Lump Sum Super Withdrawals & Centrelink

The Centrelink treatment of lump sum withdrawals from super is important to understand.

There are a number of ways that lump sum withdrawals can be made from super and each way is assessed by Centrelink differently.

Making one lump sum withdrawal from super has the potential to wipe out Centrelink payments entirely, so it’s important to understand the implications before making the withdrawal.

While the Centrelink Age Pension, DVA Service Pension and Centrelink Disability Pension are the most common payments that lump sum withdrawals from superannuation will affect, keep in mind that other social security payments may be affected too.

A lump sum can be withdrawn from super in a number of ways.
 

Lump Sum Super Withdrawals – Centrelink

 
Specifically, a lump sum withdrawal can be made as:

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The following discusses how these lump sum super withdrawals are treated by Centrelink.
 

Lump Sum Withdrawal Accumulation Account

 
Assets Test – A lump sum withdrawal from an accumulation account will reduce the value of the accumulation account that counts towards the Centrelink assets test.

Centrelink will need to be updated with the new balance of where the lump sum withdrawal was allocated to (e.g. personal bank account). If the withdrawal is immediately spent, then Centrelink only needs to be updated on the reduction of the accumulation balance as a result of the withdrawal.

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Centrelink will not need to be updated with the reduced accumulation account balance if the person is under Age Pension age, because super accumulation accounts are not assessed while the owner is under Age Pension age.
 
Income Test – If the owner of the super accumulation account is over Age Pension age, there will be no change in the Centrelink income test assessment of the lump sum withdrawal. That is, it will continue to be deemed in the same way it was deemed within super or, if spent, will not be deemed at all.

If the owner of the super accumulation account is under Age Pension age, making a lump sum withdrawal and paying the proceeds to a non-super account or investment may result in a loss of social security payments, as this will now be deemed.

Super accumulation account balances are not deemed while a person in under Age Pension age.
 

Full or Partial Commutation of Pension

 
Assets Test – A full or partial commutation of an account based pension will reduce the assessable value of the account based pension by the commutation amount.

Centrelink will need to be updated with the new balance of where the commutation was allocated to (e.g. personal bank account). If the commutation is immediately spent, then Centrelink only needs to be updated on the reduction of the pension balance as a result of the commutation.

All pension accounts are assessed under the Centrelink assets test regardless of whether the pension owner is over or under Age Pension age.
 
Income Test – If the pension account is a pre-1 Janaury 2015 grandfathered pension, the commutation will reduce the Centrelink deductible amount of the income being received from the income stream.

This could result in a higher level of pension income being assessed for Centrelink income test purposes, if the nominated income being received from the pension is not reduced by an amount equal to the re-calculated reduction in the Centrelink deductible amount.

You can use this calculator to calculate the Centrelink Deductible Amount of a grandfathered pension, or request a Centrelink Schedule from the allocated pension provider.

If the account based pension is not a grandfathered pension, there will be no change in the Centrelink income test assessment of the lump sum commutation. That is, it will continue to be deemed in the same way the pension was deemed or, if spent, will not be deemed at all.

Commutations of pensions will appear on the Centrelink schedule of the income stream.
 

One-Off Increased Pension Payment

 
Assets Test – A one-off lump sum increased pension payment from an account based pension will reduce the assessable value of the account based pension by the increased pension payment amount.

Centrelink will need to be updated with the new balance of where the increased pension payment was allocated to (e.g. personal bank account). If the increased pension payment is immediately spent, then Centrelink only needs to be updated on the reduction of the pension balance as a result of the increased pension payment.

All pension accounts are assessed under the Centrelink assets test regardless of whether the pension owner is over or under Age Pension age.
 
Income Test – If the pension account is a pre-1 Janaury 2015 grandfathered pension, the increased pension payment will increase the assessable income for Centrelink income test purposes. There will be no change to the calculation of the deductible amount.

This could result in a higher level of pension income being assessed for Centrelink Income Test purposes, if the nominated income being received exceeds the deductible amount, or the one-off lump sum increased pension payment causes the nominated income to exceed the deductible amount.

