Australian retirees with substantial superannuation savings could qualify for a higher Centrelink Age Pension by using a retirement income strategy that is becoming increasingly popular.
The approach involves lifetime annuities, which provide regular income in exchange for an upfront investment and can receive favourable treatment under Centrelink’s means tests.
Under the 60 per cent assets test rule, certain lifetime annuities are initially assessed at only 60 per cent of their purchase price, potentially helping retirees qualify for a part Age Pension or increase an existing payment.
Financial advisers say the strategy may be particularly relevant for older Australians with retirement assets approaching $1 million, although the outcome depends on individual circumstances.
With more Australians preparing to retire, understanding how Centrelink assesses different retirement investments could make a meaningful difference to household income.
What Is the 60% Rule?
Centrelink applies income and assets tests when determining whether Australians qualify for the Age Pension.
For retirees with significant savings, the assets test can reduce their pension entitlement or prevent them from receiving a payment.
However, qualifying lifetime income streams purchased under the relevant rules can receive concessional treatment.
Only 60 per cent of the purchase price of an eligible lifetime annuity is generally counted under the assets test until the relevant later-life assessment point.
For example, someone investing $100,000 in a qualifying lifetime annuity may initially have only $60,000 assessed as an asset.
That represents a $40,000 reduction in assessable assets compared with holding the same amount in an investment fully counted by Centrelink.
The concession does not mean the retiree has received an additional $40,000. It changes how Centrelink assesses the investment.
Bigger Pension Possible
The reduced asset value can improve Age Pension eligibility for some retirees.
Melbourne financial adviser Billy Norman explained that Centrelink assesses both income and assets when calculating pension payments.
Whichever test produces the lower entitlement generally determines the amount payable.
For retirees whose Age Pension is restricted by the assets test, purchasing a qualifying lifetime annuity may reduce their assessable assets enough to increase their entitlement.
Some people who previously exceeded the assets threshold could potentially become eligible for a part pension.
However, an annuity does not automatically guarantee a higher Centrelink payment.
The income test, other assets and the retiree’s overall financial position must also be considered.
Age 85 Change
The concessional treatment of eligible lifetime income streams changes later in retirement.
Under the relevant rules, the assessed asset value generally falls from 60 per cent to 30 per cent of the original purchase price from the later of age 84 or five years after the income stream begins.
For a qualifying annuity purchased for $100,000, the assessed amount could therefore fall from $60,000 to $30,000 at the applicable point.
This further reduction may improve Age Pension eligibility for some older retirees.
However, the treatment depends on the product meeting Centrelink’s requirements.
Different retirement income products can have different assessment rules, so retirees should not assume every annuity qualifies for the concession.
Assets Limits
The Age Pension assets test determines how much property, savings and other assessable wealth a retiree can hold while remaining eligible.
The October 2026 figures cited for the upper part-pension thresholds are $745,750 for a single homeowner and $1,121,000 for a homeowner couple.
These limits help explain why retirees with substantial savings may still investigate ways to improve their pension eligibility.
A homeowner couple with approximately $1 million in assessable assets, for example, may qualify for a part pension depending on their income and other circumstances.
Meanwhile, a retiree with assets above the applicable threshold may receive no Age Pension under the assets test.
The family home is generally excluded from assessable assets, although different thresholds apply to homeowners and non-homeowners.
Centrelink also assesses investments, bank balances, superannuation and other relevant financial interests.
How Annuities Work
A lifetime annuity is a financial product designed to provide income throughout retirement.
The purchaser pays an upfront amount to an annuity provider, which then makes payments according to the product’s conditions.
Unlike investments whose withdrawals depend on account balances, a qualifying lifetime annuity can provide payments for the remainder of a person’s life.
This can help retirees manage the risk of outliving their savings.
Some products offer payments that increase over time, while others provide different income structures or beneficiary protections.
However, annuity payments are not necessarily the same as investment returns, and access to the original capital can be restricted.
The amount of income received depends on factors including age, investment amount, product features and prevailing pricing conditions.
Demand Is Growing
Australia’s retirement market is changing as more people approach the end of their working lives.
More than 2.5 million Australians are expected to retire over the coming decade, according to demographic projections referenced in the report.
Financial institutions and superannuation funds are responding by expanding retirement income options.
Annuity provider Challenger reported 17 per cent growth in domestic annuity sales to $4.9 billion in its August 2026 results.
The company attributed growth to stronger demand across fixed-term and lifetime annuity products.
Fixed-term annuity sales increased by 19 per cent, while lifetime annuity sales rose by 13 per cent.
These figures suggest growing interest in retirement products that provide predictable income.
How Much to Invest?
Financial advisers generally consider annuities alongside other retirement investments rather than treating them as a complete replacement for superannuation savings.
Norman said he typically limits annuity investments to around 20 to 25 per cent of a client’s assets.
This approach leaves a substantial portion of retirement wealth available in more flexible investments.
For example, a retiree with $1 million in assets might consider allocating a portion towards guaranteed retirement income while retaining other savings for emergencies and changing expenses.
However, there is no universal percentage suitable for every retiree.
Factors such as health, expected spending, family responsibilities, investment risk and other income sources can influence the decision.
Inheritance Concerns
One major consideration when purchasing a lifetime annuity is what happens to the investment after death.
Traditional lifetime annuities can involve surrendering access to capital in exchange for guaranteed income.
This may concern retirees who want to leave substantial assets to children or other beneficiaries.
However, newer products may offer death benefits or capital protection features.
Depending on the contract, beneficiaries may receive a payment if the annuity holder dies during a specified period.
Not every annuity guarantees that the original investment will be returned to the estate.
The amount available to beneficiaries can decline over time or disappear entirely under certain product conditions.
Retirees should carefully examine death benefits, withdrawal restrictions, fees and product guarantees before committing their savings.
Check Before Buying
The Centrelink treatment of annuities can be attractive, but purchasing one solely to increase Age Pension payments may not be appropriate.
Retirees need to consider the income they will receive, the capital they may lose access to and the effect on their broader retirement plans.
A financial adviser can compare the expected annuity income with other investment options and assess the possible Centrelink consequences.
Services Australia’s Financial Information Service can also explain how different investments may affect government payments, although it does not provide personalised investment recommendations.
What Retirees Should Know
The growing use of lifetime annuities highlights an important feature of Australia’s retirement system: the way savings are invested can affect Age Pension eligibility.
For eligible products, the 60 per cent assets assessment rule can reduce the amount Centrelink counts towards the assets test.
That may help some retirees access a part pension or receive a higher fortnightly payment.
However, the concession is not a new Centrelink bonus, and the financial benefit depends on the person’s income, assets and chosen annuity.
Australians approaching retirement should understand both the potential Age Pension advantage and the long-term investment commitments before purchasing a lifetime annuity.
