They're taking money out of your pension for a Centrelink debt. What you can change and what you can't

There is a version of this situation that people carry around in their heads, and it is wrong in three separate places.

It is wrong about the amount, which most people do not realise is negotiable. It is wrong about the consequences, two of which do not exist. And it is wrong about the one consequence that is genuinely sharper than almost anyone expects.

This article is about a debt you accept. If you think the debt itself is a mistake, our article on a Centrelink debt you think is wrong covers the review pathway, and the first thing to know there is that repayments can be paused while it is looked at — but you have to ask.

The deduction starts by itself

From the date your debt is due, Services Australia begins taking money out of your payment. Their words: they will "start deducting money from a payment you get from us to recover the money you owe", and "you don't need to do anything to set this up" (Services Australia, https://www.servicesaustralia.gov.au/repaying-money-you-owe-if-you-get-payment-from-us?context=60271).

How much depends on which payment you get and what other income you have. For an income support payment — and the Age Pension is one, on Services Australia's own list — "our standard deduction is 15% of the basic rate of payment. This is after the income and assets tests are applied and any supplement paid."

Why nobody can simply write it off for you

It is worth understanding the legal position, because it explains something readers often run into at the counter.

Services Australia states: "Legally, we have to recover money that's owed to the Commonwealth. We're required to do this under section 11 of the Public Governance, Performance and Accountability Rule 2014" (Services Australia, https://www.servicesaustralia.gov.au/if-you-dont-take-action-to-repay-centrelink-debt?context=60271). That characterisation is accurate. Section 11 is headed "Recovery of debts", says its own purpose is "to require accountable authorities of non-corporate Commonwealth entities to pursue the recovery of debts owing to the Commonwealth", and provides that the accountable authority "must pursue recovery of each debt for which the accountable authority is responsible" (Federal Register of Legislation, https://www.legislation.gov.au/F2014L00911/latest/text).

The duty is not unlimited. It does not apply where the accountable authority "considers that it is not economical to pursue recovery of the debt", where the authority "is satisfied that the debt is not legally recoverable", or where "the debt has been written off as authorised by an Act".

Read those carefully, because they are not levers. Every one of them is a decision for the accountable authority, made on the agency's own assessment — none is a request you can make, and no officer you speak to can waive a debt as a courtesy. The third limb is the statutory door that waiver and write-off decisions come through, and our article on Centrelink debts and overpayments covers that ground properly. The practical upshot for this article is simply this: the person on the phone is not being unhelpful. They are under a duty.

The amount is not fixed, and this is the sentence most people never read

The 15% is a default, not a determination.

If your Centrelink online account is linked to myGov, you can "see how much we're deducting" and "change the amount we deduct" — in the same place, without ringing anyone. And if the amount is causing you real difficulty, Services Australia's instruction is to call the Debt Recovery Line, expressly including "if you're in financial hardship because of your withholding amount."

If you take one thing from this article, take that. A retiree quietly going without because 15% of their basic rate is more than they can absorb is, very often, someone who did not know the number could move.

Two related points. A repayment arrangement does not switch the deductions off — "if you set up an additional voluntary payment arrangement, we'll still deduct money from a payment you get from us" — so an arrangement is in addition to, not instead of. And if you have been affected by a disaster or hardship event, you may be able to pause or change repayments altogether; the agency's own list of ways to be in good standing includes having "asked us to pause recovery of the debt".

Interest: what the two pages actually say

Here the published guidance needs handling with care, because two Services Australia pages point in slightly different directions and the difference is worth money.

The first page says: "We may charge interest every day after the due date if any of the following apply: you haven't repaid the money; you haven't set up a payment arrangement; you don't have a pause on your repayments; you aren't having amounts deducted from your Centrelink payment."

The second says the arrangement carve-out in positive terms: "If you enter into a repayment arrangement with us to repay your debt over an agreed period of time, we won't charge you interest if you make your first repayment by the due date and keep to your arrangement" (Services Australia, https://www.servicesaustralia.gov.au/how-to-repay-money-you-owe-to-centrelink?context=60271).

Taken literally, the first list is very wide — an unpaid debt satisfies its opening limb on its own. The second page is narrower and more definite about what protects you. The safe reading, and the one worth acting on, is the one both pages agree on: entering a repayment arrangement and keeping to it is the published way to avoid interest. Whether having the standard deduction taken achieves the same thing by itself is not stated anywhere as clearly, so it is worth confirming on the Debt Recovery Line rather than assuming.

Where interest does apply, the rate used is the ATO's general interest charge. That rate is reset quarterly, so no figure is quoted here — check the current one rather than trusting any number you read anywhere, including in an older article. Our article on ATO tax debt payment arrangements covers that separate creditor, which has its own powers and its own rules.

One small trap worth naming: paying a Centrelink debt by credit card may attract fees and cash advance charges from your own bank. Swapping a debt into one that charges a card rate is a bad trade, and it is an easy one to make by accident.

What happens if you do nothing

This is the escalation ladder, and what matters about it is that every rung is conditioned on not engaging.

