Pensioners often ask about how a pre paid funeral and Centrelink benefits work. Is a pre paid funeral included in the Centrelink assets test? Can I receive a Centrelink bereavement payment if my partner pre paid their funeral?
This article will answer these common questions about pre paid funerals, to give pensioners some reassurance.
What’s the difference between pre paid funerals and funeral insurance?
Pre paid funerals provide peace of mind for seniors, to ease the future financial stress on their families when it comes time to arrange their funeral. They are arrangements where your funeral is paid in advance, either upfront or by instalments. A Bare pre paid funeral plan allows you to choose to pay upfront or by instalments – either monthly over two years, or fortnightly over five years.
A pre paid funeral plan allows you to plan ahead and pay for your funeral, directly to the funeral director. Alternatively, you can buy a funeral bond and assign the benefit to the funeral director.
The difference between a pre paid funeral plan and funeral insurance is that once a pre paid funeral has been paid in full, there is nothing more to pay. A pre paid funeral plan is a more secure financial option compared with funeral insurance.
It is common for funeral providers to invest a customer’s pre paid funeral funds into a funeral bond in their name. With a Bare pre paid funeral, all pre paid customers’ funds are held with the Australian Friendly Society (associated with the Bendigo Bank) until they are needed to pay for the funeral.
You can read more about how funeral bonds work in the Australian Friendly Society Disclosure Statement, here.
If you are have opted to pay your pre paid funeral in instalments, the payments stop once the set pre paid funeral amount has been paid off in full. Unlike funeral insurance, the pre paid funeral instalment amount never increases for the duration of your plan, so there are no surprise fee hikes along the way.
On the other hand, funeral insurance is a reoccurring payment that generally increases as the policyholder gets older, often making ongoing payments unaffordable for pensioners.
Is a pre paid funeral included in the Centrelink assets test?
Where the Centrelink Aged Pension is concerned, a pre paid funeral generally doesn’t count as an assessable asset that impact the asset taper rate used to determine your pension. However, if pre paid funeral funds are invested into funeral bonds, the bond amount will be included in your Centrelink assets test if they are over a certain amount.
At July 1, 2021, that amount needs to be below $13,500, however the Department of Social Services reviews the Funeral Bond Allowable Limit on July 1 each year. That means, if the funeral bond amount is more than the allowable limit, the funds will be counted as an asset and assessed under the deemed income rules.
The good news is that the average price of a Bare pre paid funeral is less than $3,000. The price varies slightly depending on the location, but despite any small fluctuation, the funeral bond amount will be significantly less than Centrelink’s assessable assets limit.
Do I need to notify Centrelink?
If you currently receive Centrelink payments, you need to notify them if your pre paid funeral is invested into a bond in your name. Even if the pre paid funeral plan or funeral bond is exempt from the assets test, you must still notify Centrelink of the funeral bond amount.
Once your pre paid funeral has been paid in full, you will need to provide Centrelink with the contract from your funeral provider that:
- sets out the services you’ve paid for, and
- states that there are no more costs to pay.
As long as you have a contract that says you’ve pre paid your funeral in full, your assessable assets for the assets test won’t include either:
- the amount you pre pay to a funeral director; or
- the amount you invest in a funeral bond that has been assigned to a funeral director.
Further information about Centrelink and pre paid funerals can be found on the Centrelink website here, or by calling the older Australians line on 132 300.
Can I receive a Centrelink bereavement payment if my partner pre paid their funeral?
When a partner or spouse passes, the surviving partner may be eligible for financial support through The Department of Human Services, provided certain criteria are met.
Australian residents may be eligible for the following Centrelink bereavement payments:
- Partner Allowance – If you currently receive a Partner Allowance and your spouse dies, you may be eligible to receive a further 14 weeks of their pension. However, you will need to contact Centrelink and apply for another income support payment. You may also be eligible to receive a Centrelink lump sum bereavement payment (explained below).
- Pension Bonus Bereavement Payment – A lump sum payment may be available to the surviving partner of a Pension Bonus Scheme member who didn’t successfully claim the Age Pension and Pension Bonus before they died.
You can read more about Centrelink and funeral costs for pensionsers, here.
We hope this article has given you some clarity about how a pre paid funeral and Centrelink payments work. Hopefully it helps you to make an informed choice about planning ahead.
It is important to note that Centrelink entitlements can change without notice. Additionally, the Funeral Bond Allowable Limit is reviewed on July 1 each year. You should contact your nearest Centrelink office for further information regarding your specific financial circumstance, on 132 300.
If you would like more information regarding pre paying your funeral, please give us a call on 1800 202 901, or visit bare.com.au to get a quote.
This article is not legal advice. You should chat with an accountant or legal professional for specific advice on your personal or financial situation.