Centrelink exempts qualifying funeral bonds from the Age Pension assets test up to $15,750 per person in 2025–26, indexed annually. Each member of a couple can hold a separate bond, giving a combined exempt amount of $31,500. If the amount invested exceeds the threshold, the entire bond becomes assessable — not just the excess. A fully pre-paid funeral arrangement has no dollar cap on its exemption.
For Australian retirees whose assets sit near the Age Pension assets test threshold, there are not many strategies that legally reduce the assessable asset count. The funeral bond exemption is one of them — and it is one that a surprising number of eligible pensioners either don't know about or haven't used.
What is a funeral bond and how does the exemption work?
A funeral bond — sometimes called a funeral fund or funeral investment — is a locked investment product designed to pre-fund funeral expenses. On the death of the investor, the bond pays out to cover funeral costs. The defining feature for Age Pension purposes is that it cannot be redeemed early: the funds are unavailable for any other purpose.
Centrelink exempts funeral bonds from the assets test up to the exempt funeral investment threshold, which is indexed to the Consumer Price Index each year on 1 July. For the 2025–26 financial year, the threshold is $15,750 per person (DSS Social Security Guide 4.6.2.10, https://guides.dss.gov.au/social-security-guide/4/6/2/10, captured 5 May 2026). This means a pensioner can invest up to $15,750 in a qualifying funeral bond and that amount simply disappears from the assets test calculation.
A critical detail: if an investor puts more than the threshold into a funeral bond, the entire bond becomes assessable — not just the excess. The bond loses its exemption entirely if the invested amount crosses the threshold. Investors should ensure the amount invested, not just the current value, stays within the threshold.
Can couples each claim their own funeral bond exemption?
Per DSS Guide 4.6.2.10: "Each member of a couple may invest up to the exempt funeral investment threshold in an exempt funeral investment." This means that where each partner holds an individual bond, the combined exempt amount for the couple is $31,500 — two separate bonds of $15,750 each, both fully exempt. If a couple instead invests in a single joint funeral bond, the entire joint investment must not exceed the single threshold of $15,750 to qualify for exemption. The individual bond structure is generally more effective for couples from an assets test perspective.
How does the pre-paid funeral exemption differ?
A pre-paid funeral is a distinct arrangement and has its own exemption with no dollar cap. Where a pensioner has paid in advance for a specific set of funeral services with a funeral director — where nothing further is required for those services to be provided and the payment is non-refundable (except in the event of relocation outside the service area) — the full amount is exempt from the assets test regardless of size. This is a broader exemption than the funeral bond in terms of dollar value, but it requires the arrangement to be locked in to specific services. A burial plot purchased for the investor or their partner is also an exempt asset.
What is the strategic value in practice?
Consider a single Age Pension recipient who owns their home. The full pension assets test threshold for a single homeowner is $321,500 (effective 20 March 2026). Suppose this pensioner has total assessable assets of $337,250 — $15,750 above the full pension threshold. At the taper rate of $3 per fortnight for every $1,000 of excess assets (equivalently, $78 per year per $1,000 of excess), the excess reduces the annual pension by $1,228 — a real and ongoing cost for assets that happen to include a small share portfolio or a cash savings balance.
If the same pensioner invests $15,750 into a qualifying funeral bond, the assessable assets fall from $337,250 to $321,500 — exactly at the full pension threshold, with zero excess. The pension is restored in full. The annual gain is $1,228 per year, growing with indexation. The funeral bond also provides practical certainty that funeral expenses are covered and removes that burden from whoever manages the estate.
For a homeowner couple with combined assessable assets of $513,000 — $31,500 above the couple homeowner full pension threshold of $481,500 — each partner establishing a $15,750 individual funeral bond reduces the combined assessable assets to $481,500, eliminating the excess entirely. The annual pension gain for the couple is $2,457, growing with indexation.
What should you look for in a funeral bond provider?
