Not considering Centrelink-preserving strategies

The most common potential Centrelink benefit for most clients is the aged pension. An entitlement to the full aged pension can be seen as the equivalent of having a term deposit balance of over $900,000. (Unfortunately, the rate of ‘death tax’ on this term deposit is 100%).

The aged pension is available to all Australians aged over 65 who meet the income and assets test provisions. As the name of these tests implies, clients with sufficiently high income or with sufficient assets will ‘lose’ some or all of their entitlement to the old aged pension.

While they would rarely constitute the entirety of an SOA, strategies to enhance eligibility for the old aged pension can and should at least be considered for most clients over the age of 55. Strategies to maximise eligibility for the aged pension include:

  • Maximising the amount of wealth in the family home, which is exempt from the aged pension. This can often be advised to clients who are considering downsizing to free up capital on which to live – many people err in doing so. The difference between the amount received for the house that is sold and the amount that is paid for the new house can have the effect of displacing some or all of the aged pension;
  • Potentially combining the idea of maximising the value of the family home with some form of (conservative) reverse mortgage;
  • Gifting money to children or others who will be beneficiaries under a will. Caution needs to be exercised here – or, at the very least, a long-term timeframe needs to be taken, as money given away within the last five years can still be included as an asset in the assets test. This strategy can be a good one for clients aged 59 and under; and
  • Use of an uncontrolled (i.e. fully discretionary) family trust such that the aged pension recipient is not entitled to benefits from the trust. This can be another way to transfer assets between generations without needing to wait for the older generation to pass away.
The Dover Group