Q: I’m over 65 and a member of a super fund, from which I receive an account-based pension. I need to withdraw a lump sum of $40,000 from my super, as my super is not enough to live on. I will have to apply for a part pension (Age) from Centrelink. Will my lump sum be counted as income in the Centrelink income test?
A: You will need to check your specific Age Pension entitlements with Centrelink, but my understanding is that a lump sum withdrawn from a super fund is considered an ‘exempt lump sum’ for the purposes of the Centrelink income test. What this means is that such a lump sum payment does not count towards the income test, BUT the lump sum amount does count towards the assets test.
Superannuation lump sums
Note: As a financial asset, a superannuation lump sum would then be subject to the deeming rules, which means that Centrelink assumes a certain rate of return on that lump sum and that ‘deemed’ return on the lump sums then counts towards the income test. In short, the superannuation lump sum doesn’t count towards the income test, but a deemed rate of return on that lump sum counts towards the Centrelink income test. I explain the deeming rules in the article Age Pension: Deemed income may rise (or fall) with interest rates.
Centrelink used to produce a helpful fact sheet titled ‘Lump sums’, explaining how different types of lump sums are treated for the Centrelink income test but since the Department of Human Services has revamped its website, unfortunately these types of publications have disappeared from the public domain.
You mentioned that you’re receiving a super pension. Pension payments (rather than lump sums) from super pensions are assessed for the purposes of the Centrelink income test, and the value of the pension may count towards the Centrelink assets test. I explain income streams and the Age Pension in the article Age Pension: Is my super benefit counted towards the assets or income tests?
Background: An individual must satisfy both the Centrelink income test and assets test to be eligible for a full or part-Age Pension. You can find the latest Age Pension rates and the income test and assets test thresholds in the article Age Pension: September 2012 rates now available.