To gift or not to gift? What about your pension?

October 6, 2023 BY

To gift or not to gift? It's an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner.

With Australia’s age pension being subject to an assets and income test, a simple way for part-pensioners to increase their pension payments is to give away some assets.

Not surprisingly the government is aware of such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls “deprived assets” for five years.

The limits

Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples.

If you give away less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts.

Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made.

Planning ahead

These rules don’t just apply to existing pensioners. They also concern anyone who is applying for the age pension, as recent retiree Frank discovered.

Frank has reached age pension age, and based on his existing assets and income, he should be eligible for a part pension. However, four years ago he gave his daughter one of his cars, valued at $25,000. At the same time he gave his son $25,000 in cash, to match the value of the car.

What does this mean for his pension assessment?

While he understood the money he gave to his son is clearly a gift, Frank’s biggest surprise was the treatment of the car. Four years after he gave it to his daughter, it’s about to be treated by Centrelink as an asset Frank still owns.

That means Frank gave away $50,000 in one year. The annual “Gifting Free Area” is $10,000, so the difference ($40,000) will be counted as an asset for the next year. This will reduce his pension by more than $100 per fortnight.

If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome.

Seek advice

To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner. They can help you work through all the issues, including the complex calculations of the impact of multiple gifts over several years.

Phone Muirfield Financial Services on 1300 242 700. For more information, head to muirfieldfs.com.au