ignoring indexation, are $50,000 for singles and $80,000 for couples, meaning if an SMSF member had no other assessable income apart from a superannuation pension, even having the new deeming rules apply, a single person could have a pension balance of $1.45 million and a couple $2.3 million.

Heffron said advisers needed to be aware of those parameters when advising clients on the CSHC.

“Watch out for the income because the threshold on this test is really arbitrary. If you’re single and you’ve got $50,000 of taxable or deemed income, you don’t get the card,” she warned.

“So given that grandfathering switches off as soon as you lose the card, there will be all sorts of things to consider in terms of making sure adjusted taxable income doesn’t go over the $50,000 threshold.”

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