Navigating the Age Pension may be one of the most stressful situations you face after retirement due to the many conditions, eligibility requirements and tests that can impact the amount you receive. What happens if you add winning the lottery as a pensioner into the mix?
While the odds of winning the jackpot in the lottery are astronomical (1 in 45,379,620 to be precise), the odds of winning any other prize are greatly reduced in comparison (1 in 55). But if you were to win a major prize while on a pension, how you redeem it could impact it.
There are two different types of winnings you can receive from a lottery win. These are lump sum amounts or a set-for-life arrangement where you get a regular monthly payment for an extended period (say 20 years).
It’s good to separate the two because the impact on your pension eligibility is different depending on the type of winnings.
Winnings As A Lump Sum Amount
For Services Australia (Centrelink) purposes, if you receive a lump sum through winnings or gambling, it is not treated as income. However, it may still affect your rate of pension, depending on what you do with it.
If your total winnings as a lump sum mean that your bank account balance exceeds $1,000,000 and what your currently held assets include, you would most likely be pushed over the asset limit, and the pension would cease.
If you only won a smaller amount (say, $10,000), the increase to your overall assets would be smaller, and your pension rate may not be affected at all.
Set For-Life Amount Over Time
The periodic payments of a set-for-life winning by a pensioner are treated by Services Australia (Centrelink) as income. It is assessed each time it is paid for the duration of the winnings.
For example, if you were the only winner of the Division 1 prize for the Set For Life Lottery in Australia, you would receive $20,000 per month for ten years (while Division 2 winners receive $5,000 per month for one year). These monthly payouts are tax-free but could wreak havoc on your Age Pension.
This is because the monthly payouts are assessed as monthly income for the time they are received. For the $20,000 per month for 20 years, this would effectively eradicate your pension.
For the winner receiving $5,000 per month, however, this amount can significantly reduce the amount you or your partner may receive due to the pension income test. The pension income test uses the gross income of both partners, even if one of the partners does not receive a pension.
Winning of lottery sounds exciting. However, the chances are extremely low. If you want to take control over your retirement, feel free to book a session with our SMSF expert here and start building your retirement nest TODAY.