When applying for the Age Pension an applicant must meet certain eligibility criteria;
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- Residency Test
- Income Test Limits
- Assets Test Limits
Whether the applicant is single or a couple is also taken into account. Couples have higher limits for the Income and Assets tests.
While everyone’s circumstances are different, Senior Australians are more likely to find their Age Pension entitlements are impacted by the asset test than the income test. i.e their assets are more likely to exceed the thresholds than their income.
What assets are counted
Centrelink looks at the type and value of all assets an applicant owns in and outside of Australia. There are some assets they don’t assess which are referred to as exempt assets and these include:
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- principal home and surrounding land up to 2 hectares on the same title
- principal home, if the applicant/s vacate it for up to 12 months or 2 years if entering a care situation
- any property or money left to applicant/s in an estate, which the applicant/s can’t get for up to 12 months
- accommodation bonds paid on entry to a residential aged care facility
For all other assets Centrelink considers the value of what the applicant/s gets if the asset was sold at market value. They deduct any debt that is secured by the assessable asset, from its market value. One area where people get caught out is with the principal residence. Any mortgage debt against the principal residence cannot be offset against an investment property, even if it was used to acquire that property.
Financial investments (including partners if a couple)
Centrelink will assess financial investments under both the assets and income tests. Financial assets include:
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- Superannuation investments (if your partner is under age pension age, their super is not counted)
- Income streams purchased from superannuation money or other money
- Business assets, Trusts
- Funeral investments (note: some may be partially or fully exempt)
- Assets that you have given away to children etc (referred to as gifting)
- Special Disability Trust
- Other assets (cars, boats, household items etc)
Can assets be reduced without it impacting on age pension eligibility
If applicants give away income or assets, they may still count towards the income and assets tests. This also applies if they sell them for less than they’re worth. However there are a couple of options that can be considered:
Gift some of the assets (within the Centrelink limits)
The allowable disposal amount (Gift) is the same for both a single person or a couple. It’s either:
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- $10,000 in 1 financial year (total)
- $30,000 over 5 financial years (total) – this can’t include more than $10,000 in a single financial year.
Any gifts made in the previous 5 years do apply for the age pension assessment in income and assets tests if they have exceeded the above limits.
Use some of the financial assets to make renovations around the principal home
The principal home may not have had any updates to its kitchen, bathroom, paint, carpets etc. Some money could be used to do so which would reduce assets.
However the applicant will lose out on any future earnings from the super/cash/shares that are used to pay for the renovations.
Reducing or paying off the mortgage on the principal home
It is generally recognised that it is better to pay off all debt at retirement. An applicant may want to consider withdrawing funds from their superannuation or bank account to pay off all (or some of) the current mortgage.
Benefits of paying off/down own home mortgage:
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- removes the mortgage payments and the risk of payment increases due to interest rate rises
- potentially increases the age pension payment due to reduction of asset value (if the applicant is a part pensioner)
Issues to be aware of:
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- if there is not very long left on the mortgage it may not be worth paying off the mortgage
- there may be penalties applied by the mortgage provider if the loan is repaid early
- losing out on the future earnings of the super/cash balance that is used to pay down / off the mortgage
Reviewing the mortgage structure with the lender if it’s for an investment property
Centrelink deduct any debt owed that the assessable asset is security for. If the applicant/s principal home is the security for the loan used to purchase the investment property then this debt is not used to offset the assessable asset value of the investment property. This is because the principal home is not an assessable asset for Centrelink purposes. It may be worth discussing with the lender the options or opportunities available to structure the loan against the investment property.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
As usual your prompt and careful response is appreciated.I wish your office was around when I applied for the pension and wanted information like this and your website.thank you for this service
Thank you for your kind words.
We are thinking of downsizing. Selling our home which is mortgage free, renting for 6 to 12 months, and buying again. The reason for renting is in the hope that the housing market will come down again. We have a small superannuation which we draw down on every month and receive a part age pension.
How much are we allowed to have in assets before we lose the age pension?
Hi Heather, please CLICK HERE and you will see a summary of the asset thresholds applicable to you as a homeowner and also whilst renting.
To talk about your situation in detail, we offer 30min consultations at a cost of $75. We can clarify how Centrelink will assess you specifically and help guide you on any related matters that might impact your Age Pension. If you wish to proceed please CLICK HERE to book the best suitable time available.
We have decided to downsize our car due to difficulties with steering, parking & the size of our one car garage in a retirement village. We expect to get $50,000 for the sale of our car which is 15 months old & valued at $50,000. The smaller, new car will cost us approx. $38,000. So there could be a difference of $10,000 in the change over. We get the full aged pension & an annuity which is within the guidelines of the income test. We meet the assets test. Our assets including our current car are worth $300,000. Will we have to declare this as a profit or will it affect our pension income from Centrelink?
