A former Reserve Bank official believes part of the answer may be that retirees are stashing their cash at home and reducing the money they have in savings accounts and other investments to maximise the age pension.

The suggestion has outraged pensioner groups who say it casts ''criminal suspicion'' over two million Australians. But could it be true?

In a means-tested age pension, the payoff for being able to qualify for even a tiny part of an age pension is huge. Qualifying for even $1 a fortnight of age pension makes the retiree eligible for discounts on prescription medicines under the Pharmaceutical Benefits Scheme, medical services and other discounts. The age pension is subject to an income and an assets test.

Most retirees - especially women - are well under the maximum assets allowed to qualify for the full age pension. Average retirement payouts in 2009-10, the latest available, were $198,000 for men and $112,600 for women. Note that is the ''average'', with the median payout likely to be lower.

To receive the full age pension, a home-owning couple is allowed assets of up to $273,000. The upper limit is $1,032,500 for a home-owning couple (though there is also an income test).

Up to $10,000 a year can be ''gifted'', with it being counted under the assets test. There is a limit to how much can be gifted in any five-year period, of $30,000. Some retirees probably figure it is worth forgoing the 3.5 per cent or so that could be earned on the money at the bank if it means picking up, or continuing to pick up, a part age pension.

But don't discount the conservatism of many older Australians who just like the feeling of security of having cash on hand, even though having large wads of cash at home actually increases the risk of financial loss from a burglary or house fire.

A financial planner with WLM Financial Services, Laura Menschik, says many older retirees may not be able to get to ATMs or banks, and may not have access to the internet to pay for goods and services electronically.

They need more cash on hand than other people.

So there are reasons retirees may want to have cash on hand that does not include fiddling the welfare system.

''I have several clients receiving Centrelink benefits but I'm unaware if they keep excessively large sums of money at home other than to meet regular cash needs,'' Menschik says.

The key to maximising their Centrelink benefits is to take advice well before reaching pensionable age.

Centrelink only assesses assets that have been disposed of within five years of applying for the pension.

If someone wants to help out their children they may want to give assets to children at least five years before reaching pensionable age to maximise Centrelink benefits.

In the five years before receiving the benefit, Centrelink allows up to $30,000 to be gifted without it counting under the assets test.

Menschik says a large part of the explanation for the missing $100 notes could be the growth in the cash economy to facilitate the avoidance of income tax.

Those providing services directly to households often like to be paid in cash. Accounts running to thousands of dollars are not going to be settled in $10 and $20 notes.

The cash economy, gambling or illicit activities, such as the drugs trade, could be an even larger part of the answer than retirees' hoarding cash, if that is, in fact, what they are doing.