Centrelink Pensioners Personal Debt
At Centrelink, your personal debt is not deducted from your financial assets for determining your means tested income support benefits.
For Centrelink Age Pensioners personal debt is ignored for the Asset Test.
The deemed financial income for the Income Test is based on the financial assets that you have without deducting what you owe.
Centrelink ask DSP and Age Pensioners and other ‘income support customers’ to declare their full assets.
Personal debt is money that you owe because you have not paid all of your personal expenses.
For Centrelink Pensioners, personal debt includes your car lease, credit card debt, gambling debts, personal loans from a bank or ‘pay day lender’, outstanding Court fines, and parking fines, money borrowed from family or friends and amounts that you must pay to settle legal cases against you. The ‘excess’ amount that you need to pay after that motor vehicle accident might also be an outstanding personal debt.
Personal debt does not include any ‘investment loans’ that are clearly associated with investment assets. The mortgage you have against an investment property that you rent out could be offset against the value of that investment property for the Assets Test. The mortgage interest but not the capital repayments, could be offset against rental income.
Centrelink do not need to know how much you owe as personal debt. But having records of personal debts simplifies the task of proving to Centrelink that you paid off some debts when you sold an asset or received an inheritance.
At Centrelink Pensioners personal debts are not deducted from financial assets
At Centrelink, your ‘financial assets’ include any money that you have lent to anyone and any ‘excess gifts’ that you have made in the last five years. You must tell Centrelink the full value of the assets that you do have including any money that you have loaned.
At Centrelink, loans to family members are financial assets of the lender. If you want to ‘forgive’ a loan to a family member then you must tell Centrelink that you ‘gifted’ the loan balance to the borrower.
Remember that $30,000 that you lent to your daughter, Sue, to help her buy her home.
If you and Sue wrote yourselves a loan agreement then you could easily show that to Centrelink as a record of your financial asset. If later you want to ‘forgive’ $10,000 of the loan then you could tell Centrelink about that ‘gift’ that reduces the outstanding loan.
When Sue finally repays the capital of the loan then you need to show Centrelink where the payment is credited to your bank account so that the loan is removed from the Centrelink list of your financial assets.
Repayment of Centrelink Pensioners personal debts
Paying off your personal debt when you have a little extra cash is smart.
Consider Sally, a Single Pensioner who inherited some money and now has a bank balance of $150,000 and a debt of $30,000. Sally was previously receiving the full Age Pension. But now with her inheritance, Sally could be impacted by the Income Test because her deemed financial income is based on the $150,000.
If Sally paid off the debt so that her financial assets were reduced to $120,000, then her deemed financial income at February 2014 could be below the Income Test threshold.
Sally could show Centrelink the paper trail for her debt of $30,000 so Centrelink could see where her $30,000 went.
Years ago Mary had lent her mother Elsie, $20,000 to have Elsie’s bathroom renovated on the understanding that Mary would be repaid when Elsie’s home was sold. Elsie cannot offset that $20,000 against the value of her other assets.
Be aware that if Elsie and Mary did not write a loan agreement then Centrelink could treat any loan repayments as gifts from Elsie to Mary. A family dispute could occur if other family members notice Mary asking to be repaid her $20,000 of undocumented loan when Elsie sells her home to move into a retirement village.
Read more about Centrelink and gifting
Hint – Using your own money to pay your bills could be smarter than trying to earn interest whilst carrying debt.
Centrelink Pensioners personal debt – home mortgage loans
A Pensioner ‘homeowner’ with a substantial mortgage is still a ‘homeowner’ at Centrelink. Homeowners are not eligible for rent assistance.
The full rate of DSP and Age Pension only provide for a frugal lifestyle not for the purchase of property. Retirees whose only income is the Centrelink DSP or Age Pension could expect to cover the regular costs of home-ownership such as property and contents insurance, maintenance and Council Rates from their Pensions.
But Pensioners could not expected to maintain their home mortgage repayments if their only income is the Centrelink Pension.
Perhaps if you are receiving a modest disability income benefit in addition to a Disability Support Pension then you might have enough regular income to meet your mortgage interest and pay off some of the outstanding capital.
Hint – plan to pay out your mortgage totally before you retire from full time work.
Reverse mortgages and capital release contracts for Pensioners
Retirees might consider drawing down part of the value of their home via an equity release or reverse mortgage contract.
Some lenders offer single lump sum equity release loans to provide a pensioner with a lump sum of, say, $30,000 to fix a leaking roof and renovate the bathroom. Centrelink would not offset the $30,000 mortgage against the value of the pensioner’s financial assets. But if the $30,000 loan sat in the pensioner’s bank account waiting for the builder to finish the work and submit an invoice then Centrelink could treat the $30,000 as a ‘financial asset’ until it was actually paid to the builder.
Hint – try not to draw down a loan payment until you are ready to use the money to pay bills.
Help is available. Christine at Financial Care Services is experienced with Centrelink Pensions.
Financial Care Services offers Short Consultations to help you see if you could be eligible for some Age Pension and to estimate how much Pension you could expect to receive.
If you think that you might be eligible for a part Age Pension you can call Christine on 03 9808 0338 to arrange a Short Consultation, 45 minutes in person or by telephone and/or email to discuss your position. Please ask for a special ‘short consultation’ when you book your appointment.
Christine could assist you with collating your personal data and completing the Centrelink forms for you to sign. Normal hourly rate consultation fees apply for assistance completing Centrelink forms and attendance at a Centrelink office with you.
To make an appointment for confidential, independent and professional advice about Centrelink, lifestyle or financial issues please contact Christine Hopper 03 9808 0338.
Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. © 2014 Financial Care Services Pty Ltd. All rights reserved.
To make an appointment for professional advice, call Financial Care Services 03 9808 0338