How is Super assessed by Centrelink 

One of the most common questions that I receive is this:

I have majority of my savings invested in a superannuation fund. Is Centrelink counting that money when calculating my government benefits or not?

The answer should be simple one could argue, but as always with superannuation rules and most certainly with Centrelink rules it varies from case to case, but if you understand the rules or if you ask for the appropriate advice, you can use those rules to your advantage.

What benefits could be affected by the value of your super savings? Well, the main ones that obviously immediately come to mind are Age Pension, DVA Pension, Disability Pension but also such benefits as Low Income Health Card.

So today I will answer that dreadful question:

How and when Centrelink counts your super and is there anything you can do about it?

As most likely you know, superannuation for most is the second biggest asset and for some it can actually be the biggest asset they own. But when you wish to be eligible for a government benefit, you really have to know the rules how those savings are treated and when they are counted and when they are not.

So let’s start with the basics – superannuation savings can be either in the accumulation phase or in a pension phase. Just a couple of weeks ago I wrote about this very topic: Accumulation and Pension phase of Super and which one is better.

This information is the main decision point for Centrelink and the government when counting or not the asset for whatever benefit you wish to be eligible for.

If you are below the Age Pension age any money you have in the super accumulation phase, Centrelink will not count, neither under the Income Test nor Assets Test. So whatever balance you have in a superannuation accumulations phase, until such time that you reach your Age Pension age, those savings are not assessed by Centrelink, therefore it is a perfect and legal place to hide your money.

If you are below the Age Pension age – any money in your Super Pension phase is fully assessed by Centrelink. So please be very careful, even though you are below the Age Pension age, if you move any money to a pension phase, your savings are fully assessed by Centrelink.

What happens when you reach the Age Pension age, or you are older?

Well, if you are above the Age Pension age, your money in the Pension phase is still counted, but now all the savings you have in a super accumulation phase are counted as well.

Super no longer works as your hiding place for your savings and the party is over. All those assets are now being assessed and will most likely impact the level of the government benefit you wish to have.

Is there anything that can be done to improve the situation or eligibility?

Let’s look at the very first scenario, being below the Age Pension age.

Let’s meet Andrew who is a homeowner just turned 60 years of age and on Disability Pension. He has $350,000 in his super accumulation phase and has contents of $10,000 and a car of $10,000 and $20,000 in bank account.

Till now for the purpose of calculating his Disability Pension eligibility, Centrelink would only calculate his contents, car and savings in his bank account.

But Andrew was finding living on the Disability Pension of $987.60 per fortnight a bit difficult and restrictive, especially knowing that he has all those superannuation savings just waiting to be used.

Someone told him that he could move those savings to an income stream and what’s more this would all be tax free income for Andrew to enjoy. Well, Andrew loved the idea of getting a bit higher income, so he moved all his super money to a pension fund.

The superannuation people told Andrew that his minimum payment will be 4% of the starting balance, so Andrew was looking forward to his Disability Pension of total $25,678 and his extra superannuation pension income of $14,000. That is a total of almost $40,000. Finally, I can start enjoying my life, Andrew thought.

But then to his horror he received a letter from Centrelink advising him that his Disability Pension has been reduced under the Assets Test and he just lost $8,580 of his annual Age Pension payment.

As you know as a single homeowner, to have the full Pension, your total assets cannot exceed $280,000, but by moving his superannuation from the accumulation phase to a pension phase, Andrew increased his total assets up to $390,000, that is excess if $110,000.

So what can Andrew do to have the full payment from Disability Pension while still enjoying that extra income? Well, Andrew can revert part of his money back to the superannuation accumulation phase to legally “hide” that money again.

By putting enough funds back to his super Andrew is again eligible for the full Disability Pension benefit. Now he can go back to his superannuation pension people and ask for that extra income he really wants to have.

So what is the outcome? Andrew can have the full Disability Pension, extra income from his Superannuation income stream, plus the balance of the reverted superannuation will be growing overtime. By the way, have you seen the most popular video of my channel yet: 9 ways to legally hide money from Centrelink, maybe it is worth watching or re-watching?

But what can you do if you are above the Age Pension age, and you can no longer hide money in your super accumulation phase? Well, maybe you are lucky, and you have a younger spouse that can help you.

Let’s meet Garry who is 67 and Lora 58. Garry just applied for his Age Pension, but he is only going to get $115pf because of the size of his super of $700,000. They also have money in the bank account, contents and a car totalling to $70,000 plus Lora has another $500,000 in her super fund.

Gary could withdraw portion of his superannuation and contribute to Lora’s super and improve his Age Pension that way, but smartly before jumping into this, Garry decided to get full financial planning advice. It is so very easy to make a costly mistake, because you need to consider:

1. Overall income needs

2. How much to withdraw from super?

3. How much can be contributed to Lora?

4. What type of contribution to make?

5. What is the sweet spot between the balance to be hidden in Lora’s super as opposed to the balance necessary to provide income and maximise Age Pension?

Another very important factor to consider is the fact that once funds have been contributed to Lora’s super this money no longer belongs to Garry, therefore one has to feel comfortable giving funds away, even to a spouse.

Also, there could be an issue accessing funds while it is in Lora’s super. She needs to meet conditions of release to have access to those funds.

As you can see not everything is so simple, and there are many things that need to be considered before swopping money around.

If you do not have a younger spouse, then the situation changes and a more sophisticated strategies need to be considered, but that again should be subject to the full advice, as the strategy might be different for different people.

In retirement planning there is no such thing as one size fits all, or more precisely, one solution that resolves all problems for everyone. You really need a very personalised advice to get the best outcome in your situation.

Retirement is a Journey, not a Destination, so be well prepared for the Ride.  

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement