OLDER people hoard thousands of dollars in cash to pay for their funerals, but they do not do so to get the pension, says Seniors Australia, which has labelled the suggestion they use cash to defraud the pension system ''unfounded and offensive''.

A former senior Reserve Bank official, Peter Mair, has written to the governor of the bank suggesting the elderly are behind the extraordinarily high number of $100 notes in circulation.

Bank figures show there are 10 $100 notes in circulation for each Australian compared to only seven $20 notes.

Mr Mair said the government should consider removing $50 and $100 notes from circulation to make hoarding more difficult.

The chief executive of National Seniors Australia, Michael O'Neill, said there was ''no doubt'' some elderly people kept large amounts of cash at home.

''I know people who have $6000 or $7000 or $8000 put aside for their funeral,'' he said.

''They still have that attachment to the folding stuff. And I think part of the attitude is wanting to have money there to pay for the funeral, so the family won't have to worry.''

But he said he had never heard from any of his members about hoarding high-denomination notes to get access to the pension and the Commonwealth Health Care Card, both of which are means tested.

''There is a view folk strongly have that they have been taxed all their lives and that it is simply unfair that they don't have access to the card,'' he said.

The policy officer at the Australian Pensioners and Superannuants Federation, Sharmaine Crowe, said Mr Mair should forward any evidence of fraud to authorities before making offensive comments, ''otherwise he had effectively cast criminal suspicion over 2 million Australians''.

''If you are someone on the pension and you are effectively being accused of rorting the system you would find that offensive,'' she said.

Ms Crowe said she had never heard of elderly people stockpiling notes to ensure they qualified for the means-tested benefit.

''It's not something I have seen. Anyone could be doing that to avoid paying their tax.''

The Finance Minister, Penny Wong, has warned pensioners to properly declare their incomes, but she had ''not been looking under pensioners' beds lately''.

In the six months to December only 44 people aged over 60 were convicted of social security fraud out of a total of 826.

In his letter to the Reserve Bank governor, Glenn Stevens, Mr Mair used a comparison between Australia and New Zealand to back his claim.

''In broad terms the average value of notes held by New Zealanders is about one third of the $2000 held by Australians,'' Mr Mair said. ''An obvious explanation - means-test free age-pensions in New Zealand - points to the benefits some pension recipients in Australia unfairly take by holding undeclared assets masquerading as $100 notes.''