You can use this calculator to calculate the Centrelink Deductible Amount of a grandfathered pension, or request a Centrelink Schedule from the allocated pension provider.

If the account based pension is not a grandfathered pension, there will be no change in the Centrelink income test assessment of the one-off increased pension payment. That is, it will continue to be deemed in the same way the pension was deemed or, if spent, will not be deemed at all.
 

Lump Sum Super Withdrawals from Super – Centrelink Treatment

 
Ultimately, you need to consider the implications on social security payment prior to making a lump sum withdrawal from super.

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It is also very important to communicate with your super fund exactly how you would like the lump sum to be taken (i.e. lump sum from accumulation, pension commutation or increased pension payment).

Never assume that the super provider will know the best way to process your lump sum super withdrawal. It is unlikely they will understand or have the knowledge to calculate the consequences such withdrawals will have on your Centrelink payments.

Once the lump sum withdrawal is made, it is unable to be reversed. Centrelink will have no choice but to assess it as it was processed, which could result in thousands of dollars in reduced Centrelink payments.

Feel free to post any questions below about lump sum super withdrawals and Centrelink treatment of them.

Chris Strano

Chris Strano created SuperGuy to help the average punter navigate through the complex and ever-changing super rules. It has since become one of Australia's leading digital super resources. If you’re looking for more personalised advice, have a chat with one of our experts at www.superguy.com.au/need-advice

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50 Comments

  1. Alan Weir

    Can I transfer money out of my super before pension age to my wifes super ,who is 4 years younger, so I can claim an aged pension.

    Reply
    • Chris Strano

      Hi Alan,
      In order to have access to your super you need to have met a full superannuation condition of release, which allows you to make lump sum withdrawals from super.
      You should consider any tax consequences of the withdrawal, including any CGT within super. Generally lump sum withdrawals for people over age 60 can be received tax free, but not always. But being over age 60 does not stop potential CGT within super.
      If your wife is eligible to make contributions into super, then the withdrawal can be contributed into her account.
      Related Articles:
      Lump Sum Withdrawals and Centrelink
      Definition of Retirement for Superannuation
      How Much Can I Contribute to Super as a Lump Sum?
      Withdrawal from an Accumulation Account

      Reply
    • Pam Howard

      I’m 651/2 and on a widows allowance. I’ll qualify for age pension march next year. I need to top up my bank balance. Can i withdraw 15k from my accumulation account without it affecting centrelink.
      I also have a pension account.

      Reply
      • Chris Strano

        Hi Pam,
        While you are under Age Pension age, any savings held in a superannuation accumulation account is not assessed for Centrelink purposes. A one-off lump sum withdrawal from super will not, in itself, be assessed under the Centrelink income test; however, the $15,000 will become an assessable asset under the assets test once you take it out of your accumulation account and will begin to be deemed under the income test, which could affect your entitlements.

        Reply
  2. David

    Hi Chris
    I was offered and took a redundancy in August 2018. I am the sole carer for my Mother & now receive a ‘carer’s pension’. I turned 57 in January this year. As the carer’s pension is not an age pension, if I was to start accessing my super, would that affect the carer’s pension?

    Reply
    • Chris Strano

      HI David, withdrawls from super, if not immediately spent will be assessed for Centrelink purposes unde the income and assets test – for example, if the withdrawal was paid into your personal bank account. If you use your super to commence a superannuation income stream, the income stream balance will be assessed for Centrelink and deemed to earn an income, which could affect Carer payments.
      There is an Income and Assets test for Carers whihc can be found here https://www.humanservices.gov.au/individuals/services/centrelink/carer-payment/eligibility/income-and-assets-test#a2 and here is where it states that income streams are assessable assets https://www.humanservices.gov.au/individuals/enablers/assets/30621

      Reply
      • David

        Chris, you mentioned ‘immediately spent’ a few times in the article and comments. What is classified as ‘immediately spent’? Is there a list of things that the withdrawn lump sum can/cannot be spent on for it not to impact my Newstart?

