Centrelink opportunities in retirement

​The age pension can provide a useful extra income stream as well as access to pensioner concessions. Here’s how to help your clients access the benefits they’re entitled to. 

​Advisers play a key role in helping clients access Centrelink benefits more easily. They can assist in the application process, update a client’s income and assets, and ensure their paperwork is in order.  ​

Advisers can also help with strategies to increase a client's Centrelink entitlements and better protect their wealth and assets. Let’s look at some now. ​

Using an innovative retirement income stream (IRIS) ​

Retirement income streams are assessed differently by Centrelink. For example: ​

• Account-based pensions are deemed for the income test and the account balance is assessed for the assets test ¹.  
• Term-allocated pensions and market-linked income streams are eligible for a 50% assets test exemption. They also receive income test benefits as a client’s income will be assessed as income less the deductible amount.  
• ​Lifetime income streams are assessed with a 40% discount on the assets and income tests, with even further discounts to the asset test if the solution is taken up during accumulation phase. ​ 

For clients who are assets test sensitive, like Joan below, lifetime income streams can be used to access or increase the amount of Centrelink payment they’re entitled to. Joan’s example below is illustrative only.  

​Joan is 70 years old, single and a home owner. She has recently experienced an increase in her assets as a result of downsizing the family home to a unit. Using downsizer contributions, Joan added $300,000 into her super, bringing her total Centrelink assessable assets to $700,000. This puts her over the upper assets threshold for an age pension.  

​Joan’s adviser suggests she purchase a lifetime income stream, of which Centrelink will only assess 60%. Joan places $300,000 in the lifetime income stream. This means she will only be assessed on $180,000 (60% of the lifetime income stream) effectively giving her an immediate 40% discount  for her assets test.​

This puts her under the upper assets test threshold, allowing her to access some age pension and a pensioner concession card, helping her manage the cost of her pharmaceutical and medical bills. ​

Sheltering funds in super 

​Suppose you have a client under age pension age – 67, but they are unable to work due to disability. Their assets are over the upper assets test threshold therefore they do not qualify for any Government support payment. However, by sheltering their assessable assets into  superannuation, you can restructure their assets so they become eligible for a Government support payment. Here’s an example of how it could work. ​

John is 62 years old. He's a homeowner with $20,000 in contents and $80,000 in the bank. Due to a recent injury, he can no longer work in his casual job. He’s received a $600,000 payout from a TPD policy held in his own name and paid into his bank account.  

​John medically qualifies for the disability support pension (DSP) and meets the permanent incapacity terms of his superannuation fund, but the $600,000 payout in his bank account means he doesn’t qualify for government support. To ensure John is entitled to a DSP, he’s advised to make a non-concessional contribution of $330,000 into his superannuation.  ​

By making this contribution, John is now below Centrelink’s upper assets threshold – because Centrelink does not assess money in the accumulation phase of super when the person is below age pension age - 67. ​

Sheltering money in super can also help in other circumstances. For example, say you have a couple where one is at pension age but the other is not. By sheltering money in the super of the younger partner, the retired partner may now be entitled to a pension payment and a Pensioner Concession Card. ​

Gifting money  ​

A single person or couple on a pension may gift up to $10,000 each financial year or $30,000 over a five-year period. This also applies to people approaching retirement, who must disclose if they have made a gift within five years. But they can avoid this limit by making a gift earlier than five years before receiving a pension. ​

Another way to maximise gifting in a short period is by giving a gift of $10,000 at the end of the financial year in June, and then another gift of $10,000 in July.  ​

Clients who wish to gift money to their children, without leaving one out may do so by forgiving a loan. For example, they could loan one child $10,000 and gift another $10,000. Then when the new financial year comes around, they forgive the $10,000 loan, and it becomes a gift. 

​Leaving assets in the will and exempt assets ​

Sometimes, a widowed spouse will find they no longer qualify for a pension because their assets are too high now they are single. A way to avoid this scenario is by bequeathing some assets to their next generation. ​Another strategy is to put money into assets that are exempt from Centrelink testing. For example, funeral bonds are exempt up to $15,000 from 1 July 2023, and burial plots are 100% exempt. Spending money on the exempt family home by upsizing or renovating can also reduce assets from assessment.  

​Restructuring debt 

​Restructuring debt can help a client reduce the value of their assets and positively affect their Centrelink entitlements. One way to do this is to secure debt against an assessable asset such as an investment property. Under Centrelink’s asset test, the value of that asset will be reduced by the amount of debt that the client owes on it.  

​Remember, the debt must be held against an assessable asset that either your client or their spouse owns. There’s no point in securing debt against an exempt asset, such as the client’s family home, because Centrelink doesn’t count the value of the family residence when assessing assets.