An SMSF expert has warned advisers two common pension strategies have the ability to extinguish the eligibility of their clients to receive the Commonwealth Seniors Health Card (CSHC) by changing the grandfathered status of pre-2015 income streams.
The first strategy in question is where an existing pension is amended to make it reversionary when upon commencement, before 31 December 2015, it was not, SuperGuardian education manager Tim Miller noted.
“The terms of [one of these pensions may] suggest you can nominate a reversionary now so you can alter the terms of the contract. But by doing that you [will be] changing the original terms of this particular pension. Hence, it would no longer be eligible for the [grandfathering provisions] for the Commonwealth Seniors Health Card,” Miller told attendees of a technical webinar he hosted last week.
“[Remember with respect to] the CSHC [the income stream has to have been in place] before 31 December 2015. [To qualify for the grandfathering provision], you had to have been in receipt of the Commonwealth Seniors Health Card at the time. You have to still be in receipt [of it] and not change the terms of the pension.”
The other action advisers and their clients need to be wary of with regard to the CSHC is the decision to make additional contributions to an SMSF if the fund is entirely in pension phase and the income stream was established prior to 31 December 2015, he said.
“[In this instance, the client] would have the capacity to make a contribution. So they make that contribution, stop their existing pension and they start up a new [one],” he said.
“In doing that they [will] move themselves into the new environment and they will lose the grandfathering [applicable to their ability to receive the CSHC].”