Funeral Bonds and Centrelink: The $15,500 Asset Test Exemption Explained

A funeral bond is a specific, regulated financial product designed for one purpose: to pre-fund your own funeral expenses. It's not a life insurance policy, it's not a pre-paid funeral plan, and it's not just a savings account with "funeral" written on it. It's a legal investment product with specific rules under both financial services law and social security law — and those rules are why it matters for your Age Pension.

Here's how it works. You deposit a lump sum (or a series of contributions) with a licensed funeral bond provider. Common providers in Australia include Australian Friendly Society, Foresters Financial, Lifeplan, Sovereign Funeral Bonds, and several industry-owned cooperatives. The money is invested on your behalf and grows tax-effectively. When you die, the accumulated balance is released to your estate or directly to the funeral director to cover the cost of your funeral, burial or cremation, and related expenses.

The critical feature — and the reason people buy them — is that while you're alive, your funeral bond is treated differently from other savings. Unlike money in a bank account, a term deposit, shares, or a managed fund, a funeral bond up to a specific dollar cap is entirely exempt from the Centrelink assets test and income test. It doesn't count toward your deemed income, and it doesn't eat into your pension assets threshold.

For someone on a part pension who's just over the assets test taper, moving $15,000 from a term deposit into a funeral bond can meaningfully increase their fortnightly payment for the rest of their life. The financial logic is strong — provided you understand the rules.

The funeral bond exemption is indexed each 1 July to keep pace with funeral cost inflation. As at 1 July 2025 the cap is $15,500 per person, and it's expected to rise to approximately $16,000 from 1 July 2026 (final figure will be published by Services Australia around June 2026).

Couples each have their own cap — so a married couple can hold up to $31,000 combined in funeral bonds, all exempt from the assets and income tests. Same-sex partners, de facto partners, and registered partners are all treated as couples for this purpose.

The cap is per person, not per bond. If you have two funeral bonds in your name totalling $12,000, the full $12,000 is exempt because it's under the cap. If you have one bond with $18,000 in it, the first $15,500 is exempt and the remaining $2,500 is counted as a normal financial asset (deemed and included in the assets test). So one bond or several, keep the per-person total under the cap.

One important alternative: the exemption also covers pre-paid funeral contracts with a funeral director, with no dollar cap at all. If you pay a funeral director directly for a pre-arranged funeral (and the payment is non-refundable and specifically tied to a funeral service), the entire amount is exempt from the assets test regardless of size. Some people do both — a pre-paid contract for the basics plus a funeral bond for the extras (headstone, wake, overseas family travel).

Let's show the actual dollar impact for a part-pensioner on the assets test taper.

Meet Ray. Ray is 71, single, owns his home, and has $380,000 in assessable assets — a term deposit, some shares, and his car. As at March 2026 the single homeowner assets test full-pension threshold is $314,000, and pension reduces by $3 per fortnight for every $1,000 of assets above that.

Before funeral bond:

• Assessable assets: $380,000
• Excess above threshold: $380,000 − $314,000 = $66,000
• Pension reduction: ($66,000 / $1,000) × $3 = $198 per fortnight
• Max single Age Pension (March 2026, incl. supplements): approximately $1,149 per fortnight
• Ray's actual payment: $1,149 − $198 = $951 per fortnight

Ray buys a $15,500 funeral bond using money from his term deposit.

• Assessable assets: $380,000 − $15,500 = $364,500
• Excess above threshold: $364,500 − $314,000 = $50,500
• Pension reduction: ($50,500 / $1,000) × $3 = $151.50 per fortnight
• Ray's new payment: $1,149 − $151.50 = $997.50 per fortnight

The boost: $46.50 per fortnight, or about $1,209 per year. Over ten years that's roughly $12,090 of additional pension, recovered from a one-off reallocation of $15,500 that he was going to leave in the estate anyway. And the bond still pays for the funeral when the time comes.

The break-even is obvious. The bond pays for itself in pension boost within 13 years for most part-pensioners on the taper. For anyone receiving less than the full pension due to assets, a funeral bond is one of the most efficient legitimate planning moves available.

Important caveats. If you're already on the full pension (assets well under the threshold), buying a funeral bond doesn't increase your pension at all — you're simply pre-paying for the funeral. The benefit only exists if you're in the taper zone, above the full-pension threshold but below the cut-off ($697,000 for a single homeowner as at March 2026).

Funeral bonds are sold through licensed providers and can usually be bought directly (online, over the phone, or by post) without going through a financial adviser. You'll need to provide basic ID documents and nominate a beneficiary — typically your estate or the funeral director you want the payment to go to.

Things to compare when choosing a provider:

• Declared rates and bonuses. Bonds earn a declared rate each year, similar to a reserved-return whole of life policy. Rates for recent years have been in the range of 3.5% to 5.5% depending on the provider and investment option.
• Fees and ongoing charges. Some bonds have management fees of 0.5% to 1% per year; others are fee-free on the surface but pay lower declared rates.
• Tax treatment. Earnings in the bond are taxed inside the bond at the company rate (30%), so you don't get taxed again when it pays out on death. This makes them tax-efficient for higher-income retirees but less useful for low-income retirees who wouldn't pay much tax on a term deposit anyway.
• Assignability. Some bonds allow you to assign the benefit to a specific funeral director; this can provide peace of mind that the money will be used as intended.
• Provider stability. Check that the provider is APRA-regulated and has been operating for at least a decade. The industry is stable but not all products are equal.

You cannot withdraw money from a funeral bond during your lifetime — this is the trade-off for the Centrelink exemption. Once it's in, it's locked until the funeral. If you'd prefer to keep liquidity, a pre-paid funeral contract with a funeral director is usually also non-refundable but provides more certainty about the service you'll receive. Your choice depends on whether you want the flexibility of a cash balance or the certainty of a locked-in funeral service.

A few things can turn what you thought was an exempt funeral bond into an assessable asset. Avoid these.

1. Joint bonds. A funeral bond in joint names (e.g. "John and Mary Smith") is treated as a single asset, and the exemption cap is only one person's cap — $15,500, not $31,000. Always buy separate bonds, one in each spouse's name, to get the full couple's benefit.

2. Withdrawal during lifetime. If you withdraw the funds for any reason other than death (some bonds allow this in extreme hardship), the entire bond is reassessed as a normal financial asset from the date you had access to the money. This can trigger back-debts with Centrelink if you were receiving a higher pension than you should have been.

3. Exceeding the cap. Any dollar above $15,500 per person is assessable. So is any amount above the cap that you contribute over time — even if the original contribution was under, growth that pushes it above the cap becomes partially assessable. Check your bond balance annually and stop contributing if it approaches the cap.

4. Structured as a general investment. Some managed investment products are marketed as suitable for funeral planning but aren't technically funeral bonds under the Social Security Act definition. Only a bond issued by a registered funeral bond provider qualifies for the exemption. Ask the provider to confirm in writing that the product meets the definition under Section 8(11) of the Social Security Act 1991.

5. Failing to report. Once you buy a bond you must tell Services Australia within 14 days, just as with any other asset change. You don't need to re-report the balance annually — the provider doesn't automatically report it to Centrelink — but the initial purchase needs to be declared so your record is accurate.

Used carefully, funeral bonds are one of the cleanest, simplest ways to improve an Age Pension outcome for retirees sitting in the assets taper zone. Get the basics right and the Centrelink benefit compounds for the rest of your life while the funeral is quietly pre-funded in the background.