Pre-2015 pensions less critical

CSHC pensions

New income test thresholds for the Commonwealth Seniors Health Card (CSHC) may dilute the value of grandfathered account-based pensions.

An SMSF technical specialist has suggested the practice of maintaining account-based pensions that have been grandfathered with regard to qualification for the Commonwealth Seniors Health Card (CSHC) may no longer need to be a priority given the new income test thresholds for this social security measure.

The federal government changed these boundaries for the CSHC in the 2022 October budget whereby the income threshold increased from $61,284 to $90,000 for singles and from $98,054 to $144,000 for couples.

“The fact that those thresholds went up by so much I think does change the ground rules for all of our clients when it comes to that card,” Heffron managing director Meg Heffron told delegates at the recent SMSF Association National Conference 2023 in Melbourne.

Heffron pointed out the lower income thresholds for the CSHC had meant retirees protected grandfathered account-based pensions, those commenced before 1 January 2015, with great vigilance, but also that this mindset could be about to change.

“We’ve probably read stories in the press about people [with a pre-2015 account-based pension] who accidentally lost their grandfathering because they wound up their SMSF and moved [their benefits] to a public offer fund or something like that, and the sob story that it was terrible because they [lost] their grandfathering and then [lost] the card,” she noted.

“But if you look at what the deeming rates are these days and the income test thresholds, you have to [think] a lot of these people could actually do something terrible, lose their grandfathering, and could still keep the card.

“So it did make me wonder if protecting that grandfathering at all costs will stop being such an issue.”

According to Heffron, this shift in mindset could be significant as in the past the protection of grandfathered account-based pensions for CSHC purposes has compromised other beneficial strategies available to these clients.

“I’m not saying all of a sudden the grandfathering has zero value; I’m just saying it might not be the top priority – protecting that grandfathering anymore,” she noted.

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