The funeral bond must be from a Centrelink-registered provider and must meet the conditions for an exempt funeral investment: it matures only on the investor's death, it does not relate to pre-paid funeral expenses, and it cannot be redeemed. Multiple providers exist — friendly societies, specialist funeral bond funds, and some funeral director groups — each offering different investment options within the bond. For retirees, a conservative investment option within the bond is typical, as the funds will not be accessed until death. Ongoing provider stability matters: these funds may be held for many years, and the provider's financial strength is a relevant consideration.
How does the funeral bond combine with other asset reduction strategies?
The funeral bond exemption works alongside other legitimate asset reduction strategies rather than instead of them. For pensioners who are also considering a qualifying lifetime annuity — which receives a 40% assets test reduction (60% of the purchase price is assessed) if structured with a capital access schedule and commenced on or after 1 July 2019 — the funeral bond exemption can remove a further slice of assessable assets in parallel. The strategies address different assets and different amounts, and neither limits the other.
For pensioners whose assets are substantially above the threshold, the $15,750 (or $31,500 for a couple with individual bonds) makes a modest proportional difference. For those within striking distance of a threshold — particularly the full pension threshold — the impact can be material and immediate.
The starting point is knowing where the assets sit relative to the relevant threshold. From there, the conversation with a Centrelink-specialist financial adviser is about which assets can realistically be restructured, at what cost, and whether the outcome justifies the effort.
Sources
- DSS Social Security Guide 4.6.2.10 — exempt funeral investment threshold $15,750 per person from 1 July 2025
- DSS Social Security Guide 4.2.3 — taper rate $3 per fortnight per $1,000 excess assets
Key takeaways
- Funeral bonds are exempt from the Age Pension assets test up to $15,750 per person in 2025–26 (indexed annually on 1 July) — if the invested amount exceeds the threshold, the entire bond becomes assessable, not just the excess.
- Each member of a couple can hold a separate funeral bond at up to $15,750, giving a combined exempt amount of $31,500; a joint couple bond is capped at $15,750 total.
- A fully pre-paid funeral arrangement (non-refundable, nothing further required for services) is exempt with no dollar cap — a broader exemption than the funeral bond where dollar value is concerned.
- For pensioners whose assessable assets sit just above the full pension threshold, a funeral bond can restore full pension entitlement — eliminating $15,750 of excess assets saves approximately $1,228 per year at the taper rate.
- Burial plots for each member of a couple are also exempt assets; the funeral bond exemption can be combined with other strategies such as qualifying lifetime annuities, which address different assets and different amounts.
Frequently asked questions
How much can I put in a funeral bond to keep it exempt from the Age Pension assets test?
Up to $15,750 per person in 2025–26 (indexed annually on 1 July). The critical rule is that if you invest more than the threshold, the entire bond becomes assessable — not just the excess above the threshold. The bond loses its exemption entirely. Monitor the invested amount, not just the current bond value.
Can my partner and I both get the funeral bond exemption?
Yes. Each member of a couple can invest up to $15,750 in their own individual funeral bond, giving a combined exempt amount of $31,500. If you instead invest jointly in a single bond, the entire joint investment must stay within $15,750 to qualify. Individual bonds are generally more effective for couples from an assets test perspective.
What is the difference between a funeral bond and a pre-paid funeral for Centrelink purposes?
A funeral bond is a locked investment product that pays out on death — it is exempt up to $15,750 per person. A pre-paid funeral is a direct arrangement with a funeral director for specific services, where payment is non-refundable and nothing further is required for the services to be performed. The pre-paid funeral exemption has no dollar cap, making it a broader exemption for larger amounts. Burial plots are also exempt assets.
How much Age Pension can I recover by purchasing a funeral bond?
At the current taper rate of $3 per fortnight per $1,000 of excess assets (equivalent to $78 per year per $1,000), eliminating $15,750 of excess assets saves approximately $1,228 per year in pension. A couple using two individual bonds to remove $31,500 of excess assets saves approximately $2,457 per year. These gains grow with pension indexation over time.
Does a funeral bond count as income for Age Pension purposes?
No — a qualifying funeral bond is excluded from both the assets test and the income test (there is no deeming on exempt assets). The exemption applies to the invested amount, not returns, so the key requirement is keeping the invested amount within the threshold. Confirm that your specific bond qualifies as an exempt funeral investment before proceeding.