In today’s public health environment, with soaring hospital waiting times and the increasing cost of pharmaceutical benefits, the allure of the health care card for Australian retirees remains at an all time high. So much so, that some individuals nearing retirement may be adopting somewhat ill-advised pension strategies in order to access to government’s health care card and medical concessions.
However, it appears that some urban myths continue to prevail. According to Colonial First State’s senior technical analyst Deborah Wixted: “There is still a misplaced view that, to receive the reduced cost Pharmaceutical Benefit Scheme (PBS) medicines, it is necessary to receive at least $1 of age pension.”
She adds: “Similarly, many retirees think that the discounted products and services are available only to age pensioners. As a result, some retirees arrange their financial affairs to ensure this happens, and this may require them to reduce their assessable assets through strategies including gifting and using complying pensions with a 50% asset test exemption – if purchased before 20 September 2007.”
Currently, the Pensioner Concession Card (PCC) entitles those receiving government pension payments to reduced cost medicines under the PBS. Other benefits, which vary according to state and local government authorities, can include reductions in property or water rates, discounts on energy bills, a telephone allowance, free or reduced fares on public transport, and even reductions on motor vehicle registrations.
However many individuals are unaware that, where they do not qualify for the age pension, they may still have access to the Commonwealth Seniors Health Card (CSHC), which also provides discounts on prescription medicines through the PBS. To qualify for the card, individuals must have reached pension age, and be receiving less than $50,000 in taxable income per annum. For couples, this amount increases to $80,000, and those who are caring for dependent child will see the limit increase by almost $640 for each child under their responsibility.
While most states do not provide a full range of concessions to CSHC holders, they are entitled to a Seniors Concession Allowance – a non-taxable, non-income/asset tested allowance of $107 every six months to help with household costs. A telephone allowance of $21.40 every quarter is also provided.
Holders of either of these two cards are entitled to prescription PBS medicines at $4.90 each. Wixted adds: “Dependants of PCC holders receive the same discount on PBS medicines while those of CSHC holders do not. For example, if one member of a couple reaches age pension age before the other and qualifies for the age pension and therefore a PCC, the other member of the couple will also pay only $4.90 for PBS medicines.”
So for those individuals who pension assets fall just above the limit at which they can qualify for the age pension, is it worth reducing their retirement pot in order to gain eligibility for the PCC? Financial planner Ray Griffin, managing director of Griffin Financial Services, says: “There is sometimes a point at which considering gifting makes sense, but you need to keep in mind that the PCC is an income test – not an asset test.
Opting for a complying pension in order to gain a health care card may also not be the best move. Griffin says: “We counsel our clients to be extremely careful about making such singularly focused investment decisions. We counsel them on the risk of future legislation changes and the dangers which arise when ‘locking into’ a narrow band of legislation such as complying pensions.”
Wixted concurs, saying: “Any income planning in retirement should have regard to the total income that the retiree receives not just government income and benefits. Depriving oneself of private income, especially where it has the capacity to increase at a rate in excess of inflation, to instead receive government-sourced income – often at a lower level – is usually not a sustainable strategy.”