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Centrelink $780 boost for pensioners who make this morbid move
Prepaying your funeral could have Age Pension benefits and even offer you a better return than a term deposit.
Aussie pensioners could boost their Centrelink payments by simply pre-paying their funerals. While it might seem morbid to think about, paying your funeral in advance could give you some extra financial relief now and even cover the cost of your funeral altogether.
Prepaid funerals have become more popular recently because they allow you to lock in prices and give you “peace of mind” that costs will be covered. Funeral prices have skyrocketed recently, with Australian Seniors finding a basic burial costs up to $18,652 and a basic cremation up to $5,953.
Funeral costs you pay for in advance are exempt from the Age Pension assets test. Financial adviser Alex Jamieson told Yahoo Finance this can have knock-on effects on your payments and eligibility.
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“A prepaid funeral is essentially a lump sum of money being paid to a funeral director for a set outline of costs and services and they are typically non-refundable,” Jamieson said.
“Centrelink for the age pension says, ‘Look we won’t assess those as being assets anymore’. So hypothetically if someone pays $10,000 as a prepaid funeral cost, that would reduce their assessable assets for the asset test assessment.”
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How much can I increase my pension by?
If you are affected by the asset test, which includes most pensioners who aren’t working, each $1,000 you spend on your funeral could increase your pension by $78 a year.
So if you spent $10,000 on a prepaid funeral, it could increase your pension by $780 a year or $30 a fortnight.
Jamieson said this was essentially a return of 7.80 per cent on your money, which is currently higher than what an average term deposit is paying.
After about 13 years, this extra pension money could effectively pay back the $10,000 you’ve spent.
It’s important to note this applies to people who are receiving a part pension because of the assets test.
What if I don’t get the pension?
Single homeowners can currently have assets of up to $686,250 to still receive a part pension, while single non-homeowners can have up to $938,250.
Couples who own a home can have assets of up to $1,031,000 and still receive a part pension, while those who don't can have up to $1,283,000.
“If you’re just sitting slightly outside the asset test, this could be one way where you can kind of duck underneath and possibly receive a pension,” Jamieson told Yahoo Finance.
“So it is not necessarily just for people who are already claiming the age pension.”
Other ways to improve your position
Jamieson said there were a few different “levers” you could pull to try and improve your Centrelink position.
“One is you could use a gifting provision within the relevant limits, you could go on a holiday or spend the money on house repairs, and the prepaid funerals are another lever,” he said.
“Really it is sort of a cocktail mix of those together that you can consider [as] options … There are a few opportunities around if you are teetering around those thresholds.”
In comparison, Jamieson said buying a car wouldn’t improve your asset position because the asset still gets counted and “the cash basically gets converted into a vehicle”.
“If you just duck under the limit, you also get all the ancillary benefits such as medications and utility reductions and those types of things. So often $1 pensions but all the extra benefits that go with it can be a useful strategy,” he said.
Along with pre-paid funerals, funeral bonds can also be exempt from asset tests. However, they are limited to $15,500.
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