Introduction to the Age Pension Income Test
The Age Pension in Australia is a key support payment for eligible seniors. To determine your eligibility and payment rate, Services Australia applies both an income test and an assets test. The test that results in the lower pension amount is the one that is applied to your circumstances. This means you must understand both, but your income can significantly alter your payments. An Age Pension payment is reduced by 50 cents for every dollar of income over a certain threshold for single pensioners, and 25 cents per dollar for each member of a couple.
Assessable Income vs. Exempt Income
Not all money you receive is considered 'income' for the purposes of the income test. Services Australia defines assessable income as any money you or your partner receive for your own use or benefit, which can be in the form of cash, goods, or services.
Types of Assessable Income
- Employment Income: This includes gross wages, salary, bonuses, commissions, and any amount you salary sacrifice. The Work Bonus scheme, however, allows eligible pensioners to earn a certain amount of employment income without it affecting their pension.
- Deemed Income from Financial Investments: Instead of using the actual return from your financial assets, Services Australia uses a set of 'deeming rules' to estimate your income. These rules apply a tiered interest rate to your financial assets, such as bank accounts, term deposits, and shares, regardless of what they actually earn.
- Rental and Real Estate Income: Any net income from properties you rent out, or income from boarders and lodgers (who are not immediate family), is counted.
- Business Income: If you are a sole trader or in a partnership, your business income is assessed.
- Overseas Income: Pensions or income from outside Australia is also included in the income test.
- Other Income: This can include directors' fees, some scholarship amounts, and certain types of lump sums.
Exclusions from the Income Test
- Your Principal Home: While counted in the assets test (unless you're a non-homeowner), the home you live in is generally not included in the income test.
- Most Superannuation Withdrawals: Regular payments or withdrawals from your superannuation are not counted as income under the deeming rules, as the super balance itself is considered a financial asset.
- Certain Lump Sums: Some lump sums may be exempt from the income test. It's crucial to declare them to Services Australia to have them correctly assessed.
The Deeming Process in Detail
Deeming can be a confusing part of the income test. The rates are set by the Australian Government and assume a certain rate of return on your financial assets, such as savings accounts and shares. As of September 20, 2025, the rates for pensioners are as follows:
- Singles: 0.75% on the first $64,200 of combined financial assets, and 2.75% on the balance over $64,200.
- Couples (combined): 0.75% on the first $106,200 of combined financial assets, and 2.75% on the balance over $106,200.
What if your investments perform better than the deeming rate?
If your investments earn more than the deemed rate, the extra amount is not counted as income for the pension test. This is a key advantage of the deeming rules. If they earn less, however, the deemed rate is still applied. This provides predictability for your pension income, as you know what will be assessed, regardless of market fluctuations.
Managing Your Income for the Age Pension
- Utilise the Work Bonus: If you are still working, the Work Bonus is a valuable tool. The first $300 of your fortnightly employment income is disregarded under the income test. Any unused amount can accumulate in an 'income bank', up to a maximum balance of $11,800 per year. This is especially useful for those with seasonal or irregular work, allowing them to earn more during certain periods without affecting their payments.
- Review Financial Investments: Understand how deeming affects your various investments. A financial advisor or super fund can help you structure your investments to optimize your income while staying within pension limits.
- Keep Records: Maintain accurate records of all income sources. If you have rental properties or business interests, clear documentation is essential for accurate assessment by Services Australia.
- Report Changes Promptly: If your income changes, you must report it to Services Australia. Prompt reporting ensures you are paid correctly and avoids any potential debt issues.
Income vs. Assets Test: A Side-by-Side Comparison
To better understand which test applies to your situation, here is a comparison of how the two means tests work.
| Feature | Income Test | Assets Test |
|---|---|---|
| Focus | Assessable income from various sources. | Value of assets you own (excluding the principal home). |
| Key Components | Employment income, deemed income, rental income, overseas pensions. | Financial investments, real estate (not principal home), superannuation (if over Age Pension age), business assets. |
| Primary Rules | Deeming rates for financial assets; Work Bonus for employment income. | Homeowner vs. non-homeowner thresholds; asset value reduces pension. |
| Impact on Pension | Reduces pension by 50 cents per dollar over the threshold (single). | Reduces pension by $3 per fortnight for every $1,000 of assets over the threshold. |
| Final Determination | Whichever test results in the lower pension payment is the one that applies to you. | Whichever test results in the lower pension payment is the one that applies to you. |
Conclusion: Proactive Planning is Key
Navigating the complexities of what income affects age pension payments can be daunting, but with proactive planning, you can better manage your financial situation in retirement. By understanding how different types of income are assessed—especially the rules around deeming and the Work Bonus—you can make informed decisions. It is highly recommended to seek guidance from a financial planner or use the resources provided by Services Australia to ensure your income is reported correctly and you receive your full entitlements. For detailed information and tools, consult the official Services Australia website.
