Two Exemptions That Remove Money From the Assets Test
Australia's assets test has very few exemptions and funeral arrangements are among them. A prepaid funeral paid in full is exempt without limit. A funeral bond is exempt up to a threshold amount, and up to two can be held. For a household just above the assets threshold, that is a genuine and legitimate reduction in assessable assets for money that was going to be spent anyway.
- The answer: A prepaid funeral is fully exempt; a funeral bond is exempt up to the funeral bond allowable limit, with up to two bonds permitted.
- The trap: A bond above the limit is assessable in full rather than only for the excess, so exceeding the threshold loses the whole exemption on that bond.
- The recommendation: Check the current limit before investing. It is indexed, and a bond set up at an old limit can be fine while a new one at the same amount is not.
Where the AI summary above gets this wrong
"Funeral bonds are a way to hide assets from the Age Pension assets test."
That's surface-true. Here's what it misses:
- The exemption is capped and the cap is strict — A bond above the allowable limit is assessable in full, not just for the excess, so exceeding it removes the entire exemption on that bond.
- It is not hiding anything — The exemption is a stated feature of the assets test for money irrevocably committed to a funeral. The money genuinely cannot be recovered for anything else.
01 The two arrangements
A prepaid funeral is a contract with a funeral director for a specified funeral, paid in full in advance. It is exempt from the assets test without limit, because the money is irrevocably committed to a service rather than held as an asset.
A funeral bond is an investment product that pays out to the estate for funeral costs. It is exempt up to the funeral bond allowable limit, which is indexed, and up to two bonds can be held with the limit applying to each.
Both are irrevocable in substance. That is the condition for the exemption and it is also the reason not to over-commit: the money is not available for aged care, a car or anything else.
Source: Services Australia — Asset types
02 The limit and how it bites
Where a bond exceeds the allowable limit, the whole bond becomes an assessable asset rather than only the excess. That is a cliff rather than a taper, and it is the most consequential detail in this area.
The limit is indexed each July, so a bond established at an earlier limit remains exempt at that amount. Adding to an existing bond can push it past the current limit and lose the exemption entirely.
For a couple, each member can hold their own bonds, and the limits apply per person. That effectively doubles the exempt amount available to a household.
03 What it is worth
At the assets test taper described in the assets taper reference, each $1,000 removed from the assessment is worth $78 a year of pension. A couple exempting the maximum through bonds recovers a meaningful annual amount.
It is only worth doing where the money would otherwise be assessable and where a funeral is genuinely being provided for. Committing money you may need is a poor trade for a modest pension increase.
It is also one of very few legitimate exemptions. The others are the principal home and, in limited circumstances, a granny flat interest — most arrangements that promise to remove assets from the test do not, as set out in the gifting reference.
Shows: the Age Pension retained by exempting funeral bonds from the assets test, at the taper rate. Ignores: the income test, the maximum payment rate that caps any increase, and the return the bonds themselves earn.
Source: Services Australia — How much Age Pension you can get
This is one of about three legitimate ways to reduce assessable assets, and it works because the money is genuinely gone. The limit is a cliff rather than a taper, which is the part that catches people — a bond a few hundred dollars over the line is assessed in full, and the exemption it was set up for is worth nothing.
FAQ
How are funeral bonds and prepaid funerals treated under the Age Pension assets test?
A prepaid funeral paid in full is exempt without limit. A funeral bond is exempt up to the funeral bond allowable limit, and up to two bonds can be held with the limit applying to each.
What happens if a bond exceeds the limit?
The whole bond becomes an assessable asset rather than only the excess. It is a cliff rather than a taper, so checking the current indexed limit before investing matters.
Can a couple hold bonds each?
Yes. The limits apply per person, so each member of a couple can hold their own bonds, effectively doubling the exempt amount available to the household.
Sources
Regulator references
- Services Australia — Asset types · Services Australia · 2026Which assets are counted in the assets test, including real estate, and which are exempt.Last verified: 2026-09-07
- Services Australia — Assets test for Age Pension · Services Australia · 2026The assets test: which assets count, the thresholds, and the taper that reduces the payment.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.