Some strategies to maximise your Centrelink

Despite compulsory superannuation being in place since 1992, most Australians still have their retirement income somewhat subsidised by Centrelink. One of the major roles of a financial planner is to arrange a client’s assets as Centrelink efficient as possible.

Most people are aware that Centrelink is means tested on both assets and income. These tests can be complicated but there are potential strategies whereby the rules can be used to our advantage.

The first strategy is often called “Super Stashing”. Funds invested in super are not assessable for Centrelink assets or income tests until you reach age pension age. There are two circumstances where this can be used. The first is where you are receiving a Centrelink payment other than the age pension that is assessable (the disability or carers pension for example) the second is when one person of a married couple is significantly younger.

In each of these circumstances the strategy is quite simple, make a large contribution into the super of the person who is not yet of age pension age. This will immediately reduce your assessable assets and income and in most cases increase your Centrelink entitlement. If you roll these funds to pension phase, these assets will become assessable.

Several things need to be considered with this strategy. Investment earnings in super are taxed, whereas investment earnings in pension phase are not. Secondly, preservation may become an issue if the younger person has not met a condition of release.

This strategy is most effective when there is a reasonable period where only one member of the couple is of age pension age and, if all assets were included, they would not be receiving full pension.

The use of annuities is also an effective method to increase your Centrelink entitlement. The Centrelink treatment for long-term annuities is different to other assets. There are some conditions that need to be met to be considered a long-term annuity and you are best to discuss these with your advisor.

The Centrelink income test uses a calculation known as deeming to assign income to most investment assets.  Annuities are calculated in a different manner. There is a calculation that also applies to older account-based pensions that uses the actual income received, less an amount known as the deductible amount. The deductible amount is essentially the balance divided by life expectancy at the start of the investment. In many cases, the calculation is far more favourable than the deeming rates. For the asset test, that same deductible amount is deducted from the starting value each year.

Annuities are a useful Centrelink strategy when the income test is the dominant test, and they also add a small benefit to the asset test.

Structuring your assets to be Centrelink efficient can make an enormous difference to your retirement.