Older Australians thinking about selling their home to downsize or move into aged care have been warned about Centrelink's "special rule". If you were looking into getting onto the Age Pension, you have to undergo income and assets tests to see if you're eligible for the payment.

But if you recently sold your home, you could be sitting on a huge sum of money that would normally disqualify you from the pension. Services Australia community services officer Justin Bott said this is where the unique rule kicks in.

"When you sell your principal home and immediately use the money to buy your new place to live, Services Australia will assess any funds that are left over after buying your new home under the standard income and assets tests, depending on what you've done with the money," he said.

"There is a different arrangement for people who have sold their principal home but are still looking for the perfect place to buy or are waiting to build it themselves."

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What is Centrelink's 'special rule' for Age Pension?

Bott gave the example of a retiree selling their home for $900,000 and using $700,000 of that to go into a retirement village.

That person would have a two-year exemption period before the $900,000 would count in the assets test.

That can be pushed to three years under exceptional circumstances.

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During that grace period, Services Australia would only look at the remaining $200,000 when assessing how much they could receive for the Age Pension.

But that $700,000 that's waiting to be used for the retirement village will be assessed as making interest at the lower deeming rate.

Deeming rates are the rates of return the government assumes people earn on financial assets, including shares, superannuation and bank accounts.

They can affect the means testing for Centrelink payments, including the Age Pension, JobSeeker and parenting payments.

At the moment, the rate is 0.25 per cent, but Bott said that "may change in the future".

So, while Services Australia would include the $200,000 in your assets test, your income test would also include a 0.25 per cent interest rate return on the $700,000, which is $1,750 over a year.