Ask Paul: Can I give away $400k then claim the pension?

Dear Paul,

I am single, 66 and soon to retire. I own two $500,000 houses and have no super.  

I wish to sell one house then lend my children $400,000, which they can pay back slowly, giving me a small unofficial income. How will this affect me getting the age pension? - Peter

Darn. We should have had this conversation some years ago, Peter.

I'd always want anyone to check this with Services Australia (Centrelink) or a professional adviser who knows complete details of your situation.

But, according to the superannuation giant MLC, you should gift more than five years before you are of pension age for the gift not to count as a financial asset.

If you gift inside five years of first applying for an entitlement such as the age pension, during the five-year period since the gift was made, it will be considered an asset under the assets test and 'deemed' under the income test, meaning it is deemed to be earning 0.25% when less than $62,500 and 2.25% above that.

As MLC points out, there are exceptions. One example is money put into a special disability trust for a dependant. Another is money 'as a payment to a family member for substantial work outside that expected from a family member's "love and affection" or moral obligation'.

If your head is spinning right now, I am with you, and I imagine pretty much every Money reader is too.

All I know about you is that you own two houses and have no super.

If you live in one house, it is an exempt asset for age pension purposes, so that has no impact on your pension. If you sell the other house and gift $400,000 to your kids so close to your pension age, it will be seen as a financial asset by Services Australia.

But this would not stop you getting a pension. Today you can have $314,000 in assets as a single homeowner and get a full pension.

You'd still get a part pension with $695,500 of assets outside your home and you can earn up to $212 a fortnight and get a full pension. You will be assessed under both the assets test and income test and get the lower payment.

I'd suggest a good starting place is a chat to a Services Australia financial information service officer. I should say here that you can gift, without impacting your pension, $10,000 a year to a maximum of $30,000 over five years.

But there is a bigger picture here and one that I think is far more important.

After you have given away $400,000, with your remaining house plus what looks like a part pension, how do you plan to live: maintain your home, pay insurance, rates, possibly car running costs, insurance, health costs and keep food in the fridge?

I appreciate that you mention getting ongoing assistance from your kids, but frankly I am concerned about you impoverishing yourself. I think you need to revisit this whole idea of gifting about half your wealth.

My rule about gifting to kids is very simple. Make sure you are financially secure first, then if you wish, taking into account Services Australia's gifting rules, look at gifting to the kids.

Please seek advice.

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