A concerned citizen’s letter to the Treasurer highlights a controversial aspect of Australia’s aged pension system.
When a client, a decorated community member with an Order of Australia Medal, recently wrote to Treasurer Dr Jim Chalmers about what he sees as a “gross anomaly” in our pension system, he touched on an issue that affects every Australian taxpayer. His letter raises uncomfortable questions about fairness, entitlement, and whether our social safety net is being used by those who may not need it most.
The client’s central concern is straightforward yet troubling: under current rules, someone can own a multi-million-dollar family home and still receive the full aged pension. As of mid-2025, the full pension for a couple is $47,777.60 per year. To generate that income from investments, one would need a capital base of over $955,000 earning a 5% annual return. This reality exists because the family home, regardless of its value, is completely exempt from the pension assets test.
How the Current System Works
To understand the client’s frustration, we need to examine how pension eligibility works. The rules are based on income and assets tests, and a pensioner’s payment is calculated using the test that results in the lower rate.
The assets test is where the family home exemption comes into play. As of June 2025, for a couple to receive the full aged pension, their combined assessable assets must be below $451,500 if they own their home. The pension then reduces as assets increase, phasing out completely when assets reach $1,074,000 for homeowners.
The key word here is “assessable.” The principal family home and up to two hectares of surrounding land are not counted toward these limits, no matter their value. This means a couple living in a $5 million harbourside mansion is assessed under the same asset test rules as a couple in a modest suburban home worth $500,000.
The client argues this creates an obvious pathway for wealthy individuals to structure their finances to their advantage. In his example, someone with a $4 million home and $5 million in other assets could simply gift $4.75 million to their children, reducing their assessable assets to $250,000—well below the full pension threshold.
The Reality Check: Gifting Rules are Stricter
While the client’s core observation about the home exemption is valid, his understanding of the gifting rules is incomplete. The rules are stricter than many realise.
Centrelink has specific “gifting” rules to prevent people from immediately qualifying for the pension by giving away large sums of money. The allowable gifting limits are:
- $10,000 in any single financial year, or
- $30,000 over a rolling five-year period.
Any amount gifted above these limits is considered a “deprived asset” and continues to be counted as an asset in the assets test for five years from the date of the gift.
This means the client’s hypothetical wealthy couple couldn’t simply gift $4.75 million and immediately qualify. That large gift would be assessed as an asset for five years, keeping them well above the pension eligibility threshold. However, this doesn’t invalidate the concern. A patient, wealthy individual could strategically plan their finances over many years to eventually fall within the pension rules while retaining an extremely valuable home.
A Real-World Hypothetical: The Tale of Two Neighbours
To illustrate the anomaly accurately, consider this revised, hypothetical example:
Meet Margaret and Robert, both 68, who live in their family home in Melbourne’s leafy Toorak. It is now worth $4.2 million. They also have a share portfolio and cash in the bank totalling $1.1 million. Their total wealth is $5.3 million. Because their assessable assets ($1.1 million) are above the homeowner cut-off point of $1,074,000, they are not eligible for any Aged Pension. They are asset-rich but may feel cash-poor, as they must draw down on their own investments for their living expenses.
Now, meet their neighbours, David and Sarah. They live in an identical $4.2 million home. However, through a combination of earlier retirement, different spending habits, and some strategic gifting to their children within the rules over the past decade, their assessable assets are now $450,000. Their total wealth is $4.65 million.
Because their assessable assets are below the $451,500 threshold, David and Sarah are eligible for the full Aged Pension, receiving $47,777.60 per year from the government, indexed to inflation.
Both couples appear equally wealthy to an outsider, living in identical multi-million-dollar homes. Yet one receives no government support, while the other receives a full pension funded by the taxpayer. Is this fair?
The Broader Questions
This situation forces us to confront uncomfortable questions about our pension system’s design. Should the family home be completely exempt from asset testing? Would a cap—say at $1.5 million or $2 million—be more equitable while still protecting ordinary homeowners?
The current system reflects competing policy goals: the desire to allow people to stay in their long-term family homes without being forced to sell, versus the principle of ensuring taxpayer-funded support goes to those most in need. Forcing elderly Australians to sell their homes could create significant social and emotional hardship.
The government faces a delicate balancing act. Any change to the family home exemption would be politically explosive and affect millions of older Australians. Yet, as the examples show, the current rules can lead to genuine inequities.
The Path Forward
The client’s suggestion of placing a reasonable upper limit on the value of the exempt family home deserves serious consideration. Such a change would affect a relatively small number of high-wealth individuals but could generate significant savings and address the most egregious examples of the system’s generosity.
The Aged Pension costs Australian taxpayers over $55 billion annually. Ensuring this substantial investment reaches those who genuinely need it isn’t just about fiscal responsibility—it’s about maintaining public confidence in the fairness of our social safety net.
The client has done us all a service by highlighting this issue. Whether the government acts remains to be seen, but the conversation about pension fairness is one we urgently need to have.
Disclaimer: This blog post provides general information and hypothetical examples. It does not constitute financial advice. Pension rules are complex and subject to change. Individuals should seek professional financial advice based on their personal circumstances.