Avoiding Common Centrelink Traps in Retirement

Navigating Centrelink in retirement can feel like trying to read fine print without your glasses. Between forms, asset tests, and gifting rules, even well-organised retirees can accidentally jeopardise their entitlements. Missteps can lead to benefit reductions or missed opportunities—but with the right knowledge and support, many of these issues are avoidable.

This guide outlines four common traps retirees encounter when dealing with Centrelink and provides general guidance on how to avoid them. It is designed for those already receiving the Age Pension or considering eligibility.

1. Not Everything You Own Is Assessed

The Centrelink assets test is often misunderstood. While many retirees assume everything they own is counted, that’s not entirely accurate.

Your principal residence is exempt under Centrelink rules, as is up to two hectares of land on the same title—provided it's used for personal purposes. However, land beyond this limit may be assessed unless it can be shown to have limited market value or utility.

Another source of confusion is personal assets. You don’t need to list every item in your home, but collections such as art, antiques or jewellery should be included. Fortunately, Centrelink applies a “market value” approach—meaning what items would sell for at a garage sale, not their insured replacement value.

Compliance Tip: Ensure that any declarations to Centrelink reflect a conservative, fair market estimate. A reasonable basis for valuations should be documented and retained, particularly if supported by Centrelink’s Financial Information Service (FIS).

2. Gifting and Inheritances Can Affect Your Entitlements

Generosity is admirable—but can affect your pension.

Centrelink’s gifting rules allow a person to gift up to $10,000 per financial year (and a total of $30,000 over five years). Any excess is deemed a "deprived asset" and will be included in the assets test for five years.

Similarly, if you receive an inheritance and redistribute some or all of it to others, Centrelink may still consider this a gift unless the will explicitly names the intended beneficiaries. That means the value may continue to be assessed against your pension eligibility.

Compliance Reminder: Where gifting is planned or inheritances are expected, it's appropriate to seek guidance from Centrelink or a licensed financial adviser before taking action. Advisers must not structure advice to avoid Centrelink means testing unless doing so aligns with the client’s best interests.

3. Deciding Between Paying Off the Mortgage or Keeping Super

A common question in retirement planning is whether to use superannuation to pay off the mortgage. From a Centrelink standpoint, this may be beneficial.

Superannuation is assessed as an asset once you reach Age Pension age, but your home is not. Paying down a mortgage may therefore reduce assessable assets and increase your Age Pension entitlement.

However, there are trade-offs. Using all super to eliminate debt can reduce access to liquid funds, which could impact your financial flexibility. For some, a blended approach—retaining some super while reducing debt—may balance Centrelink advantages with income needs.

Downsizers should also note that proceeds from selling the principal residence are exempt from asset testing for up to two years, provided there is an intention to buy or build another home.

Note: Superannuation strategies or withdrawals should be assessed in the context of your broader financial needs. If you're working with a financial adviser, ensure advice provided complies with the sole purpose test if fees are paid from super.

4. Communicating Effectively with Centrelink Saves Time and Stress

Centrelink’s systems can feel outdated, but there are practical ways to keep your records up to date and avoid delays.

• Use MyGov: This is the fastest and most secure way to upload documents, update income and asset details, or submit changes to your situation.

• Avoid email: Centrelink generally does not accept correspondence via email due to security risks.

• Contact the FIS team: The Financial Information Service (132 300) offers free guidance on retirement and Centrelink matters.

• Visit a Centrelink service centre: For complex cases or when face-to-face support is required.

Keeping Centrelink informed of changes in income, assets, or living arrangements is essential. Failure to notify Centrelink promptly can lead to overpayments, debts, or a temporary suspension of payments.

Final Thoughts: Don't Delay Seeking Help

Centrelink rules are complex, but support is available. Acting early—particularly before gifting, downsizing, or making large withdrawals—can prevent costly mistakes.

Be proactive in understanding how changes in your financial position may affect your entitlements. Services Australia’s Financial Information Service is a valuable free resource, and licensed advisers can assist where personal financial advice is appropriate.

Important Information:

This article provides general information only and does not constitute personal financial advice. It does not consider your individual objectives, financial situation or needs. Before acting on this information, consider seeking professional advice. If advice relates to a financial product, ensure a current Product Disclosure Statement (PDS) has been reviewed.

Centrelink and superannuation rules can change. For the most up-to-date guidance, refer to Services Australia or consult a licensed financial adviser.