        Reply
        • Chris Strano

          Hi David, you need to update Centrelink within a reasonable timeframe if there is a change to your financial position. If you are under Age Pension age and make a lump sum super withdrawal from a super accumulation account then used that withdrawal amount to pay for a holiday, say, 5-days later; then Centrelink would probably not require you to update them with a bank account balance increase just for those 5-days (i.e. immediately spent). However, if you make a withdrawal and the withdrawal amount remained in your personal bank account for a reasonable time, then Centrelink would need to know about, as a bank account is a deemed investment asset.

          You also raise a good point. If the withdrawal is spent on any assessable asset, like a new car for example, then that new car would be assessed as a personal asset for Centrelink purposes and Centrelink needs to be updated.

          Click here for a list of assets assessed by Centrelink.

          Reply
  3. Greg Wilson

    I’ve turned 55 and can take my super as a lump sum although it’s not alot. I’m also on a disability pension. If I take lump sum how will affect my disability pension…

    Reply
    • Chris Strano

      If you make a lump sum withdrawal from you super account, you would need to update Centrelink as to where the payment was made to. For example, if the withdrawal was paid into your bank account, you would need to notify Centrelink of your new bank account balance, which is assessed under the Centrelink Assets Test and deemed under the Income Test. This may result in a reduction or cancellation of your Centrelink Disability payments.

      Reply
  4. Vicki Shanahan

    Can I draw down some super say $2k from time to time without it affecting my pension

    Reply
    • Chris Strano

      Hi Vicki, there are too many unknown factors that influence this. You can usually contact Centrelink and ask them the same question and they can answer for you. They have full access to the type of pension payment you are receiving and all of your other income and assets.

      Reply
  5. Greg

    I will be retiring shortly and have a super accumulation account and a TTR account. I wish to withdraw a considerable amount to pay out both a Mortgage and a personal loan account prior to retirement. What is the best way of doing this to minimize the impact of possible Centrelink pension payments? Should I do this prior to June 30?

    Reply
    • Chris Strano

      Hi Greg, making a lump sum withdrawal from super and immediately using the withdrawal to pay off debt should not impact Centrelink payments. Making the lump sum withdrawal will not matter whether it is done prior to 30 June or not.

      Reply
  6. Jody

    Hi will I loose my Centrelink disability payments if I take out my disability super

    Reply
      • Judy Stibbard

        Hi Chris can I take a lump sum from my super to do needed home repairs and renovations.

        Reply
        • Chris Strano

          Hi Judy, you can generally only access your super if you have met a superannuation condition of release, such as retirement after your preservation age or reaching age 65. You should be mindful of any tax payable on withdrawals, partucularly while under age 60.
          Related Posts
          Lump Sum Super Withdrawals

          Reply
          • Debbie Neil

            Hello, I am 60 yrs old, married & want to take $20,000 from my Super. Do I have to let Centrelink know as it will be spent on house renovations quickly. But am also in need of another car as well so will I need to inform Centrelink. I am on Newstart & not planning to enter workforce any longer.

          • Chris Strano

            Hi Debbie, generally, if you make a one-off super withdrawal and spend it immediately on your home, you will not need to inform Centrelink. If you use a super withdrawal to purchase a car, you will need to let Centrelink know of your car value. I believe they ask for the car year and model to estimate it’s ‘fire sale’ value.
            Related Posts
            Accessing Super Over 60
            Centrelink Superannuation Assets Test

  7. Oscar Amaya

    Iam 64, iam in Centrelink benefit due to medical issues. I have some money in super,but not enough to pay off the full mortgage, thinking to join both super with my wife (separated) and pay off the mortgage and transfer the house to her. Doing that is affecting my benefit?

    Other idea is transfer the mortgage to someone as gift, is this affecting my benefit or my future pension in two and a half year?

    Reply
    • Chris Strano

      Hi Oscar, your question has many variables and potential estate planning ramifications. I strongly suggest that you obtain personal financial and legal advice in relation to this.

      Reply
  8. Nina

    Hi Chris, I am 64 yo and I receive Newstart Allowance. I am planning to withdraw my super and immediately pay it back as personal non concessional contribution. Will it impact my Newstart payments from Centrelink? Do I have to inform Centrelink?

