"My mum has been awarded over $400,000. It was awarded to my father's former employer in England. The amount is to be paid in large instalments. My mum owns her own home in a retirement village, valued around $350,000 and she has around $200,000 in savings. She receives a full pension. She'd like to give the claim money to my sister and I. Because my mum is the claimant, the lawyers will only deposit to her account. Can she forward the money to my sister and I without it affecting her pension?" - Janine, Perth, WA
Top answer provided by:
Jacques Malan
Hello Janine,
Thank you for your interesting question.
The situation you describe is somewhat of a conundrum, but not entirely unique.
Now, without knowing any more information about the situation, I can only comment on what I can see. And the short answer unfortunately is that your Mum cannot forward the money to you and your sister without impacting her age pension entitlements.
This situation comes in under a set of rules known as the Deprivation Provisions. Basically, the deprivation rules are intended to limit the potential for people to avoid the asset and income tests.
At the heart of the issue is this basic principle. The Australian Social Security system, which includes the age pension, is a Support system designed to provide financial assistance based on the recipients’ situation and importantly, financial means. And therefore, one’s financial means need to be assessed whenever one applies for any social security benefit. And I think it’s important to distinguish that the correct word to use is Eligibility for benefits, not Entitlement.
Now, in the situation you described, your Mum’s financial means were such that she qualified for the full age pension previously. But when this award was made to her, her financial means improved, i.e. she will now be in a better financial position and therefore under the above principle, the support she would be eligible for has to reduce.
In the eyes of the law, she cannot circumvent the situation by declining the award or forwarding it onto yourselves and continue to base a claim on not having the means. And unfortunately, it will not matter if her intention is not in fact to avoid the means testing, but rather entirely to help her daughters (as mothers are often inclined to do).
So, what will happen if she gives you and your sister the money?
Well, she is allowed to gift up to $10,000 in a financial year and up to $30,000 in a rolling 5-year period without it falling under the deprivation rules. This will help a bit, but given the amount you stated, it’s only a little help. The remaining funds will then be included in her assets for a period of 5 years from the date she gave you the money (the date of disposal). Thereafter it will fall away and she will revert to the amount she would be eligible for based on what her means are at that time.
It may be worth noting, that income given away under the deprivation rules remains assessable indefinitely.
Now, is this really a bad situation? Well, no, it isn’t. The focus should not be purely on the impact to age pension eligibility. Because then we miss out on the advantages of having this money in hand. Your Mum will be in a better financial position with control over her means. She can use the $400,000 to set up a regular income stream to replace what she is losing from the age pension if she needs. And / or she can invest the money so that it will grow for her own or eventually your benefits. Depending on her age, she may be able to contribute all or some of the money into super where it could be held in a tax-efficient way. There are many ways she can apply this money for her benefit that could have a much bigger positive impact. And there are investment options out there that are assessed favourably for means testing purposes.
I think you’re on the right track by submitting your question to Ask an Adviser. I think your mum will benefit from getting financial advice. And hey, if this is allowed, I happen to be in Perth as well. So, feel free to reach out to me.
Otherwise, good luck and I wish you all the best.
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