It starts with withholding. "We can take money from your Centrelink payment to pay a debt you owe us. We call this withholding. We'll do this if you have not repaid your debt in full by the due date and haven't set up a withholding arrangement." They write to you with the amount.

Next is your tax refund. Services Australia can garnishee one — a garnishee being, in their definition, "where we ask a person, business, or organisation who holds money for you to pay that money to us directly to reduce your debt." But this happens only if all three of the following apply: "you're not getting a Centrelink payment when you do your tax return"; "you don't have a repayment arrangement with us in place to pay your debt"; and "your debt repayments are not paused." Notice the first condition, because it turns on whether you are still on payment rather than on anything you have done wrong. If it does happen, you are told: a letter explains the recovery, and it appears on the Statement of Account issued with your ATO Notice of Assessment as a "Credit offset to Centrelink". The page also says that if you are worried about your refund being used this way, the thing to do is call the Debt Recovery line.

Beyond that, in some situations Services Australia may garnishee a bank account, income from employment, or money owed to you by other organisations. This applies where you do not enter a repayment arrangement, do not keep one you have entered, or give misleading information about your ability to repay. If any garnishee action is taken, they write to tell you.

Then there is a Departure Prohibition Order, which is the one that surprises people. If you have not entered a payment arrangement, or you are not repaying at a suitable rate, Services Australia may issue an order that stops you from leaving Australia. Their own words: "We don't need a court order to stop you from leaving Australia." The page states the two ways out of it as plainly as it states the order itself — it stands "until you either" "pay your debt in full" or "enter into an acceptable payment arrangement." So the fix is the same as the fix for every other rung on this ladder, and our article on overseas travel and the Age Pension covers the other things worth checking before you go.

Two things people believe that are not true

Your credit rating is not affected. Services Australia states it plainly: "Your Centrelink debts won't affect your credit rating." Whatever else a Centrelink debt does, it does not follow you into a loan application.

And debt collectors are not used. Services Australia "stopped referring debts to external collection agents… on 1 April 2023", and "our staff now complete all debt recovery." If someone contacts you claiming to be collecting a Centrelink debt on the agency's behalf, that is a reason to stop and verify rather than to pay. Our articles on scams targeting older Australians cover how to check.

Worked examples

Margaret, 72, single, receiving the Age Pension. A debt is raised after a review of an earlier period, she accepts that it is correct, and deductions begin from the due date without her doing anything. Because the Age Pension is on Services Australia's list of income support payments, the standard deduction of 15% of the basic rate applies, taken after the income and assets tests and after any supplement. Two things follow on these facts. She is not exposed to the tax refund garnishee, because the first of its three cumulative conditions is that you are not getting a Centrelink payment when you do your tax return, and she is. And the deduction amount itself is a field she can see and change through her myGov-linked account, with the Debt Recovery Line available if the withholding amount is causing hardship. On these facts, checking what is actually being deducted and calling if it bites is generally rational; sitting quietly with a number she did not choose is the avoidable part.

Robert and Helen, 74 and 71, self-funded and no longer receiving any Centrelink payment. A debt from a period when they did receive a payment is still outstanding, the letters have gone unanswered, and they have a trip booked. Their position is materially different from Margaret's in two ways, and both flow from being off payment. The first tax refund garnishee condition is now satisfied rather than failed, so a refund is genuinely exposed if they also have no arrangement and no pause. And because they have not entered a payment arrangement, they sit inside the stated ground for a Departure Prohibition Order — which requires no court order and, once issued, lifts only on payment in full or an acceptable payment arrangement. On these facts the generally rational step is the same one that answers all of it at once: contact the Debt Recovery Line and put an arrangement in place, and settle that before making any further commitments around the travel. An arrangement kept to is also the published route to avoiding interest.

One more thing worth knowing

Services Australia also recovers money on behalf of other Commonwealth departments, including the Department of Veterans' Affairs, and on behalf of the Ministry of Social Development in New Zealand. If a deduction appears and the debt is not one you recognise as Centrelink's, that is a possible explanation rather than an error to panic about — but it is still worth ringing to confirm.

What to do

Open the letter, because every consequence in this article is triggered by not engaging and none of them by owing money. Check what is actually being deducted, in myGov, and change it if the amount is wrong for your circumstances — it is a field you can edit, not a sentence handed down. If you cannot manage it, say so: hardship is a published reason to call, not a favour you are asking for.

If you do not believe you owe it at all, that is a different path entirely, and repayments can be paused while it is reviewed if you ask.

And if none of this has happened yet, the whole category is largely prevented by reporting changes within 14 days, which our article on Age Pension notification obligations covers. A free Financial Information Service officer can also help you work through the position at no cost.

Sources

• Services Australia — If you don't take action to repay a Centrelink debt
• Services Australia — Repaying money you owe if you get a payment from us
• Services Australia — How to repay money you owe to Centrelink
• Public Governance, Performance and Accountability Rule 2014 — Federal Register of Legislation
• Services Australia — Income support payment