Nick Bruining: How to use the Centrelink system to retire early and live off benefits before tapping super

It’s a common goal for many. You’re not yet pension age but would desperately like to stop work before hitting 67.

The problem is how do you pay the bills and preserve your savings, hopefully making them last longer than you?

While many do the sums and are prepared to run down their savings over the intervening period, there are strategies based on the Centrelink system that might leave you in a much better financial position at pension age.

Centrelink adviser Annette Sinclair said the circumstances for pulling the pin before 67 weren’t just people chasing an early ticket to retirement.

“People in physically demanding roles often can’t do it anymore,” Mrs Sinclair said.

“From brickies and carers, right through to dentists. Sometimes the aches, pains and tremors mean you just have to call it a day.”

The key is to understand how different aspects of government support can minimise the financial impact.

“If it is a substantial permanent disability or injury that means you can’t work 15 hours a week or more, then you may be entitled to a disability support pension,” Mrs Sinclair said.

“As a rough guide, the impairment must be more than about 20 per cent of your normal function, but it can be a combination of issues.”

The DSP payment rate is the same as the age pension and has the same means-testing rules. The current full rate for a single is $1200.90 a fortnight and is not taxable until you reach 67. For a member of a couple, the rate is $905.20 a fortnight.

If the DSP recipient requires full-time care, the partner might qualify for an identical amount, called the carer payment.

The more common income support payment accessed by those leaving the workforce early is the JobSeeker benefit. In this case, tougher mutual obligation rules apply, but these will vary depending on age.

Between 55 and 60, you’ll need to complete a combination of voluntary and paid employment activities for 30 hours a fortnight. The amount is dependent on how long you’ve been out of work.

Once you reach 60, you’ll need to do at least 30 hours of approved voluntary work a fortnight.

You’ll still need to attend appointments and meetings as required by Centrelink.

“The maximum payment per fortnight for a single is up to $882.50 a fortnight, and for couples, $748.20 each,” Mrs Sinclair said.

“In both cases, the payment is taxable but tax offsets and other credits mean that often no tax is payable.”

The most significant issue for a potential JobSeeker claim is the impact of Centrelink’s means-testing system and, in this case, the impact of the asset test.

A JobSeeker or other “allowance” recipient will have their entire payment cancelled if the asset test thresholds are exceeded. A pensioner, on the other hand, will see their fortnightly payment reduced if they exceed the asset test limits.

For a homeowning single, the asset test limit is $333,000 and for couples, a combined $499,000. This specifically excludes the value of the family home, no matter what its value is, provided it sits on less than 2ha and is only used for private purposes.

Non-homeowners — whether a single or a couple — can have an extra $267,000 in assets. Note that Centrelink uses the second-hand value of fixed assets, and not the insured value.

Critically, and a very useful tool for many, is that money held in superannuation accumulation phase is specifically exempt from means testing until you reach age pension age — 67.

“You could have $1 million in superannuation and make small withdrawals along the way to top up your JobSeeker or other payment,” Mrs Sinclair.

Withdrawals from a normal taxed accumulation super scheme for those over 60 are tax-free and not assessed by Centrelink.

The same super exemption trick can be used to boost the Centrelink payments for couples of different ages.

“There’s nothing to stop you contributing money to a younger partner’s super fund and then becoming eligible yourself for a full age pension until the partner reaches 67,” Mrs Sinclair said.

“Providing total assessable assets for a homeowner are less than $499,000, you could be looking at a combined income of up to $43,000 per year from Centrelink alone.”

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