What happens to your pension payments if you forgive a loan?

Ken lent money to his son, but thinks it is unlikely to be repaid. What does that mean for his pension?

What happens to your pension payments if you forgive a loan?

Ken lent money to his son, but thinks it is unlikely to be repaid. What does that mean for his pension?


Q. Ken
As a retiree I always read your eNews, especially the various material you publish about Centrelink. It took me a year to get a part pension – quite appalling really, as it forced me to eat into my super to keep up with our living expenses. I reached retirement age before my wife who has to wait another year to access her super.

I receive a part pension under the assets test, and I wondered when Centrelink calculated the part pension I receive. Is the resulting fortnightly payment for a couple or just myself? Does she have to apply for the pension when she reaches the right age, which is 66 and a bit?

Also we gave our son a business loan of $200k and his business went bust four years ago. We have no hope of ever recovering any of that money, but it is counted as an asset by Centrelink all the same. Can I now apply for a reassessment of our/my pension?

A. When you reach the Age Pension age and your wife has not, you will still be assessed under the income and assets test as part of a couple, and will receive the couple's rate of Age Pension, one member eligible.

With regards to the loan, a loan no longer exists for income support purposes when it has been forgiven. If you forgive a loan, this means that there is no longer any expectation that the money will be repaid to you. 

Forgiving a loan will lead to the loan amount being regarded as a gift.

A gift is any money or property that you give away for which you do not receive adequate financial consideration. 

Gifts affect your pension or payment because they either directly or indirectly reduce the assets available for your personal use.

The maximum amount you can give away, regardless of whether you are a single person or a couple, is $10,000 per year, or $30,000 over a rolling five-year period.  

The rolling five-year period is the current financial year plus the previous four financial years. 

If you give away more than $10,000 in a financial year, the amount in excess of $10,000 is counted as a financial asset for five years from the date that you gave it away. This excess amount will also be deemed to be earning income under the income test for the period of five years from the date that you gave the asset(s) away.

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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.


    To make a comment, please register or login
    2nd Dec 2019
    How woeful is that! Not only lose your money, which is bad enough, but you are penalised by the Government for doing it! Geeeez....
    2nd Dec 2019
    Rotten eh?
    2nd Dec 2019
    Is your son going to declare bankruptcy? Have you taken legal proceedings to recover it? Can be written off in certain circumstances.
    2nd Dec 2019
    The fact his son's business went bust four years ago is irrelevant as old mate lent money to his son, not the business, and expected it to be repaid. By forgiving the loan to his son he effectively gifts the $200K and falls under the gifting provisions. Would the outcome have been different if he forgave the debt before he applied for pension?
    2nd Dec 2019
    gifting applies to the 5 years prior to coming onto Age pension as well.
    2nd Dec 2019
    Did not answer the question of the loan in these circumstances. McDaddy asks the correct questions that should have been addressed.
    2nd Dec 2019
    Your wife will have to apply when she reaches Pension age. Nothing automatically happens. At present you receive half the couples rate that you are entitled. When your wife is eligible, she will receive the other half.
    2nd Dec 2019
    Don’t forgive the loan keep it as an overdue debt when CL assesses your finances.
    2nd Dec 2019
    It's treated as an asset regardless, at least if he forgives it after 5 years it will disappear.

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