8th Nov 2017

Giving your assets away could reduce your Age Pension

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Olga Galacho

Known as gifting, giving away your major assets for less than they are worth or even for free can cost you your full Age Pension.

It is all about timing and the value of the asset. Centrelink’s gifting rule covers any assets you have offloaded in the past five years, and includes the five years before applying for an Age Pension.

“This is to discourage people from disposing of assets just before they become eligible for a pension (for example, just prior to retirement) in order to qualify for pension payment and other ancillary benefits,” according to Centrelink.

So even if you no longer own an asset because you have given it away, Centrelink still assumes you do when it assesses your payment entitlement.



Some gifting is allowed without affecting the Age Pension, but it is limited. Regardless of whether you are a single person or in a couple, the maximum amount of assets you can give away without your pension being affected is:

  • $10,000 each financial year; but no more than
  • $30,000 over a rolling five-year period.

 

Think carefully before offloading your ‘stuff’, even if you no longer need it and it could be put to better use by somebody else.

Often, as we age we may no longer have the energy to enjoy that boat covered in cobwebs under the carport or the car stranded in the garage, because a doctor has advised you not to drive any more.

At the same time, you may have family or friends who would be only too willing to take them off your hands and you are only too happy to give them away.

However, Centrelink doesn’t see your generosity in the same spirit you intended. What it sees is that before gifting, your combined assets were worth more than what they are now.

Thanks to the assets test used to decide how much of the Age Pension you should receive, you may well be entitled to an increased payment because the value of what you own has decreased.

In order to discourage retirees from parting with their valuable possessions, Centrelink implements the gifting rule. Under the rule, there are all manner of things that are considered before when an Age Pension is assessed, including if you or your partner:

  • transfer your shares or units in a trust or company and don’t get full market value for them
  • give up control of a trust or company – this is a gift of all the assets the trust or company holds
  • own a rental property worth $380,000 and sell it to your child for only $200,000
  • buy a car for your child as a present
  • have 10 per cent of your wages donated to your church
  • forgive a loan
  • have to repay your child’s business loan because you guaranteed it
  • put money into a family trust when neither you nor your partner control the trust.

 

It would be wise to seek the advice of a financial professional before giving your assets away, in order to understand how Centrelink will assess that against your Age Pension entitlement.

Have you ever given something valuable away? Or have you sold a possession for much less than its market value? Did Centrelink continue to count an asset you no longer owned when considering your Age Pension entitlement?

Related articles:
How gifting affects pension
Gifting and the DSP
Age Pension entitlement





COMMENTS

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Nerk
8th Nov 2017
10:33am
Some people get their cash out of the banks and put it under the bed, aren't they stinkers.
Rosret
8th Nov 2017
12:10pm
Not a wise move. My Mum tucked away $250 in 1980 which we found this Century. So on today's inflationary rates it was probably $1000 in buying power. They were the old notes so maybe we could have got an increased value as a collectors item. I don't even think the banks accept the old notes anymore.
*Imagine*
8th Nov 2017
8:59pm
Under the bed will provide you with greater interest than any bank that I have found. Why? Because our stupid mish - mash pension system reduces the fortnightly pension by $3 for every $1000 over the asset threshold. That is 26x3 = $78 per year reduction if you keep the $1000 in an account that is declared to C/L
If, however, you are a "stinker" and withdraw the $1000 to put under your bed, then you will be $78 better off. That amounts to the equivalent of 7.8% pa interest. Not bad eh!
Does our pension system need reviewing? I imagine every body with any degree of sense would say yes!
casey
8th Nov 2017
11:47am
What happens if you blow $20,000 on a holiday.
Rosret
8th Nov 2017
12:12pm
I think you can spend your money however you like - you just can't transfer it directly to another person's account.
Those who want to do this will find a way. Happy holiday!
*Imagine*
8th Nov 2017
9:06pm
Well for a kick off, if your $20,000 is above the assets test and you apply the above maths, then you will be given an extra 20 x $78 = $1560 to spend each year, courtesy of our stupid mash - mash pension system. Enjoy your holiday and have a drink on CentreLink.
Does our pension system need reviewing? I imagine every body with any degree of sense would say yes!
Rae
9th Nov 2017
4:57pm
If you blow everything above the cut off you'll get free money from Centrelink. Only savers get slammed these days.
Sen.Cit.88
8th Nov 2017
11:48am
Regular TV adverts ask for donations for underprivileged children run by the Smith Family. Would donation to a child be considered as 'gifting'?
Rosret
8th Nov 2017
12:13pm
Yes.
Sen.Cit.88
8th Nov 2017
4:21pm
Thanks, Rosret,
What a pity, I will need to cancel my recent direct debit monthly donation.
Rae
9th Nov 2017
4:58pm
Yes Sen that is a very valid point. Welfare recipients can't donate money on a regular basis.
Rae
8th Nov 2017
2:48pm
Just don't buy those sorts of assets. Pointless having a pile of toys you can't afford to play with.
Sundays
8th Nov 2017
3:36pm
I understand the gifting rules but how do they actually check up on people who give their children extra money, or pay school fees for the Grankids
Rae
9th Nov 2017
5:00pm
They don't Sunday but you'd be surprised what people seem to think they have to tell them.

It's like the over valuing of assets on Centrelink forms.

Most of the stuff people have isn't worth half as much as they believe.
Spondonian
8th Nov 2017
6:16pm
You can give away as much as you like but Centrelink treats you as still having it for 5 yrs before they write it off.
*Imagine*
8th Nov 2017
8:45pm
And, here again is another stupid anomaly built into our mish - mash pension system. If your part pension is based on income rather than assets, then you can give away as many assets as you like as long as they are not income earning assets and it has no effect on your pension.
An extreme example would be the parent who wants to buy their child a car.
1. If you give them the money, then the gifting rule will come into effect and your money (that you have parted with) will still be deemed as if you still had it.
2. However, if you buy a car and register it in your name, then give it to your child, who then registers it in their own name, there is no problem with C/L assets because you have disposed of an asset that has no effect on your income.
Just to re-emphasise, this only works for those whose part pension is based on the income test.
Does this system need reviewing? I imagine every body with any degree of sense would say yes!
church
9th Nov 2017
7:04am
If you receive a cash inheritance and want to give it to your children, I'm told that you can do so without your age pension being penalised, is that true?


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