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Inheritance and the Age Pension

Retirement  |  18/04/2018  |   5 min read

The Age Pension is subject to an asset tests. While the family home is exempt, additional assets may limit or even cease your Age Pensions payments entirely.

So what happens to your payments if you find yourself inheriting a sizeable amount of money? The short answer is “It’s complicated.” But if you’re looking for a starting point we can help.

The government view

The government considers an inheritance a lump sum payment, and requires you to declare it. But that doesn’t automatically mean it’s counted as an asset.

According to the MyGov website, “You must tell us about any lump sum you get [within 14] days, even if you think it’s exempt from the income test.  If you don’t, we may overpay you. If this happens you’ll have to pay us back.”

Here’s where it gets interesting. An inheritance is regarded as a one-off payment, and is excluded from the income test. But what you do with that inheritance may impact your income and assets (at which point it will counted by the government).

An example

Let’s suppose you inherit $200,000. If you leave this amount in your bank account any deemed earnings will be assessed under the income and assets test. Similarly, if you use the money to purchase an asset it will contribute towards your overall asset test. All of this may impact your Age Pension payments. 

So while an inheritance is 'technically' exempt from the income and asset test, any income or assets derived from that same inheritance will be included.

None of this is particularly clear cut or easy, which is why it’s best to seek professional advice when it comes to inheritances and Age Pension. A small fee up front can potentially save you tens of thousands in the long term. 

 

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