FINANCIAL PLANNING

Ask Paul: How much can you gift without losing the pension?

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Dear Paul,

My 82-year-old mother is selling her home and moving in with my sister. Mum would like to gift money to each of her six adult children.  

What are the rules and implications regarding her aged pension? How much can she gift? And how much should she invest and where? Thank you. - Tanya

ask paul clitheroe how much money can my elderly mother give her adult children without losing her pension

Good on your mum.

I am not sure whether to laugh or cry when I see people grimly hanging onto money in excess of their reasonable needs. My wife and I often have a chuckle about this.

Statistically, one of us is likely to live to 90 or older (probably my wife!), and I while am sure that our three adult children would appreciate an inheritance when they are 70, it seems ridiculous to us. The world has changed. We are living longer and we need to change our views towards the transition of money to our kids.

Rule 1, though, is very important. First, ensure you are financially secure and that you have a financial plan for the path to death. This includes possible aged care and high-care accommodation costs. If you have this plan covered, then help the kids when they most need financial help. That is rarely when they are 70!

Tanya, with your mum any gifts are dealt with under the harsh-sounding "deprivation provisions".

There is much commonsense here. Giving a pile of unwanted money to the kids, then getting a full pension, is not a bad-sounding strategy (as long as the kids don't blow the money).

There is a limit of $10,000 a year, with a $30,000 limit over five years. Anything she gives away above these limits is calculated as being her asset and the income test applies.

The key here is how much money your mother receives and how much she wishes to gift. If it were $10,000 in year one, no problem, but $1666 for each of the six of you is not exactly a fortune.

If she has sold her house for a large sum, I'd seek professional financial advice. Houses are so expensive these days, she may be better off investing sensibly, gifting surplus funds to the six of you and not worrying about the pension.

I do appreciate how much people can value the pension. Technically, your mum could go to the casino and lose the lot and keep her pension. I do see people doing really stupid things to keep the pension, but the amount she has received will dictate the path she takes.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Comments
Liam Shorte
October 26, 2022 8.42pm

If she is moving in with your sister she should also look at a Granny Flat Interest to guarantee her life tenancy.. A good adviser can walk you through a number of strategies to achieve sine if not all her wishes. See more details here https://www.servicesaustralia....

Val H
October 28, 2022 5.52pm

Kind mum needs to look after herself first. Setting up comfortable and stable accommodation after her house is sold with a paced income from the proceedings should be her priority.

Michael Crowe
October 29, 2022 8.44pm

I've noticed many financial advisors state that Centrelink rules only allow gifts of $10,000 per financial year with a maximum of $30,000 over a five year period. And then the dreaded "deprivation provisions" are thrown in like an overarching threat.

And, I know they're simply repeating the Centrelink mantra, but at best, this information is simplistic; at worst, it is simply misleading.

Since I don't know Tanya's mother's complete financial situation, let me provide a simple example which shows you can gift whatever you want with virtually no impact on your pension:

Fred is an income tested aged pensioner with $800,000 in shares, bank accounts and fixed term deposits; all currently subject to deeming at 0.25% and 2.25%.

Fred gifts $100,00 to his favorite niece. Centrelink allows $10,000 as a gift and applies the deeming rate to the balance of the gift: ie, $90,000.

So, what's happened to Fred's pension?

Essentially nothing!

He's given the gift to his niece.

He's suffered no penalty from Centrelink for excessive gifting.

He's actually had a very small increase in his pension. (Financial assets reduced by $10,000.)

And, in 5 years' time the remaining $90,000 of his gift will be removed from his income test altogether; at which point he'll receive a substantial increase in his pension!

There are probably 10's of thousands of pensioners like Fred who'd like to help family members with mortgages and cost of living pressures, but they're tricked into thinking they're not allowed to do that.

I'd like to see better information given to your readers so they can make these types of gifting decisions with the full knowledge of the minimal impact their actions will actually have on their pensions.

Regards

Richard Jordan
December 31, 2022 5.10pm

Thanks Michael for pointing out what is misleadingly reinforced by most people.

Centrelink do not STOP you giving away what ever you want, they simply apply a deeming rate to it which is more than fair. If people used a little common sense they would realise that provided their expected life span is greater than 5 years they could end up better off giving away as much as possible as early as possible.

George Costanza
November 4, 2022 8.20pm

Michael Crowe your example is nonsense. If old mate Fred has 800k in shares he isn't getting any aged pension as he is well over the assets test. Centrelink apply the test that pays someone the least pension under each test. This is why we don't recommend getting financial advice from the nuff nuff next door. Stick to your day job which I'm sure isn't in financial advice (I hope).

Michael Crowe
November 27, 2022 12.32pm

Well, thanks George for pointing out my "typo". I meant to say old Fred had $500,00. In any event, the point I was making was that people should not think they can only give away the $10,000 per year Centrelink suggest.

Rather than focusing on the message, you went straight for the one detail which was incorrect: my typo.

I'll make sure I proof read my comments more closely in future so as not to incur your wrath.

Sam Hall
June 10, 2023 9.59am

I have $ 350.000 in super and just retired with total asset within limit for couples & my wife is out of work due to medical reason and gets job search . allowance and now I am thinking of transferring super to account based pension. As per sweetspots figure I am eligible for full age pension. My question is when I shall draw 5% from account based pension , is Centrelink going to reduce from my eligible full age pension amount? Where and how can I get a very clear and correct information please

Regards

Sam