Referred to commonly as ‘the Pension’, the Age Pension is a government income support provided by Services Australia for senior Australian residents. While age is the most obvious eligibility requirement for the Age Pension, you must also meet the residency requirements and satisfy means testing — including the assets test and the income test — before knowing how much Age Pension you might receive.
The complex nature of Age Pension assessment can be overwhelming, so below, we have addressed some of the common areas of confusion when it comes to the Income test.
What is ‘means testing’?
Simply put, means testing is the process of assessing your financial situation to see if you are eligible to receive any rate of Age Pension. The two methods of financial assessment for Age Pension are the income test and assets test. Services Australia will apply both the Income test and assets test to your individual circumstances and will pay you based on the whichever test produces the lower payment rate. Importantly, you need to pass both tests to qualify for Age Pension.
What is counted as income for the income test?
You do not need to be employed to have an income in the eyes of Services Australia. In addition to employment income, Services Australia will also consider income as any money received from real estate such as rent from investment properties or boarders, distributions or dividends from private companies or trusts, and some lump-sum payments. Regardless of whether you are earning income from your investments, Services Australia applies a rate of return to your investments to calculate your deemed income, which counts toward your income limit.
How much income can I earn?
The table below shows how much income you are able to earn each fortnight to receive the full pension amount for your circumstances. A part-pension may be paid if you earn above this amount, but there is a cut-off point to receiving a part-pension.
| Living arrangement | Fortnightly income limit | Amount that fortnightly pension reduces by above this limit |
|---|---|---|
| Single person | Up to $204 | 50 cents for each dollar over $204 |
| Couple living together or apart due to ill health | Up to $360 | 50 cents for each dollar over $360 |
Source: Services Australia, July 2023
Pension cut off points per fortnight:
| Living arrangement | Pension will be cut off if you earn the following |
|---|---|
| Single person | $2,436.60 |
| Couple living together | $3,725.60 combined |
| Couple living apart due to health | $4,825.20 combined |
Source: Services Australia, March 2024
The income limits are adjusted three times a year in March, July and September to reflect inflation. The calculations are based on the Consumer Price Index (CPI) recorded by the Australian Bureau of Statistics.
Thanks to the Work Bonus, you are able to earn up to $300 per fortnight from work before your pension rate is impacted. This is in addition to your fortnightly income limit under the income test, which means a single pensioner with the limit of $190 can earn $490 and still get the maximum rate of pension.
The Work Bonus can be accumulated up to $11,800 to offset any future employment income that would be assessable under the income test.
For example, if you were to earn $5,000 in one fortnight, without having earned any other income for the year, this amount is under $11,800, so it will not be assessed under the income test, and your pension amount will not be impacted.
The Work Bonus is automatically applied to your income test.
What is deemed income?
Services Australia deems that you earn a level of income from your financial investments, including your superannuation in some instances, even if you don’t actually receive any. Deeming refers to the set of rules used to calculate what level of income will be applied to your income test from your savings accounts, term deposits, managed investments, shares, and some income streams.
The deeming rate that Services Australia will apply to your financial investment is usually a percentage of your total financial investment balance. It varies depending on if you are single, a member of a couple and the total value of your financial investments. Thankfully, there are some exemptions available, and if your financial investment returns higher than the deemed rate of income, only the deemed rate will count towards your income test – not the actual return.
How does my superannuation affect the Age Pension?
Once you hit Age Pension age, your Superannuation balance will be counted in both the income test and assets test. The balance from your latest Superannuation statement will be counted on the assets test and deeming rates will be applied to the balance to count towards your income test.
I have an income stream product, can I still receive Age Pension?
Income streams are treated differently when it comes to means testing, but having either a Superannuation Income Stream or Annuity doesn’t immediately exclude you from being able to receive Age Pension.
Under means testing, income streams are categorised into:
- exempt and partly exempt from the assets test
- asset tested lifetime
- asset tested long term
- asset tested short term.
Each income stream category has a different set of rules regarding how the assets and income are tested. Because of this, it is a good idea to speak to a Financial Information Service Officer by calling the Centrelink Older Australians Line. They can help you understand which category your income stream product fits into.
What happens if I receive a lump sum of money while on Age Pension?
When we receive lump-sum payments in life, chances are that we’ve either won the lottery or received an inheritance; the good news is that both these types of lump-sum payments will not count in the Income test. Neither will:
- Other one-off gifts, prizes, rewards or amounts of superannuation
- Gambling wins — unless you gamble for a living.
- Natural disaster payments
- Some redress payments
- Payout from a property settlement or damages compensation payments
Bear in mind that your income or assets test could be affected by what you do with the lump sum, even if it is exempt. It’s also important to remember that regardless of the type of lump-sum — even if you think it is exempt from the income test — you are required to notify Centrelink within 14 days of being able to get it.
Can I still get the Age Pension if I’m living overseas?
You can generally receive Age Pension while living overseas but you might receive a different rate of Age Pension called ‘Outside Australia Rate’. If you’re travelling overseas for six weeks or less, you do not need to tell Services Australia, and your pension will be unaffected. If you’re living overseas for more than 26 weeks, then how much Age Pension you receive will depend on how long you’ve been an Australian resident. You can also have a social security agreement with another country which will determine the amount you receive while overseas.
I’ve heard of a transitional pension, will that apply to me?
The transitional pension rate only applies to you if you were receiving the Age Pension from 19 September 2009; it’s to help pensioners who would be negatively affected by today’s income test.
Summary
The income test forms part of the eligibility requirements of the Age Pension. You are able to receive the Pension while still earning an income, but there are limits to the amount you are able to earn.
Like many financial matters, the Age Pension can be tricky to navigate. You’re not expected to be able to precisely calculate your entitlements (the Government have teams of people to do that for you) but by having a general understanding of the terminology used and how your financial situation may be assessed, you can feel informed and confident to successfully co-pilot your own income path to the future.
The information in this article is general in nature.