Will taking a lump sum out of super affect Centrelink payments?

Greg wants to take a lump sum out of his super and wants to know if he has to tell Centrelink.

Q. Greg
I was hoping you could fill me in on the Centrelink rules regarding taking a lump sum amount out of my superannuation. Do I have to tell them what I want the money for and are there any pitfalls I should be aware of?

A. Taking a one-off amount of superannuation is exempt from the income test, but what you do with the lump sum may affect you under the income or assets test. It doesn’t matter if the lump sum is exempt.

Read more: Super returns close to the best in a decade

If you spend the money on an exempt asset, it won’t affect you under the assets test. This includes your principal home, mortgage, or medical equipment.

If you buy a non-financial asset it will count in the assets test. This includes things such as artwork or a holiday home.

If you buy or add to your financial assets Centrelink will use deeming rules to work out income from your financial assets. This applies if you use the lump sum you get to buy or add to financial assets. The deemed income counts in the income test. The assets may also count in the assets test.

Read more: Smaller super funds outshine megafunds

Deeming rules lump sums will count in the income test if you are:

  • putting the money in the bank
  • lending it
  • using it to buy securities or investments.

Your superannuation might not currently be counted in your income and assets test if it has not started paying you a superannuation pension and you are under Age Pension age.

Read more: Where super stashes are flying

However, if you are of Age Pension age Centrelink will already be counting the money that you have in your super in both the assets test and in the income test under the deeming rules.

Therefore, if you are already receiving your pension, your superannuation is already being counted by Centrelink and moving it to a different assessable asset class will not affect your payment.

However, if you take the money out of your super and spend it on an exempt asset or service, it will be in your best interests to notify Centrelink as you may become eligible for a higher pension payment, depending on your situation.

Do you hold any hope that the government will combine the assets and income test for the Age Pension? Why not share your thoughts in the comments section below.

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Ben



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