Hi Christine. The additional $10,000 will be treated as an asset, but so was your previous car which you valued at $50,000, so your total assets will still be around the same level. From what you have said you will still be well below the minimum assets threshold of $419,000 for a homeowner and $643,500 for a non homeowner so your pension payments shouldn’t be affected at all.
My father is considering selling his vehicle valued at $20,000 and not replacing it.
He currently receives a part age pension and income from an annuity and super. His assets are below the minimum assets threshold.
He will add the $20,000 to his savings. Will Centerlink treat this sale as income ?
Hi Elizabeth, thanks for reaching out for clarity! The sale proceeds will only be counted as an asset, not income. It is best for your dad to show Centrelink a receipt from the sale as well as a bank statement so they can update his asset balance but also remove the car from his assets.
Hi, I have just purchased a new car for $47k then stamp duty etc is added on. Also, mats, dash cam bringing total to around $50k.
Do I include the stamp duty etc to the cost when informing Centrelink of the purchase.
I put my previous car in for part exchange for 16k and took the reminder from declared savings assets.
Hi Philip, thanks for reaching out! You need to declare to Centrelink the car’s re-sale or trade-in value. Usually this would be the same as you purchased it for but if you did happen to get a great discount you may need to declare the actual value. You would provide Centrelink with a copy of the invoice to show how much you paid and as evidence your old vehicle is no longer in your possession. We recommend you use the event to update all of your asset values and give Centrelink more recent statements for your bank accounts, super, shares etc. so that your assets are up to date and your pension is calculated correctly.
What is the current CASH asset limit for a single pensioner? Does it matter whether any cash is in a straight Bank savings account or a Trust Fund?
Hi Jan, thank you for your query! There is no threshold specifically for cash, there is an assets threshold which includes cash, motor vehicles, superannuation, shares, personal contents etc. CLICK HERE to learn more about the thresholds and see which one is applicable to you.
Hi,
I am assuming if you loan money with a loan agreement it will still need to be included?
Hi Krystal, thanks for commenting! Yes and money owed to you is considered an asset until it is repaid, whether you have a loan agreement or not.
Included in our assessable assets is a loan to our son of $180000 that was made thru a line of credit that was secured by a mortgage on our personal residence. We know that we cannot offset the loan asset by the line of credit liability. Our son’s business is struggling and he is unlikely to be able to repay the loan in the foreseeable future.
Are we able to forgive the debt or part thereof to reduce the assessable asset
Hi Dennis, thanks for highlighting a unique but not uncommon scenario! It is possible to tell Centrelink that the amount in question should be treated as a gift rather then a loan due to the lack of ability to make repayments. You would need to call Centrelink on 132 300 at 8am when their lines open to get through to someone and explain the change in situation.
We have $285k mortgage on our principle residence, firstly, how does the mortgage effect our asset test?
We also have $230k cash from a super payout, ideally we could put this against the mortgage and reduce interest. How does this change the above asset test scenario?
Hi Dina, thanks for your question. A mortgage on your home doesn’t factor in to your age pension assessment at all because your home is exempt (this is assuming you have less than 2 hectares of land around your home). Paying off a mortgage can reduce assessable assets, but there are a range of different factors to consider. If you are under the lower asset test threshold with all remaining assets you may be eligible for a full age pension entitlement anyway, in which case repaying the home loan may have no impact at all. It is also important to understand the differences in how you choose to put funds against the mortgage, as some ways reduce the loan value (and therefore overall assessable assets), and some ways don’t really change your assessment at all. To work through the pros and cons of this decision I would recommend a strategy consultation, it’s a 55 minute video meeting, the cost is $330, and you can walk away feeling really confident moving forward with whatever decision you make knowing it’s the best option for you. You can book by clicking here. Best wishes, Nicole.
Hi, our son is going to pay $250,000 off our investment mortgage. We will reimburse him for this when we sell the property in another 12 months or so. I understand that if this a one off payment it won’t affect my age pension, however, he would like to make 5 x $50,000 bank transfers on consecutive days as it is far easier than organising bank cheques etc. Would this still be considered a one off payment as far as Centrelink is concerned. Thank you, your advice would be appreciated.
Hi Kathy, from Centrelink’s perspective if the money is transferred in to any of your assessable bank accounts, they will want to be notified about it. The best thing to do would be to get your son to make the payments directly into the loan itself because the loan is not assessable. Having said that, paying down the loan will likely increase the assessable value of the investment property and also you should draw up a basic loan agreement to clarify the purpose of this money otherwise Centrelink will assess your payment back to him as a gift. You may wish to book a consultation with one of our specialists HERE so we can explain it all properly.