There’s more to the age pension than reaching the appropriate age. While age is the most obvious factor, your eligibility for the Australian Age Pension depends not only upon your age, but your residency and whether you pass both assets and income tests.
Along with superannuation and savings, the pension is one of the main sources of funds that keep retirees afloat. It plays a critical role in retirement income for many. In 2018, around 66% of Australians over the pension eligibility age received this government payment, with 41% on the full pension and 25% on a part-pension.
Reaching pension age?
The first step towards eligibility is reaching the minimum age. It is currently 66 years and 6 months for both men and women, increasing to 67 from 1 July 2023.
You need to be an Australian resident for at least ten years to qualify for the pension. five of those 10 years must be consecutive. For example if you’ve lived in Australia on and off for the last 10 years, you won’t be eligible for the pension unless you remained in Australia for five years in a row.
There are some exceptions to this rule:
- Living overseas. Certain countries, including New Zealand, have a social security arrangement with Australia which means you can live in these counties and still be eligible to receive the Age Pension. The minimum 10-year residency can be made up of your years in Australia as well as the years spent living in the countries that have an agreement with Australia — providing you pass the other eligibility requirements.
- Receiving the Widow or Partner Allowance. You may be eligible if you have been a female Australian resident for the past two years and you are the widow of an Australian resident. You may be able to receive the pension if you have been receiving an Australian widow’s pension or a partner allowance immediately before you reached your pension eligibility age.
- Refugees, former refugees, and their family members have a qualifying residence exemption. This allows them to qualify for the Australian Age Pension if they meet all of the other eligibility requirements.
The means tests look at how much income you earn and the value of the assets you own. You need to pass both the income test and the assets test to be eligible for the pension, and they affect how much you’re entitled to receive.
There is a cap on the value of assets you can own and still receive a pension. The market value of any assets that you or your partner own will be assessed by Services Australia to check that they’re under the cap which will determine your potential eligibility for the pension.
Your residential home is not included in the assets test, but nearly all of your other assets will be, including your superannuation once you reach retirement age. The limits depend on whether or not you own your own home, as well as your living arrangements. These limits are outlined in the table below.
Source: Services Australia
If your assets go over these limits, your pension reduces by $3 per fortnight for every $1,000 of excess assets. For example, if your assets exceed your limit by $20,000, your fortnightly pension payment would decrease by $60 (i.e. 20 x $3).
There is a certain amount of income you are allowed to earn while still being eligible for the pension. The limit changes depending on your relationship status and living arrangements. Services Australia will assess your income from all sources — including your superannuation and other investment income — to determine your eligibility. Rather than using your actual rate of return on your investments, a deeming rate is used to make a calculation of the likely return you’ll get from different types of investments you may have. This deeming rate applies regardless of whether you actually earn that rate or not — your actual rate of return on investments is not taken into account.
If your income reaches certain limits, the amount of your pension will start to progressively reduce — as shown in the table below — until it cuts off altogether.
|Fortnightly income limit
|Reduction in Age Pension Payment
|50 cents for each dollar over $180
|50 cents for each dollar over $320
Source: Services Australia
The Work Bonus
If you’re an Age Pensioner who is still willing and able to work, you can earn up to $300 per fortnight without having this amount included in your income test for the pension. This is known as a Work Bonus. This amount can be accumulated up to $11,800 (for the 2022-23 financial year) 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.
You don’t need to apply to have this done. Services Australia will automatically apply the Work Bonus to your income test.
Is my pension reduced by the assets test and the income test?
No. Your pension payment will only be diminished by the test that reduces it the most — the two results are not added together. Consider the example below.
Jane is a single homeowner who is eligible for the pension. She has $320,000 worth of assets which means she exceeds the full pension assets limit by $56,750. This reduces her fortnightly pension entitlement by $170.25 using the “$3 per $1,000 of excess assets” rule (i.e. 56.75 multiplied by $3).
Jane also exceeds the Age Pension income test limit for a single person because she earns $226 per fortnight (after having her $300 Work Bonus applied to her income test). This is $26 over her limit (i.e. $250 – $174) and her pension would be reduced accordingly by $10.40 using the income test calculation method (i.e. 40 cents for every dollar she earns over her limit).
In Jane’s situation, her pension will be reduced by the amount calculated in the assets test, because it resulted in the larger reduction out of the two tests. In other words, her fortnightly pension would be reduced by $170.25. The $10.40 reduction obtained using the income test calculation method would not be applied to her pension at all.
Age Pension rates
If your income and assets fall under the limits listed in the tables above, you may be eligible for the maximum current fortnightly pension rates. The rates for singles and couples eligible for the pension are outlined in the table below. In addition, the amounts for pensioners who also qualify for the Pension and Energy Supplements are also shown.
Age Pension rate table
|Type of payment
|Maximum basic Age Pension
|Maximum Pension Supplement
Source: Services Australia
The payment amounts in this table are progressively reduced if you exceed either your asset or income test limits — the amount is reduced by whichever test results in the higher reduction.
What happens if my spouse is not eligible for the Age Pension?
If you are partnered but only one of you is eligible for the pension, it makes sense that you might assume you’d get the single rate. However, this is not the case. The eligible person receives half of the combined couple rate. This is best illustrated with an example.
Bill reached the current pension age of 66 in January 2018. He meets the residency requirements and passed both the asset and income tests, not reaching the limits of either one. He is therefore eligible for the maximum benefit.
However, his partner Sue is only 62 and she is therefore not yet age-eligible for the pension. Using the Age Pension rate table provided above, Bill would be entitled to the maximum pension of $706.20 for each person in a “couple” living arrangement.
Bill would also be eligible for the Pension and Energy Supplements, meaning he would receive a total fortnightly payment of $773.80.
Eligibility for Rent Assistance
It’s no secret that the cost of housing can be a burden for some pensioners. If you’re an Age Pensioner who is renting, you may also be eligible for Rent Assistance. How much Rent Assistance you can get depends on your living arrangements, dependent children, and the amount you pay for rent.
Current rates are outlined in the table below.
|Minimum fortnightly rent to be eligible
|Maximum Rent Assistance amount
Source: Services Australia
Letting Centrelink know about changes in your circumstances
If you have any financial or lifestyle changes, it is important to let Centrelink know as it could change your rate of payment. Circumstances such as change in income, assets, martitual status, death or living arrangements must be reported to Centrelink within 14 days.
If you don’t let Centrelink know about these changes, there’s a chance you could be overpaid. If you are, you’ll need to pay the money back, including interest, so it’s a financial burden best avoided by making sure you keep Centrelink in the loop.
Eligibility for the Age Pension requires three key areas to be satisfied; your age, residency, and means testing. Your living arrangements and relationship status impact your entitlements. If you are receiving a pension and your circumstances change, you need to let Centrelink know within 14 days.
The information in this article is general in nature.