    Reply
    • Chris Strano

      Hi Nina, great question. Centrelink can be funny about these types of transactions. The recontribution strategy you are looking at implementing can have tax benefits, but may affect Centrelink, as you say. I do not believe it will affect Centrelink, but you should probably run it past them to double check.
      But, if you follow this logic, you can probably find your answer…..
      Centrelink include this as income https://www.humanservices.gov.au/individuals/topics/income/30376 (which includes some lump sums.
      Lump sums counted as income does not include one-off super withdrawals, as detailed here https://www.humanservices.gov.au/individuals/topics/lump-sums-while-income-support/28961
      Related Posts:
      What is a recontribution strategy?
      Recontribution strategy calculator

      Reply
    • Tony

      My wife and I are both pensioners, both over 65, receiving close to full pensions.

      We withdrew $5,000 each from our super accumulation accounts to pay for some repairs and additions to our house (place of residence, no other properties)

      The lump sums were spent within the first week after withdrawal, on materials and tradies.

      What are the Centrelink/pension implications of these lump sum payouts?

      Thanks for any help.

      Reply
      • Chris Strano

        Hi Tony, this should not affect your Centrelink entitlements as they were one-off super withdrawals and immediately spent. See here: exempt income for Centrelink purposes https://www.humanservices.gov.au/individuals/topics/lump-sums-while-income-support/28961
        I would suggest speaking to your financial planner about potential tax benefits of converting your accumulation savings to income streams for each of you. It might not be worthwhiel, but definitely an option worth exploring.
        Regards,
        Chris

        Reply
  9. ikki

    i am 65 now. i will be age pensionable in 1 yrs time. I am full time employed now, and may continue for another 2 years. I am thinking of withdrawing half of my super now to use it to pay for my familys medical emergence, and assist one of my children financially.

    1. Am I allowed to do this?
    2. Later on when I retire, will this withdrawal affect my pension from centrelink?
    3. I am not currently eligible for age pension, so will that money be taxed?

    Reply
    • Chris Strano

      Generally, once you have reached age 65 you have unrestricted access to your super and can usually withdraw it tax free. Any amount ‘gifted’ above the allowable gifting amounts will continue to be assessed for Age Pension purposes for 5 years (i.e. Centrelink assume you still have these assets for 5 years).

      Reply
  10. ikki

    Can superannuation be withdrawn after 65 and used for any reason, or are there restrictions?
    Will my age pension be affected later on?

    65 now, age pension eligible at 66

    Reply
    • Chris Strano

      Yes, withdrawals from super can be used for any purpose.

      Reply
    • Jason

      Hi Chris,

      I am currently 65 and have half a year left of working before I can retire to get the aged pension. If I was to make a lump sum withdrawal to go towards paying apart of my home loan, would it affect my eligibility of the aged pension in half a years time?

      Reply
      • Chris Strano

        Hi Jason,
        A principal residence is not assessed for Age Pension purposes. Making a withdrawal from super to reduce your home loan should not affect future Age Pension payments. In fact, you will be reducing your assessbale assets (super) and increasing your non-assessable assets (home equity). Therefore, if anything, this should help you receive higher Age Pension payments.
        It is best to discuss your proposal with a Centrelink Officer or financial planner prior to implementation to ensure the transaction is done correctly.
        Regards,
        Chris

        Reply
  11. James B

    Hi Chris, thanks for the super articles – very informative.

    I am 62 and on NewStart, if I withdraw 150K from my accumulation account and immediately gifted it, would that impact my newstart?

    Total assets outside super is ~10K excl. the house I live in.

    Thanks again
    James

    Reply
    • Chris Strano

      Hi James,
      I believe any amount gifted above the gifting thresholds will continue to be assessed as if the money remained yours for 5 years from the date of gifting. Therefore the excess amount will be assessed under the assets test and deemed under the income test, which could affect your newstart payments.
      Related Posts
      Gifting
      Centrelink Assets Test
      Centelink Income Test

      Reply
  12. Tiffany

    Hi,

    I am 25 years old and on the disability pension. I am considering deducting my entire super balance (about $6,000) due to financial hardship. What impact will this have on my payment? I don’t work and I don’t have any assets or savings.

