How will an inheritance affect pension?

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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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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.

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Written by Ben

13 Comments

Total Comments: 13
  1. 0
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    Firstly you need to confirm the inheritance and timing which means talking to the executor of the will. Wills need to be read fairly soon after the funeral. You may need advice from your solicitor but don’t dally.

    Secondly consult a good accountant. They can advice you of implications tax wise and also may know a good fee for service financial adviser.

    Pay the mortgage, buy anything you need, take a nice long holiday, replace the car if needed.

    Talk to the adviser about low cost index funds in shares, property , bonds and cash and then read a good book or two. You need around 2 years cash income in case of market corrections.

    James Bogle gives advice in several books and set up Vanguard with aid from Warren Buffet exactly for people like you and me to derive income. The local librarian will help with book selection.

    You definitely need to maintain a small part pension for health cost benefits so you do need professional advice.

    Taking advice but listening to your intuition is necessary. Walk away if you don’t feel confident and try another adviser until you find one that suits.

  2. 0
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    I would like to know how she has being Paying Mortgage and Rates etc while on OAP.
    No other information supplied.
    Food, Medical etc, as stated switched from Disability Pension.
    Please supply all information as Centerlink would be more concern about the non Disclosure before Receiving a Inheritance.
    Sell up and Buy a more suitable Dwelling or Knock Down/Rebuild.

    • 0
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      We are on a full OAP and pay a mortgage and rates plus all the usual bills such as food, power, water, phone etc. We don’t drink, smoke, gamble, go on outings or on holidays etc. Partly from choice but mostly from necessity so we can maintain security and independence in our choice of residential location and freedom from interference from landlords. We worked for many years to achieve this dubious security. Dubious because we’re very much at the mercy of government policy changes; federal and local. It can be done, but not easily. Good luck to the lady who is awaiting an inheritance. She is obviously taking her obligations and rights to security seriously.

    • 0
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      Is that a $250,000 Mortgage you are talking about.
      You are stating We as the other is Singular.
      Medical Needs as well as the Lady had a Disability Pension Before and still has what ever she had before.
      Limited information given, 1 singular OAP, 2 $250,000 Mortgage, 3 On going Disability, 4 Possible $750,000 Inheritance.
      This is all what was Given.
      There is no mention of any other assets/income.

  3. 0
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    But Rae’s remarks above are good stuff of course but the link above will greatly help to make the choice of an advisor.

  4. 0
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    So, $750,000… Pay of the mortgage, of course.
    That leaves $500,000. That’s aheap of money to live on.
    Dont try to spend a dollar to save 50 cents on the pension.
    The idea of the pension is to pay people who cant afford to live on their savings…

    • 0
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      That is good advice don’t waste money just so you can get a Pension. With some thoughtful expenditure you should be able to reduce your long term cost of living expenses and still qualify for a part Pension with the aim of receiving the discounts and benefits you are entitled to.
      Consider putting money into the house that will reduce costs, like Solar Hot Water and Power with a battery system. Air conditioning or things that will make your life comfortable long term. Update your major appliances, maybe buy a new car.
      If you can do all that and still don’t qualify for a part pension, ask yourself if you really want one.

    • 0
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      If Andree is single, and paid off her remaining mortgage, with minimal other assets, and stuck the remaining $500,000 money into the bank, she would still get a pension of around $175 per fortnight.Miserly interest on bank deposits, so far better to see a reputable financial adviser. Ask friends – word of mouth is the best way to find one.

    • 0
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      Good advice as she stated she was eligible for the disability pension. If needing a lot of medical appointments and medications it can cost thousands if you don’t have the health concession card. She needs to maintain that if possible. I know of several self funded retirees who had to restructure when medical costs started eating up too much of the income because full prices for everything just as working people pay. It’s a terrible situation.

      Some of the drugs etc are quite expensive and in Australia even the size of creams etc are very small compared to other countries.

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      ex PS – the lady lives in a home unit so not easy to put in solar, battery power etc. In her situation I would get out of the unit and buy a house with zero body corp, rates only; and then she could consider your suggestions re solar. The inheritance would disappear quite quickly and she would live in a comfortable place, but she might have to move a few hundred meters.

  5. 0
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    Another potential expenditure could be to pre-pay your funeral. This is not counted as an asset.


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