Recent cuts to deeming rates by the Australian Government have increased the number of older Australians who are eligible for the benefits of the Commonwealth Seniors Health Card.

As our population ages, the issue of preserving enough funds to pay for potentially increasing health costs becomes important.

Those who receive an Age Pension can offset some of their health care costs through their entitlement to the Pensioner Concession Card.

Recent cuts to deeming rates now give greater eligibility for self-funded retirees to reduce their health care costs through access to the Commonwealth Seniors Health Card.

What Concession Cards are available to Seniors?

If you are entitled to an Age Pension by meeting Centrelink’s Income or Assets tests, you will automatically receive a Pensioner Concession Card.

However, if you are unable to get a full or part Age Pension from Centrelink, you may instead be eligible for a Commonwealth Seniors Health Card.

The benefits of a Commonwealth Seniors Health Card include:

The eligibility requirements for the Commonwealth Seniors Health Card are:

The important point to note is that there is no assets test, so the value of your financial and personal effects is not considered.

Income test

To be eligible for a Commonwealth Seniors Health Card, an income test will apply. The income test uses deeming rates to make its calculation.

The income test will look at your:

  • adjusted taxable income – whether taxable income from interest paid from a term deposit, dividends from shares or net rental income
  • a deemed amount from account-based income streams – also known as ‘allocated pensions’, account-based pensions, Flexi Pensions (UniSuper), Income Stream (Super SA), Choice Income (AustralianSuper) or Statewide Super Pension (Statewide Super).

To qualify under the income test, your adjusted taxable income and/or deeming amount from account-based income streams must be no more than:

  • $54,929 a year for singles
  • $87,884 a year for couples
  • $109,858 a year for couples separated by illness or respite care

What is deeming?

A deeming rate is used by Centrelink to work out an assumed income earned from an account-based income stream by applying a set rate of earnings, no matter how much it really earns – which could actually be more or less than the Centrelink calculation.

The deeming rate to be applied to an account-based income stream is based on the value below or above a threshold. This threshold is different for single people and couples. For singles, the threshold is $52,000; for couples the threshold is $86,000.

Changes to deeming rates

On 14 July 2019, the Australian Government announced cuts to its deeming rates.

The lower deeming rate has been cut from 1.75% to 1%.

The upper deeming rate has been cut from 3.75% to 3%.

The balance below the threshold has the lower deeming rate applied, while the balance above the threshold is subject to the upper deeming rate.

The last time deeming rates were changed was in March 2015. Since then, the Reserve Bank of Australia has cut the cash rate five times, reaching a new low of 1% on 2 July 2019. Given that interest rates have been falling for more than four years, the adjustments to deeming rates announced in July will be welcome news to senior Australians who may have actually been earning less than the deeming rate from their cash investments in their account-based income stream, as evident in the following graph:

Deeming rates versus RBA cash rate, 1996 – 2019, per cent

(source: Australian Government, RBA)

How can deeming rates work in practice for you?

A common misconception is that Centrelink will use the pension payments received from an account-based income stream in the income test. However, this is not the case.

This is made clear in the following scenario where a couple aged 65 to 74 hold a combined sole asset of $2 million in account-based income streams. If this couple elects to receive the minimum annual pension of 5% or $100,000 per year, they may conclude that they are not eligible for the Commonwealth Seniors Health Card, as they exceed the $87,884 couples income test.

However, Centrelink does not use the $100,000 annual pension payment from the account-based income stream for its income test. Centrelink uses the deeming rates to calculate the amount of income to be applied within its income test. It calculates the couple’s income, based on their $2 million account-based income stream as follows:

  1. Lower rate: 1% of $86,000 (or $860); plus
  2. Upper rate: 3% of $1,914,000 (or $57,420).

In this way the deeming is calculated at $860 + $57,420 for a total of $58,280. Accordingly, in this scenario the couple would be eligible for a Commonwealth Seniors Heath Card as they are below the couple’s income test amount of $87,884.

What value of account-based income stream maintains eligibility to a Commonwealth Seniors Health Card?

For singles to meet the income test from deemed account-based income streams (excluding any adjustable taxable income) and be eligible for the Commonwealth Health Card, they can have a balance totalling $1,865,663, whilst couples can have up to $2,986,800.

As a result of the recent cuts to deeming rates, singles can have an additional amount of $151,510 in account-based income streams while couples can now have an additional $242,985.

Whereas many self-funded retirees may have thought that they would be ineligible for a Commonwealth Seniors Heath Card, the reality is that the eligibility level has been raised to the amounts specified above.

If you would like to assess your eligibility for a Commonwealth Seniors Heath Card, contact Advise SA for an appointment.

Mark Bastiaans is an Authorised Representative #296627 of Guideway Financial Services Pty Ltd ABN 46 156 498 538 AFSL 420367.

The information provided above contains general advice that does not take into account your financial situation, specific needs or objectives and is not intended to be personal financial advice and should not be relied upon without written advice from Guideway Financial Services Pty Ltd