Taking a Super Lump Sum? How It Affects Your Age Pension

The way Centrelink treats your superannuation changes dramatically once you reach Age Pension age (currently 67).

Before Age Pension age: Super held in an accumulation fund is completely exempt from both the asset test and income test. Centrelink doesn't count it at all. This is why some people delay claiming their super until they reach pension age — keeping it in super protects their Centrelink payment.

After Age Pension age: All super becomes an assessable asset, whether you've withdrawn it or not. If it's in an accumulation fund, it's assessed as a financial asset subject to deeming. If it's in an account-based pension (income stream), it's assessed under different rules depending on when the pension started.

This means there's no advantage to leaving large sums in super once you're over 67 — Centrelink counts it either way. The question becomes: what form should it be in (lump sum in your bank vs account-based pension vs other investments) to minimise the impact on your Age Pension?

When you withdraw a super lump sum, the money moves from your super fund to your bank account (or wherever you put it). For Centrelink purposes, your total assets stay roughly the same — the money just changes categories from "super" to "bank balance" or "investment."

However, the form matters for the income test. A lump sum sitting in your bank account is a financial asset subject to deeming at the standard rates: 0.25% on the first $60,400 (single) or $100,200 (couple combined), and 2.25% above that.

Let's say you withdraw $300,000 from super and put it in a savings account. The deemed income would be: ($60,400 x 0.25%) + ($239,600 x 2.25%) = $151 + $5,391 = $5,542 per year, or $213.15 per fortnight.

For a single pensioner with the income free area of $204/fn, this $213.15 puts you $9.15 over — reducing your pension by about $4.58 per fortnight (50 cents per dollar over the free area). Not catastrophic, but it adds up if you have other income too.

Compare this to leaving the $300,000 in an account-based pension — the assessment may differ depending on when the account-based pension started (more on that below).

For account-based pensions (ABPs) started on or after 1 January 2015, Centrelink assesses them as financial assets subject to deeming — exactly the same as a lump sum in the bank. So there's no income test advantage to keeping your super in an ABP versus withdrawing it as a lump sum.

For ABPs started before 1 January 2015 (often called "grandfathered" income streams), different rules may apply. These older income streams may be assessed under the "income stream" rules where only the income above a calculated "deductible amount" counts. If you have one of these, do not cancel it without getting advice — you may lose the grandfathered treatment permanently.

For the asset test, the full balance of your ABP or your withdrawn lump sum counts as an asset either way. The March 2026 asset test thresholds for the full Age Pension are: homeowner $301,750 (single) / $451,500 (couple); non-homeowner $543,750 (single) / $693,500 (couple). The pension cuts out entirely at $674,000 (single homeowner) / $1,012,500 (couple homeowner).

If you're between 60 and 67, a Transition to Retirement (TTR) income stream lets you access your super while still working. Under a TTR, you can draw between 4% and 10% of your super balance each year.

Since you're under Age Pension age, the super in your TTR fund isn't counted by Centrelink for asset or income test purposes (it remains in the super environment). However, any TTR income you actually receive and put in your bank account becomes assessable.

This creates an interesting planning opportunity. If you're receiving JobSeeker or another income support payment before 67 and have a large super balance, keeping the money in super (rather than withdrawing a lump sum) protects your Centrelink payment. Only withdraw what you need.

Once you reach 67 and your TTR converts to a regular account-based pension, the full balance becomes assessable regardless. At that point, the protection ends.

There's no simple dollar figure because it depends on your total assets and income from all sources. But here's a practical framework:

For the asset test: A single homeowner can have up to $301,750 in assessable assets for the full pension, or up to $674,000 for a part pension. If your super lump sum plus all other assets stays under these thresholds, the asset test won't reduce your pension.

For the income test: A single pensioner can have approximately $204/fn ($5,304/yr) in income before the pension reduces. Using the deeming formula, a single person could hold roughly $503,000 in financial assets before the deemed income alone would start reducing their pension. For a couple, approximately $835,000 combined.

In practice, most people are limited by the asset test rather than the income test. A single homeowner with $500,000 in super plus $50,000 in other assets ($550,000 total) would pass the income test comfortably but receive only a part pension under the asset test.

Key tip: If you need a lump sum for something specific (home renovations, new car, medical expenses), withdrawing it and spending it actually helps your pension — because once the money is spent on an exempt or non-assessable purpose, it's no longer an asset. Don't hoard cash in your bank account if you have legitimate expenses to cover.