    Thanks

    Reply
    • Chris Strano

      Hi Tiffany,
      A superannuation lump sum withdrawal in itself is generally not assessed for Centrelink purposes. However, if this amount is not spent immediately and, say, remains in your bank account, it will become an assessable asset and deemed under the income test, which could affect your benefits.

      Reply
  13. Gary Pickering

    Hi Chris, I’m 61 and half now but I previously borrowed $45K from my son-in-law to pay for the other daughter’s wedding. Due to my lack of savings outside of super, can I pay him out of my super? I don’t have the loan written up or registered anywhere – is that going to get me into trouble as I am currently on newstart and I plan on getting the centrelink pension too.

    Reply
    • Chris Strano

      Hi Gary, given there is no record of the loan, this transfer of funds to a family member might be considered as gifting, which is assessed as an investment asset for 5 years from the date of gifting under the assets test. It is also deemed to earn an income under the income test during this period. Being under Age Pension age, your super is not assessed for Centrelink purposes. Making this ‘gift’ may result in a reduction or loss of Centrelink entitlements. You will not get in trouble, you have done nothing illegal, even if you use your super to repay him.
      If I were you I would call Centrelink and explain the situation to see what they suggest.

      Reply
  14. Super interested

    Chris,

    Centrelink are advising they “need” to know the units deducted from my most recent withdrawal from my pension within super. The letter my super fund give me just has the amount of the withdrawal but nothing about units.

    Is this correct, do they need that level of detail?

    Reply
    • Chris Strano

      This is possibly so they can keep track of daily fluctuations in your super balance, because they might have access to the unit price, so all they need to know is the number of units you own. A ‘portfolio valuation’ should be able to be obtained from your super provider showing the number of units you own within each investment option. Failing that, I believe providing Centrelink with a Centrelink Schedule and up to date super balance, as well as bank account balances, etc. should be sufficient.
      Regards,
      Chris
      Related Posts
      What is a Centrelink Schedule

      Reply
  15. Sarah

    Hi Chris,

    Thanks for that information. I tend to get lost in the technical jargon and end up a bit confused, so please forgive me if you have already answered this question.
    I am 31 yrs old and currently receiving the newstart allowance from Centrelink. I am also working part time and reporting this to centrelink, which results in my newstart allowance being reduced to a lower amount.
    Unfortunately i have outstanding debts from personal loans i took out whilst working full time & an unpaid phone bill. The last i checked, the debts totalled approx $10,000 – $11,000.
    So I have 2 questions:
    1. If I was to receive an early release lump sum from my super account purely to pay off my debts, will this affect my newstart allowance in any way? My total assets are less than $5,000, I have no savings and the only income is my part time job and my newstart allowance. I live paycheque to paycheque.
    2. Is it ever a good idea to access super early? I currently have approx. $46,000 in my super account. I would never consider doing this unless I was in severe financial hardship (which i am), I am not happy to be considering this as i am quite proud of how much I have worked and added to my super over the years.
    I haven’t yet made any final decisions but i have been thinking about it for the last 6 months. I just want to be sure i am making the right decision no matter what i chose to do.
    Any feedback would be greatly appreciated. Thanks Chris.
    (ps. I acknowledge you are not my financial advisor in any way shape or form and I acknowledge that any response from you is purely opinion/feedback and not fact or financial advice).
    Thanks again Chris.

    Reply
    • Chris Strano

      Hi Sarah,
      Thanks for the question.
      1. Generally, a one-off lump sum super withdrawal is not assessed for Centrelink purposes. Also, if the full amount is used to pay off unsecured debt, then you will not be increasing investments, so it shouldn’t impact your entitlements.
      2. Accessing any savings early is usually not a good idea. However, if the interest rate on your loans is higher than the investment returns being received, then there is a good argument for accessing savings to pay off debt.

