Age Pension Income Test


Age Pension Income Test

If you are like most people nearing retirement or already retired, you might wonder: “How much can I earn before my income affects my Age Pension?” 

As everything to do with Centrelink or any government benefit, the answer is never straight forward. Because it depends. 

It depends on how much income you earn, depends where the income comes from, and depends on the total value of your assets that are subject to Income Test and that generally excludes your family home. 

But passing the Income Test is not the only requirement to be receiving full or part Age Pension. First you must reach the Age Pension age (eligibility age) and meet residency rules, if you are not familiar with those rules, read my article: “Age Pension Explained” – that clarifies basic eligibility rules for the Age Pension payments. 

Next step is to pass Assets Test, which I can say truthfully is the one that cuts out eligibility for most applicants. My article: “The truth about Asset Test” – will reveal how this test works.  

If you are not eligible for even the smallest part of Age Pension, try some of those steps that I explain in “9 ways to hide money from Centrelink”. this might help you get access to part Age Pension payments and ultimately to the Health Care Card, which is a very valuable benefit from the government.  

Assuming you meet the age and residency requirements and you pass your Assets Test, now is the time to start checking your Age Pension eligibility under Income Test.  

What is the income test? 

Income Test is not just as simple as checking your pay slip, or the level of income you earn from your investments, because every type of earned income is included in the test and each might be calculated differently. 

Income Test includes: 

  • your employment income if you continue working full-time or part-time, 
  • any money your earn from your business 
  • Income received from overseas pension funds 
  • Income earned from your rental property or your investment properties,  
  • Income received from your retirement income streams 
  • plus all assessable assets, so all your financial assets such as your bank accounts, managed funds, shares, superannuation, business assets.  

and each might be under different income assessment rule. Sometimes you might feel like you would have to be Einstein to understatement and follow those rules.  

How much income can I earn before it affects my Age Pension Payments? 

To receive the maximum rate of Age Pension payment, there is a limit how much you can earn, so called Lower Income Test Threshold, and on 1st July 2021 it was increased, so now your fortnightly income needs to be: 

  • for single pensioners: under $180 per fortnight, (increase from $178) – so an increase by $2.00pf or $52p.a 
  • for couples (that includes couple separated due to illness): under $320 a fortnight. (increase from $316) – increase by $4.00pf or $104p.a 

Government’s generosity for retirees is overwhelming, isn’t it?  

How does Age Pension reduce under Income Test? 

For every dollar of income you earn over this limit, your pension will reduce by 50c.   

What is the maximum I can earn under Income Test? 

  • for single pensioners – $2,085.40 (annual limit $54,220.40) 
  • for couples (combine) – $3,192.40 (annual limit $83,002.40) 
  • for couples (separated due to illness) $4,130.80 (annual limit $107,400.80)

Let’s look at the example: 

Steve is 67 and eligible with Age Pension, but his earned income from his private sources is $450p.f. Being single his lower threshold of income to earn is $180p.f. therefore his income above that threshold is $270p.f. ($450 – $180=$270). 

Then we calculate Age Pension reduction of 50c for every dollar above the limit, which is $270 x 0.50 = $135.00pf. 
Therefore, Steve’s Age Pension payments would be reduced by $135.00p.f.   

What income is exempt from Income Test? 

Income sources exempt from the test include: 

  • rental assistance payments, 
  • child support, 
  • emergency relief payments and 
  • regular payments from a close relative.

Why do I dare to say that Income test is madness? 

This is all to do with ongoing changes to Centrelink rules and superannuation rules. They were changed so many times, that one needs encyclopedia to know them all  

Maybe I should write encyclopedia about the Centrelink rules story? What do you think? 

But putting all jokes aside, the truth is that this area is a bit of madness, but let’s check at least the basics: 

  • most financial assets now are subject to deeming – if you are unfamiliar with deeming rules, read: “Age Pension Explained” as well as “Age Pension Deeming Rates – Unfair Rules”. All your money in bank account, managed funds, shares, even your super balance and some income streams are subject to deeming.  
  • however, if you have any of the following: lifetime or life expectancy income stream, market linked income stream, defined benefit income stream, any type of annuity – they all have their own way of application for the Income Test.  Those are complicated therefore outside of the scope of this article. 
  • Income earned from employment; income earned from overseas pensions are all calculated dollar for dollar. So, if your income from those sources is $30,000 and this is exactly the amount Centrelink will include in our Income Test. 
  • Income earned from the rental property is also not easy, you have to disclose your full earnings, Centrelink will allow for some deductions and the balance will be assumed as your earned income. 

Other questions about Income Test:  

My partner is not of Age Pension age, so not eligible for Age Pension payments. Is the income of my partner included in income Test? 

Absolutely, your partner’s income is included in your Income Test, regardless whether your partner receives or not Age Pension payments. So if you are partnered, it’s all your combined assets and all your combined current income that will be included in both Income and Assets Tests.   

Is my super fund assessed under Income Test if I don’t draw any income from it?  

Once your reach the Age Pension age, so eligibility age, your super assets just like your pension assets are assessed under both Income Test and Assets Test. Your savings within super are subject to deeming and your income stream can be subject to different type of testing, depending on the type of your income stream and the time of commencement. The most common today is an account-based pension that is deemed, just like your super savings. 

Once you’ve calculated all your deemed income plus any other earned income, the total is then applied to the formula to calculate your Age Pension payment eligibility, as per my example about Steve.  

Is my partner’s super included in Income Test? 

If your partner is of Age Pension age, therefore eligible to apply for Age Pension, then yes, your partner’s super is included in Income and Assets Test subject to deeming, regardless of the fact if your partner draws and income from it or not. 

If however your partner is below the Age Pension age, all assets in his or her super is not included, therefore, this is a lovely way to “hide” those assets from Centrelink, improve your Age Pension benefit until your partner reached Age Pension age.  

As you can see, Age Pension is not as easy as one would hope, so if you find this area confusing, or if you would like to find out if there is a way for you to either improve your Age Pension entitlement of have access to part Age Pension, if you are above the Income or Assets Limits, feel free to drop me a line.   

“Retirement is a Journey NOT a Destination, so be well prepared for the ride”.  

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement

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