Budget 2022: bonuses may be easier than you think

The pension concession card is a gateway to many benefits including the budget’s $250 bonus – even with super payments you may qualify.

The $250 economic booster payment might be available to some of the better-heeled. Picture: iStock

Fully self-funded retirees can feel justifiably miffed with the federal budget.

At first glance, there was little in it for those who don’t qualify for a pension or a concession card, but a deeper understanding of the announced concessions could reveal that self-funded retirees are better off than they think.

Coupled with a common misunderstanding about eligibility rules for Centrelink concession cards, the $250 economic booster payment might be available to some of the well-heeled after all.

The biggest concession for the well-off was the extension of the reduced drawdown rates for account-based-pension (ABP) investors. Since the start of the pandemic, people with an ABP can reduce their minimum drawdown rates by half.

A 65-year-old, for example, would normally be required to withdraw 5 per cent of the June 30 ABP account balance in the following financial year.

Someone in the age band of 75 to 79 would normally be required to withdraw 6 per cent.

From the 2020 financial year, however, the minimum drawdown rate for our 65-year-old has been just 2.5 per cent, and for a 78-year-old, 3 per cent.

That means a 65-year-old with a super balance of $1.5m was only required to withdraw $37,500, leaving an additional $37,500 to remain in a cosy tax-free home: their ABP account.

One way to look at it is the older you are, the greater the benefit, because the required drawdown rate keeps getting bigger.

There’s also a real possibility that a retiree who derives most of their income from super, no matter what the account balance, probably qualifies for the Commonwealth Seniors Health Card.

The CSHC is issued to people over age-pension age who don’t normally qualify for a pension because the value of their assets is too high.

There is no asset test for the CSHC, but there is an income test.

For a single to qualify, Centrelink assessable income must be less than $57,761 and for couples a combined $92,416 per annum.

And if you have one of these cards, you’ll also get the $250 payment in April.

The method of calculating income for the CSHC is completely different to the ATO method. While net income from investments outside super is counted as is employment income and foreign pensions, actual payments from an ABP and withdrawals from super are not.

Not one cent.

Instead, Centrelink applies its complicated deeming rule calculations. The first $53,600 of the ABP balance for a single, is deemed to be earning just 0.25 per cent per annum. For couples, that threshold for the 0.25 per cent rate is a combined $89,000.

Anything above these amounts is deemed to be earning 2.25 per cent.

Presently, a person can only transfer $1.7m into an ABP under special transfer balance cap rules. That means that the Centrelink deemed income for a single with a maxed-out ABP that hasn’t grown in value would be $37,178 per annum. That figure is more than $20,000 per annum under the $57,761 threshold where you would lose your CSHC.

A couple, each with $1.7m in an ABP, would have a combined deemed income of $74,720 per annum, well under the $92,416 cut-off threshold.

The money held in superannuation accumulation phase is completely ignored.

Depending on where you live, the CSHC, coupled with a State Seniors card, could provide most of the discounts available to holders of the Pension Concession Card that is issued to pensioners.

No matter where you live in Australia, most prescribed medicines will cost you just $6.80 a prescription.

Some states provide discounts on local government charges, discounts on water supply charges and a host of other concessions provided by other government departments and private businesses. The Association of Independent Retirees has previously calculated that depending on where you live, the savings could be as much as $8000 a couple each year.

Nick Bruining is an independent financial planner and founder of Bruiningpartners.com.au

Originally published as Budget 2022: bonuses may be easier than you think