Andrée is expecting a big inheritance and wants to know what happens if she pays off her mortgage.
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Q. Andrée
I am a 68-year-old woman. I have been on the Age Pension since I was 65 years old. I also have a chronic health condition that qualified me for the disability pension but elected to go onto the Age Pension instead. I have heard in recent months that I may receive an inheritance of up to $750,000. How would this affect my pension?
I am still paying off my home unit with a mortgage. I volunteer with community events and services. Would this lump sum disqualify me from the pension? Hypothetically, I could use some of the pension to pay off my mortgage ($250,000)? What do you suggest or advise?
Any information would be very helpful and appreciated. I am reluctant to pay for a financial adviser as I have been burnt in the past.
A. While you may have been burnt by a financial adviser in the past, you are talking about inheriting a significant amount of money and you really should find a reputable adviser to help you make best use of that money.
The inheritance itself will not affect your pension, but what you do with that money will have an impact. If you place it in the bank, it will be treated as an asset and also have deeming applied to be considered as income.
If you purchase an asset it will also be included in the assets test.
If, however, you spend it on your mortgage (as you suggest), home repairs or on a holiday, then it will not affect your pension. This means if you use the money to pay off your mortgage, at least part of your inheritance will not be included in the means tests.
What you do with the remainder may very well have an effect on your pension, depending on what you choose to do with it.
If you use your lump sum payment to buy or add to your financial assets, Centrelink will use deeming rules to work out income from your financial assets. The deemed income counts in the income test. The assets may also count in the assets test.
Deeming rules lump sums will count in the income test if you’re:
- putting the money in the bank
- lending it
- using it to buy securities or investments
- putting it in your super fund if you’re over Age Pension age.
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