NICK BRUINING: Dying for Centrelink to foot the bill for your funeral? Here’s how to make it happen

It’s an inevitable expense that, when done properly, might have Centrelink picking up the tab for your final send-off.

By paying for your funeral now, you could end up with a boost in your pension which, over time, would cover the full cost of your funeral.

It’s all linked to the Centrelink treatment of pre-paid funeral arrangements.

Funeral pre-payment has become big business for those in the industry. A substantial number of funerals are now either fully or partially paid from the proceeds of a dedicated funeral fund.

Under Centrelink means-testing rules, the money put towards a pre-paid funeral is removed from assessable assets under both the asset and the income test.

A part-pensioner with an asset-tested part pension gains an extra $3 a fortnight for each $1000 spent on a pre-paid funeral. A $10,000 pre-payment would see an immediate increase of $30 a fortnight.

Over a 13-year period, the entire $10,000 payment is effectively recovered by the extra pension received.

There are two ways you can pre-pay your funeral.

Option one is to take out a special pre-paid “funeral savings bond”. Australian Unity and Generation Life are the two major providers operating in Australia.

A big advantage of this arrangement is that investors are not tied to a specific funeral director and have a choice on the investment mix within the fund. These are a form of tax-paid savings bond, where the earnings of the underlying investments are taxed at 30 per cent.

There’s no tax payable on the earnings when the money is “accessed”, no matter how long the fund is in place.

In some cases, the investment earnings of the fund might exceed the total cost of the funeral with the surplus forming part of your estate.

From July 1, the maximum amount that can be invested in these schemes increased to $16,250 A single asset-tested part-pensioner making full use of the pre-paid limit would see a boost in pension of up to $48.75 a fortnight by pre-paying their funeral.

A couple taking full advantage of the pre-payment concession will gain an extra $97.50 a fortnight, or $2535 a year.

That’s the equivalent of “earning” 7.8 per cent on your money, courtesy of extra Centrelink payments and before we factor in whatever the investment returns are in the fund.

Option two is where you take out a pre-paid plan directly with a funeral director.

Some of the largest funeral directors have their own badged schemes which are, in turn, often managed by an external fund manager.

In this case, and depending on your planned send-off and the cost, there’s no $16,250 limit to the amount you hand over. In other words, the full payment is Centrelink exempt.

Whenever your time comes, the contracted funeral is conducted as per the pre-arranged plan. If there’s a shortfall, the funeral director picks up the tab but, conversely, if the invested money does better, the company keeps the extra.

Needless to say, for some funeral companies this could be a nice little earner.

One final point. While all of the above offer a pay-by-instalment option, this is quite different to the funeral insurance advertisements that swamp afternoon TV.

These insurance schemes will only cover the cost of the funeral while you keep paying the premiums. If you stop, there’s usually no cover at all.

Previous analysis has shown that over time for some customers, they could end up paying six times the cost of the funeral in insurance premium payments.

It’s why financial planners never recommend them.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association