Inheritance and the Age Pension: What Happens When You Receive a Windfall?
Many Australians approaching retirement ask the same question: “What happens to my Age Pension if I receive an inheritance?” Understanding this is important because your Age Pension eligibility depends on strict Centrelink rules around assets and income.
If you’re preparing to apply, or reviewing your situation after receiving a windfall, it’s worth knowing how lump sums are treated, what the Age Pension requirements are, and how to manage your money so you don’t lose entitlements unnecessarily.
How Inheritances Affect Age Pension Eligibility
When you look at how to apply for the Age Pension, you’ll see that Centrelink requires you to declare all assets and income. This means that when you receive an inheritance — whether it’s cash, property, or investments — it can affect your Age Pension eligibility in two main ways:
1. The Assets Test
Centrelink uses the assets test to check whether you’re under the limits for a full or part Age Pension. Inherited assets like cash, property (other than your family home), or shares are counted.
👉 Example: If you inherit $100,000 and keep it in a bank account, that $100,000 increases your assessable assets and could reduce your pension.
2. The Income Test
A one-off lump sum itself isn’t counted as income. However, if you invest the money (for example, in shares or term deposits), Centrelink applies deeming rules to calculate the income those funds could earn. This deemed income will be assessed under the income test.
When to Apply for the Age Pension if You Receive an Inheritance
If you’re nearing retirement, you might be wondering when to apply for Age Pension after receiving an inheritance. Timing matters:
You can lodge your claim up to 13 weeks before reaching Age Pension age.
If you’ve received an inheritance, you must include it when declaring your financial situation.
It’s best to seek advice before applying so your claim isn’t delayed or rejected due to undeclared assets.
Age Pension Requirements and Documents Needed
When learning how to apply for Age Pension, Centrelink will ask you to provide detailed information about your financial circumstances. If you’ve received an inheritance, expect to supply:
Bank statements showing deposit of inherited funds.
Legal documents such as probate papers or settlement letters.
Valuations for property, vehicles, or investments included in the inheritance.
The usual Age Pension documents needed: proof of identity, tax records, and evidence of assets and liabilities.
Meeting these documentation requirements is essential to avoid delays in your claim.
Strategies for Managing an Inheritance Without Losing Benefits
Receiving a windfall doesn’t automatically mean you’ll lose your Age Pension. With planning, you can use the inheritance wisely and remain eligible:
Home Improvements – Since your primary residence is exempt from the assets test, using inheritance funds for renovations won’t reduce your pension.
Prepay Expenses – Prepaid funerals or funeral bonds (within the exempt limit) are not counted as assets.
Be Careful with Gifting – Centrelink only allows $10,000 per year (up to $30,000 over 5 years) before counting extra gifts as assets.
Consider Timing – If possible, structure how and when you apply for the pension to take into account any lump sums.
Seek Professional Advice – A financial adviser can help ensure your inheritance is used effectively without jeopardising Age Pension eligibility.
Final Thoughts
An inheritance can change your financial picture, but it doesn’t have to cost you the Age Pension. The key is understanding the Age Pension requirements, being careful about when to apply for the Age Pension, and making sure you have all the Age Pension documents needed ready for Centrelink.
If you’re unsure how your inheritance will affect you, getting advice early can make the process smoother and protect both your pension and your financial future.
