‘If I were to withdraw most of my super to loan or gift to my children to buy a property, how would that affect my pension?’

Sep 18, 2023

A: There are no legal restrictions around this, and while that may be an admirable thing to do, be careful that you don’t put yourself into financial stress now or in the future.

Centrelink’s gifting or more accurately, “deprivation rules”, basically stop you depriving yourself of financial assets to get more pension from the system.

Assuming the pension you receive is a Centrelink Age Pension, the money in superannuation is already being assessed by Centrelink under the Asset test and almost certainly, the Income test. Whichever test is producing the lowest pension payable to you is the one Centrelink are currently using.

You should be aware that the money earmarked for your children will be treated differently, depending on whether it is classified as a loan or a gift.

As a loan, it simply becomes an alternative asset to superannuation and will stay “on the books” with Centrelink until it is repaid, even if that takes 20 years. As it is repaid, the loan-asset reduces, and you need to let Centrelink know. If you forgive the outstanding balance of the loan at any stage (as in if the borrower is no longer required to pay back the remaining amount of the loan), that forgiveness will be classified as a “gift”.

If you receive a full age pension, for singles as of 20th September 2023 ($1,096.70 a fortnight) gifting or loaning this money will not affect your pension at all. In effect, you have shifted it from one asset (the super) to another (a gift or loan to your kids).

Of course, you have lost the access, use and earnings of your superannuation now and into the future, particularly if it is gifted.

How this varies if you receive a part-pension

The rules are slightly different if you receive a part-pension. If you take the money out and give it to your children, your financial assets will be reduced by a maximum of $10,000. If you are receiving an asset tested pension, this will result in an immediate $30 a fortnight increase in your pension up to the maximum allowed, because of the reduction in assessable assets.  Each $1,000 reduction is assets translates to an extra $3 a fortnight in pension.

If you are income tested, the $10,000 gift under deeming rules would see a maximum increase of just $4.33 a fortnight.

The gifted amount, less the $10,000, is assessed under both the income test and the asset test.

In essence, you don’t lose any pension, you just don’t gain much by giving your money away. Importantly however, 5 years to the day, the total amount given to your kids will drop off Centrelink’s systems and will be no longer means tested.

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IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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