Seniors Card players: Retirees win regardless of election outcome

The Coalition and the Opposition have both committed to a widening of access in the ‘senior’s card’ scheme.

Under current rules each individual can have up to $1.7m in super before the earnings are taxed.

Older Australians will get wider access to the discounts offered by the Commonwealth Seniors Health Card post-election after the ALP instantly promised to match an expansion of the scheme from the Coalition.

The move will add an estimated 50,000 older Australians into eligibility status for the “seniors card”, which is worth at least $8000 a year according to industry research.

Under the Coalition’s plan, the singles income test threshold for card access will lift from $57,761 to around $90,000 from 1 July this year. The couples threshold will also increase from $92,416 to $144,000.

A widened access to the card will be most useful to older Australians who receive significant income in retirement outside of super payments in the form of non-super investment income, salaries or foreign pensions. Older investors with investments in areas such as residential and commercial property – that are not held inside super – will now be entitled to extra benefits.

Income from super is assessed by Centrelink for the so-called “seniors card”. But thanks to the government’s deeming system, where investment income is assessed at a maximum of just 2.25 per cent, a significant number of self funded retirees already have access to the card.

The Coalition – and the opposition — have pitched the policy move to older Australians who are set to be hit by a rapid rise in the cost of living: annualised inflation is now running at more than 5 per cent, while electricity costs are soaring with industry prices more than 50 per cent higher in March than at the end of last year.

At its best, the move encourages more people to independently fund their retirement savings; At its worst, it will stoke concerns that older Australians are favoured over younger citizens in the tax system.

The more generous access to an inflation-proof discount on medicines, healthcare and essential services will also favour some of the same group which revolted at ALP plans to end the benefits of franked dividends in the last election.

In most states, holders of the seniors card can access the majority of the discounts available to holders of the Pension Concession Card that is issued to those accessing the government pensioner.

One of the outstanding benefits of holding the card is that most prescribed medicines will cost just $6.80 a prescription. Most states also provide discounts on local government charges, discounts on water supply charges and a host of other concessions.

Self funded superannuation investors with modest investment portfolios have been the meat in the sandwich between very wealthy individuals, who enjoy the maximum benefits of super tax concessions, and those on full government pensions – this change will bring some of the self-funded group into expanded welfare entitlements.

Shrewd investors who are living off their investment income should be able to access the seniors card under almost any arrangement unless they have investment holdings that are exceptionally large.

Under current rules each individual can have up to $1.7m in super before the earnings are taxed.

The earnings are assessed by Centrelink as follows: The first $53,600 of the Account Based Pension 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. Above these amounts investments are “deemed” to be earning 2.25 per cent.

Also under current deeming rules, even amounts over the $1.7m threshold still held in super but not enjoying tax free status are ignored – this would be money held in so-called “accumulation” accounts.

Conservative investors will argue the deeming levels are too high with interest rates at record low levels.

Certainly investors who have the vast majority of their super savings in cash are hurting. For example, the nation’s biggest bank CBA has a “special offer” at present for money kept with the bank for 12 months – the rate is just 0.3 per cent.

However, most super funds over the long term with a diversified approach to investment would make more than 5 per cent — or more than twice the deeming rate estimates.

In reality this means that it would be rare for investors to break the new senior cards thresholds inadvertently agreed upon between the Coalition and the ALP this week.

Older Australians drawing an income from private super investment received an extra concession in this year’s Budget, when the Coalition unexpectedly extended the Covid emergency “drawdown” changes for another year.

Drawdown rates dictate how much a retiree must withdraw from super each year, with the rates moving higher as retirees get older. The Coalition cut the rates in half for another year for all retirees.

Originally published as Seniors Card players: Retirees win regardless of election outcome