Can I give my money to kids and still get the age pension?

If this is her expectation and she proposes to make large gifts to her children, it may not be realistic.

Regarding her approach to gifting, your sister did the right thing by contacting Centrelink, which would have told her to make sure she advises it before making any gifts so her age pension will be reduced and she won’t be asked for any money back. She should check back with Centrelink again before implementing any gifting.

It is also important for your sister to be aware that while there is nothing stopping her from making generous gifts to her children rather than using the inheritance from your mother to support herself in retirement, there will be repercussions in the form of potentially significant reductions in her age pension.

Gifting limits exist to discourage retirees from giving away their wealth without careful consideration. Without these rules, people might deliberately give away money and possessions to qualify for more age pension income.

That said, the age pension rules, says Perri, do allow you to gift up to $10,000 a year or a maximum $30,000 over five years without this upsetting an entitlement to government benefits.

When applying the gifting rules, they are first measured against the $10,000 per financial year rule (with the same limit applying to both singles and couples), then against the $30,000 limit over a rolling five financial year period.

Where the limits are exceeded, any excessive balance will be separately assessed against the age pension assets and income tests and whichever test gives the lowest age pension entitlement will apply.

Regarding your sister’s circumstances, Perri says there is an important aspect to her desire to share your mother’s inheritance with her children before her applying for the government age pension age,

It highlights a gifting strategy for those who wish to avoid any problems if they wish to gift larger amounts – make any gifts that are likely to exceed the allowable limits well before you apply for the age pension.

She must, however, be aware of a retrospective element in the rules where excessive gifts made within five years of becoming eligible for the pension can be counted once she starts the pension.

As an illustration of how this might work, say your sister wished to share $500,000 between her children. If she was able to do this before age 62, five years before she turns 67, the gifting rules won’t apply against any age pension in the future.

But if she can’t do this until she is 65, he says, when she applies for the age pension at 67 she will be asked if she has made any gifts over the previous five years.

What Centrelink will then do because her gift exceeds the maximum allowable one-year $10,000 limit is count the remaining $490,000 as a deprived asset.

This balance will then be added to her existing assets and counted against her entitlement to the age pension and could then mean a significant reduction in her retirement income.

Where assets exceed an age pension asset threshold that you are allowed to have (like $301.750 for a single homeowner or $451,500 for a homeowner couple), it can reduce an age pension by $3 for every excessive $1000.

Under the income test, an income value for the balance will be calculated using the social security deeming rules.

What gifting will mean for your sister if she shares the inheritance with her children at 65, for instance – two years before she qualifies for the age pension – is the likelihood of three financial years where her pension will be reduced potentially significantly.

So even though she would not have that money as she gifted this to her children when she was 65, she will be treated as if she still did for three years.

The only good news is that once this time is up, any deprived amount ceases to be counted and her age pension should increase.