      In saying all of that, you probably won’t be allowed to access your super based on your age, unless you are able to meet the conditions of ‘Access on Compassionate Grounds’ OR ‘Severe Financial Hardship’. You can read more about these here https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/Early-access-to-your-super/

      All the best,
      Chris

      Reply
  16. Trudy

    Hi Chris,
    I am 61 years old and receive an income stream which was started in February 2014 when i retired, aged 55. I hold a Low Income Health Care Card. I am considering withdrawing a lump sum of around $10000 from my income stream to spend on an overseas holiday but am worried that it will cause my Low Income Health Care Card to be cancelled by Centrelink.
    Any advise you could give me would be appreciated.
    Thank you.

    Reply
  17. Kim Byrne

    Hi
    I am 46 and just started receiving an invalidity pension (Defined benefit income stream) from my superannuation company (CSC).
    My pension is $35,402 (gross) and I receive $1366 (gross), $1033 (Net) per fortnight. Based on this pension CSC estimates that this pension would be valued at $567,777.
    I also received a one off lump sum – Post 1995 Transfer Amount of $50,766 (gross), $46,141 (Net). Which $41,229 remains in my savings account that Centrelink have been made aware of.
    Firstly, is that total valued amount of $567,777 considered an asset of mine? And would either that total valued amount or the $41,000 I have in my bank affect my application for a Centrelink Disability Support Pension?
    At the beginning of the year, I sought help from a financial advisor and from that was expecting approx anywhere in between $500-$600 (Net) per fortnight from Centrelink for a Disability pension based on what my invalidity pension income stream was. My application was just approved by Centrelink and they inform me that my first payment, due 14 July 2020, is $37.37!! Of course I’m shocked!
    Are you able to shed some light for me please?
    Thank you in advance for any advice you can provide.
    Kind Regards,
    Kim

    Reply
    • Chris Strano

      Hi Kim,
      Your marital status and home-ownership status, plus any other income or assets, will influence the payment amount you receive as a Disability Support Pension.
      If your defined benefit pension is an asset-test exempt (ATE) pension, then the calculated capital amount should not be assessed for Disability Support Pension purposes under the assets test. You should request a Centrelink Schedule from CSC, which will state whether or not it is an ATE pension.
      The assessable income of the pension for Centrelink purposes will be the gross payment, minus the Centrelink deductible amount. Again, the deductible amount will be on the Centrelink Schedule.
      I would suggest asking CSC whether the pension is an ATE pension or not and then asking Centrelink whether they are assessing it as an ATE pension or not, just to ensure consistency.
      Also, make sure all other information is correct. It is not uncommon for Centrelink to make errors in assessment.
      Regards,
      Chris
      Related Posts
      How Is My Defined Benefit Pension Assessed for Centrelink?
      Asset Test Exempt Income Streams – Centrelink

      Reply
  18. Chi Lam

    Hi Chris,

    Me and my wife are age 63 and 61.5.
    We don’t have any form of social security benefits from the government and have retired since July 2018 and currently earn our living upon our investment income. However, the recent pandemic situation has affected our plan.
    Thus, could we early withdraw our superannuation in a single lump sum? If yes, how can we apply for it?

    Reply
    • Chris Strano

      Hi Chi,
      You need to meet a superannuation condition of release to access your super as a lump sum, such as ‘having an employment arrangement come to an end after age 60’, ‘being retired with no intention of returning to work’, or ‘reaching age 65’. Either of these should give you full unrestricted access to your super. Generally, super withdrawals are tax free when over age 60.
      If you believe you have satisfied a superannuation condition of release, you can contact your super fund and tell them you would like to withdraw some super. They will require you to sign a declaration stating you are eligible to withdraw your super and assist you with the process of this.
      Regards,
      Chris
      Related Posts
      Definition of Retirement for Superannuation Purposes
      This is factual information only. If you think you may require personal advice, please feel free to make a complimentary 15-minute appointment with us here https://calendly.com/torowealth/15mincall to see if engaging the services of a financial planner would be beneficial for you.

      Reply
  19. Chi Lam

    your website are informative and helpful at all.

    Reply

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