Q. I have read recently of impending changes to Centrelink’s treatment of income streams and the Commonwealth Seniors Health Card from next January.
If I retired before age 65 and triggered an account-based income stream before January, would I be eligible for grandfathering provisions when I turn 65 after January 1 next year?
A. To be eligible for the grandfathering provisions, you have to be receiving support from Centrelink now. It’s important to liaise with your adviser to optimise your personal situation so make an appointment sooner rather than later.
Q. I am 61, my wife is 62 and we have a total of $500,000 in super. I work full-time and contribute the maximum of $35,000 into super pre-tax, including employer contributions. My wife works part-time and contributes the maximum into her fund pre-tax minus $18,000, which is tax-free.
I understand that on January 1, 2015 the law is changing on account-based pensions (ABP). Should we start an ABP – or transition to retirement pension in our case — before 31 December?
A. The new rules affect income-tested age pensioners only — based on the assets you have you should be unaffected by the time you reach pensionable age. The other issue is the CSHC. Under current rules you should not qualify for that as you should be getting a part age pension when you reach pensionable age. Bear in mind the rules could change in the next four years.
Q. I read your recent article regarding the changes to account-based pensions (ABP) from January 1 and would appreciate some clarification on the loss of a CSHC.
My wife is 80, I am 77. We already have an ABP, and both hold a CSHC. At present our combined income is well under $80,000, but early next year my wife will face a capital-gain event which will take our income above $80,000. As I understand the existing rules, this will result in the loss of the card for the remainder of the 2014/2015 financial year, but it will be reinstated for the following year when our income returns to less than $80,000.
Am I correct in saying the card will be reinstated when our income drops below $80,000, or under the new rules have we lost it permanently? We don’t receive any support payments from Centrelink.
A. If you lose the CSHC after 1 January 2014 because your adjusted taxable income exceeds the threshold, the account-based pension will lose ‘grandfathered status’. This means that when you subsequently re-apply for the CSHC, the income from the account-based pension will be the amount calculated under the deeming rules. Whether you subsequently qualify for the CSHC, will depend on whether the deemed income plus other income is below the relevant income threshold.
Q. My wife is 30, I am 37, and our combined income is $350,000 a year. We own outright a house worth $800,000, and have no other investments apart from combined super of $175,000 to which we salary sacrifice the maximum each year. We save $8000 each month.
To diversify our investments and take advantage of negative gearing, we plan to borrow and start a share portfolio. We understand the risks of a downturn in the share market, and our adviser suggests we use an interest-only loan. Should we use this to reduce our investment loan, or look at low-risk investments like an education bond for our son. People say that investing in the share market outperforms all other avenues in the long term, but is a reasonable expectation is to outperform the ASX?
A. I suggest you go to my website and have play with my Stock Exchange Calculator. This has stored data for the All Ordinaries Accumulation Index (which includes income as well as growth) from January 1980 till today. You can choose a starting and finishing date, invest a notional sum, and find out what it would be worth on your chosen end date. You can then model any scenarios you choose.
Q. On returning from a long holiday abroad we found our Commonwealth Seniors Health Cards had been cancelled. They were reinstated quite easily but in the light of the new rules, I wondered if having them cancelled in future would mean that the benefit of the grandfathering would be lost. If so, we would all need to restrict overseas travel to no more than six weeks. I would appreciate your thoughts.
A. The portability rules for the CSHC have been extended from six weeks to 19 weeks, which will allow longer periods of travel abroad. You are correct in saying that if the card is cancelled and not reinstated before 1 January 2015, your account based pension will no longer be grandfathered.
From The Sydney Morning Herald here: https://www.smh.com.au/money/super-and-funds/how-will-the-new-commonwealth-health-card-rules-affect-me-20141209-1218km.html