How much to give?

Know the rules about the age pension, writes Max Newnham.

By InvestSMART · 23 Dec 2011

By InvestSMART ·
23 Dec 2011

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Know the rules about the age pension, writes Max Newnham.

CHRISTMAS is a time of giving. The problem is if you receive the age pension, giving too much can get you into trouble with Centrelink. To ensure people do not maximise their eligibility for a pension, limits have been placed on how much can be given away.

A single person or couple cannot give away more than $10,000 in cash and assets in a year. In addition, they can also not give more than $30,000 over a five-year period. When these limits are exceeded the value of the gift is counted under both the assets and the income test.

QI am 80 years of age and receive a pension. I recently sold my home and moved into a retirement village and have $200,000 in the bank. Rather than waiting till I die I'd like to help my four children by giving them $25,000 each. What effect will this have on my pension?

AIf you gave away the $100,000 in one year $90,000 would still be counted as an asset and the deeming rules would be applied to this amount. When this $90,000 is combined with your remaining $100,000 you would be deemed to be earning $303 a fortnight. This would result in a reduction in your age pension of about $77 a fortnight.

QHow will Centrelink treat my super payments after I turn 60 when they assess our eligibility for a Health Care Card?

AEligibility for the low-income healthcare card is based on a person's adjusted taxable income. Where that income includes a pension from a super fund the amount received is reduced by its purchase cost. This is calculated by dividing the value of your superannuation by your life expectancy at the time you started the pension.

QI am 58, retired, and have a fortnightly net super payment of $1120. My husband is 62 and plans to work until 65. We still have a $500,000 home loan. What can we do to work towards being eligible for the age pension?

AIn general terms, because superannuation is counted as an asset and a home loan is not taken into account, it makes sense to use your superannuation at some point to pay off the home loan to maximise your eligibility for the age pension. You should, however, seek professional advice first.

QI have an SMSF with two members. I am of age-pension age and drawing an allocated pension and my wife is not yet of age-pension age but is also drawing an allocated pension. Under the assets test does Centrelink ignore all of my wife's money in the fund when assessing my eligibility for a pension?

AUnder the assets test all of an individual's or couple's assets are counted, with two exceptions. The first and biggest is the exemption granted to the value of a person's home that is not included as an asset. The second is the value of a person's superannuation when they are under age-pension age and not receiving a pension from the fund. This will mean if your wife continues to receive a pension from the fund the value of her superannuation will be counted. Your eligibility for the age pension could be increased by her ceasing the pension, you taking a lump sum and your wife contributing this is a non-concessional contribution. Any shortfall in income could be made up by your wife taking lump sum super payments.

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Frequently Asked Questions about this Article…

What are Centrelink's gifting rules for age pension recipients?

Centrelink limits how much age pension recipients can give away. A single person or couple cannot gift more than $10,000 in cash or assets in any one year, and cannot give away more than $30,000 in total over a five-year period. Gifts above these limits can affect pension eligibility because they may be counted in means tests.

If I exceed the gifting limits, how will my gifts be treated under the assets and income tests?

When gifting limits are exceeded, Centrelink treats the excess gift value as if you still own it: the value is counted under both the assets test and the income test. That means the gifted amount can increase your assessable assets and may be treated as income (via deeming rules), reducing your age pension entitlement.

How do deeming rules apply to gifted cash or assets when calculating my age pension?

Deeming rules assume your financial assets earn a set rate of income regardless of the actual returns. If a gift is counted as an assessable asset (for example because gifting limits were exceeded), Centrelink will apply deeming to that amount when calculating your income test. The deemed income can reduce your fortnightly age pension payment.

If I’m 80 and give $25,000 to each of my four children (a $100,000 gift), what effect will that have on my age pension?

According to the example in the article, giving $100,000 in one year would still leave $90,000 counted as an asset for assessment purposes (because of the gifting rules). Centrelink would apply deeming to that $90,000. Combined with remaining assets, the assessed (deemed) income could reduce your age pension — the article’s example estimated a deemed income of about $303 a fortnight and a pension reduction of roughly $77 a fortnight.

How does Centrelink treat superannuation pension payments when assessing eligibility for a low‑income Health Care Card?

Health Care Card eligibility is based on adjusted taxable income. When your income includes a pension from a super fund, Centrelink reduces the reported amount by its purchase cost. That purchase cost is calculated by dividing the value of your superannuation by your life expectancy at the time you started the pension, which lowers the income counted for the card test.

Can using superannuation to pay off my home loan help me become eligible for the age pension?

Because superannuation balances are counted as assets under the assets test and a home loan itself is not deducted, using super to pay down or clear a home loan can improve your assessed assets and therefore may increase age pension eligibility. However, this is a significant decision and you should seek professional advice before acting.

In an SMSF with two members, will my spouse’s super be ignored when Centrelink assesses my age pension?

Under the assets test, Centrelink counts all of an individual’s or couple’s assets with two key exceptions: the family home (if it’s your principal residence) is exempt, and a person’s superannuation is exempt only if they are under age‑pension age and not receiving a pension from the fund. If your spouse is under age‑pension age but is receiving a pension from the SMSF, the value of that pension will be counted in your assessment.

What practical steps mentioned in the article might increase a couple’s age pension eligibility when one spouse draws an SMSF pension?

The article suggests some options that could improve eligibility, such as the spouse who is under age‑pension age ceasing to draw the allocated pension, taking a lump‑sum withdrawal, and making or receiving non‑concessional contributions where appropriate. Any shortfall in income could potentially be managed by one spouse taking lump‑sum super payments. These strategies are complex and depend on personal circumstances, so get tailored professional advice before changing arrangements.