Your home and the Age Pension rules:
Frequently Asked Questions
A couple of weeks ago Jock asked our team the reason why he needed to prove ownership of his home for 20-plus years, in order to qualify for an Age Pension.
Our Customer Services Team leader, Steven Sadler was able to explain. This then raised quite a few other issues that can have a profound impact on the way your home is viewed by Centrelink. Yes, your home is exempt from a means test, but this doesn’t necessarily mean it has no effect on your final entitlements. It does. Here’s a brief summary of the way the rules work and the things you need to know to stay on top of your eligibility.
What’s with the 20 year proof?
“I am applying for the age pension but for some reason I have to prove that I have lived in my house for 20+ consecutive years. Why do I need to do this, and how?? Also, I have not lived in my house all that time, I travel around and stay in different places regularly, but my house is my home. Is that a problem?”
“This question is relevant when an applicant’s home is on land of two hectares or more. Theoretically the extra land (say Jock’s holding is five hectares, then the extra three) could be assessed as income earning and thus defined as an asset. Centrelink requests proof that you have lived in your house for more than 20 years as this is one of the factors used to determine whether your property will be assessed as an asset. So it is important that you make every effort to prove this to avoid having your pension reduced. In terms of how to prove it, Centrelink is reasonably flexible and as long as you can provide any document that proves you were the owner 20 years ago, this should suffice. This could include an old council rates notice or utility bill, or invoices for work done at the property that are addressed to you (or your partner).”
We’re Grey Nomads, so don’t own a home, right?
That was the question posed by Susie and Marlene. The answer isn’t quite so straight forward. As they have been living in their Recreational Vehicle (RV) for the past 18 months since they started travelling, the RV is defined as their primary residence, i.e. they are indeed homeowners. As such their Age Pension entitlements are calculated using the lower asset threshold which applies to couple homeowners ($419,000) as opposed to the higher rate if they were non-homeowners ($643,500). This is also the case with people who are living on a houseboat. The vessel is viewed as a primary residence by Centrelink.
What about Granny Flats?
Which leads us to this increasingly popular form of housing for some older Australians. The ownership of the granny flat is often far from clear. Sometimes an older parent has swapped their original residence for the right to live in a newly constructed dwelling, rent free on the same land. There is a lot riding on the contractual arrangements, if money or titles have changed hands and/or if rent is being charged. There are no simple answers, but in essence, if the granny flat is your principal place of residence and has been shared with you in a way that is deemed commercial, then it is likely you will be considered a homeowner, at least to a degree.
How long do you have when you sell?
In theory when you sell your (asset test-exempt) family home, the funds would immediately be considered as assets. But if that was the case, then those on an Age Pension would be discouraged from ever downsizing. Instead, there is quite a lot of leeway for those who are selling up and need some time and headspace to then repurchase or use the proceeds in a different way (maybe even for a Downsizing Contribution into their super). For this reason, for home sales from 1 January 2023, the asset exemption period is up to 24 months. Depending on the specific circumstances, some further exemptions of up to 12 months might also be granted. The maximum assets test exemption period is 36 months. Sale proceeds to be used to secure a new principal home are deemed at the lower rate only.
Of course there are many more rules attached to your home, your mortgage, super and Age Pension eligibility. The Q&A above are asked frequently, but we also receive many questions related to the relative merits of paying off a mortgage or leaving the funds in super. The right strategy depends entirely upon a host of factors, one of which is your home and whether it is owned outright. Other factors include your age, your spouse’s age if you are partnered, as well as your savings, income and asset levels. There’s a lot to consider.
If you have specific questions that you want help with to assess how an alternative strategy could affect your financial position and your ability to achieve your goals, Retirement Essentials offers adviser-led strategy consultations on a range of topics. In these meetings you are able to join one of our financial advisers online where they assess your current situation and show you what an alternative option may look like. These include:
- Retirement Forecasting (understanding spending options during your retirement journey).
- Understanding more about super (there are many options available to maximise income).
- Maximising your entitlements (making the most of your financial resources and Centrelink)
- Understand impacts of your home mortgage (can it increase your Age Pension and / or improve your income in retirement?)
- Younger Spouse strategy (How moving assets to a younger spouse’s super can increase your entitlements)