There are two major problems with the Age Pension income test. Firstly, the limit on how much you can earn is too low for retirees who are seeking ongoing meaningful workplace engagement. And secondly, the rules are now so complex, applicants for an Age Pension often find them downright incomprehensible.
Is the system working? Not as well as it could.
How to fix it seems relatively straightforward – here are three different approaches.
Why your earnings matter for eligibility
Let’s start by taking a step back with a reminder of how the income test works. You are no doubt aware that the Age Pension is offered to eligible Australian residents aged 67 and over. Eligibility is calculated through a means test which requires you to fall within both the income and assets test limits for either a full or part-Age Pension. So far, this is quite straightforward. But in addition to work income (i.e. income from paid employment) there is a secondary definition of investment income. Investment income can include things such as rental income from property as well as deemed income on financial assets. This secondary form of income is calculated by applying deeming rates to your assets.
Here’s a quick example. To keep it simple, let’s say you have median super savings of $217,000 as a single male and no other financial assets. Using 1 July rates and thresholds for singles, Centrelink will deem your income on these savings to be $3550 per annum or $140.50 per fortnight. Let’s say you are a single male, being paid the median male income of $78,000, but working 2.5 days per week, so earning $39,000 per annum. You would be well over the limit for a full Age Pension, but still within the ability to earn a part-Age Pension. How much would, of course, be dictated by the application of the $212 per fortnight income free zone and the work bonus of $7800 with a one-off $4000 credit.
What are the current income limits?
| You will receive the FULL Age Pension if your income is equal to or less than | You are not entitled to ANY Age Pension when your income exceeds | |
| Single | $212 per fortnight / $5,512 per annum | $2,444.60 per fortnight / $63,559 per annum |
| Couple(combined) | $372 per fortnight / $9,672 per annum | $3,737.60 per fortnight /$97,162 per annum |
Should these limits be removed?
Many advocates for senior Australians believe it is high time that the income limit had an overhaul, both for reasons of complexity and to free up a vital source of skilled labour and productivity. Apart from the obvious health and psychological benefits of work for those who are able to participate, this would free up a wealth of knowledge and experience that is needed for our economy to grow. Not all retirees want to kick back and golf or garden, nor do all find full satisfaction from volunteer work alone. Interestingly, many business startups are initiated by those in their 50s and 60s. So how might we unleash this energy and talent while keeping an eye on the cost of Age Pension entitlements? Here are three ways this could be done:
Universal Age Pension
This is a suggestion that comes up a lot in the comments we receive from readers. There are good reasons for that. Applying for the Age Pension is difficult for many people and managing and enforcing Age Pension entitlements and payments gets harder and more costly every year. Is there a return on this huge government investment? Probably not if you consider the recent Robodebt debacle and the costs and ramifications of the subsequent Royal Commission. Benefits of a Universal Age Pension would be to remove a huge layer of bureaucracy and free older people to work as much as they wish. It would also remove the complexity of the income and asset rules in one hit. Yes, it can be argued that such a pension could cost more than the current system. But on the other side there would be savings in the administration of the system. And yes some people that don’t need it would receive it but there can be mitigating adjustments made through taxation or estate planning rules to ensure that there is a reasonably level playing field for those older people with low assets.
Simplify the work bonus
The Work Bonus credit is now bordering on the incomprehensible for those who are applying for the Age Pension, those receiving it and those who are helping them. An income-free amount, coupled with a ‘bonus’ that kicks in when you start a pension, that is treated differently for two members of the same couple and that depends upon which fortnight the work takes place? Good luck with that calculation! So why not just exclude the first $11,800 (the maximum work bonus balance) of a person’s employment income from the income test so that a limited amount of employment income continues to be treated slightly differently from other income. The result would be to reduce complexity and encourage more older citizens back into the work force.
Remove the income test entirely
This is one that the National Seniors Association (NSA) has put forward. As they point out, it means that those who need money can earn as much as possible, but those with high assets will have limited access to entitlements. This suggestion also removes the need for complicated income calculations, Work Bonus confusion, deeming and ongoing mandatory reporting of changes to income. There’s a lot to like about that. Again, taxes paid on extra income earned will help ameliorate any losses to Treasury due to this change.
Does the income test concern you?
Do you find the income test aspect of Age Pension eligibility confusing? Happily our advisers are well-versed in all the rules and able to use best-practice calculators to help you to explore your entitlements and maximise them. Here’s where to book your appointment.
And here’s a previous article with a fuller explanation of how Work Bonus credits work.
And if you have any questions on how your own income is assessed, please let us know.
Budgeting is now easier since there is the ability now to have many many different accounts – and spread across different banks. Reporting to c- link is very time consuming – every account reporting change – and with the online system being so user unfriendly – most people like me just report to the office… and there a double appointment is typical – especially complicated when you have a wife who receives NO c- link payments as her assets etc will not show on asset income clink statements ! Nightmare . I feel guilty seeing so much govt time wasted. Additionally- seems very unfair that some accounts are deemed – eg a power savings account – or saving for a car … the more you save , the higher the deeming value – the lower the pension … essentially saying to pensioners – use cash and don’t save. And as a last point … if you have a few shares – speculative – non income earning – you definitely lose – the govt. is saying ..” we will reduce your pension if you invest in start up companies’… not a good message … I am selling out of such investments now … many things wrong with pension system . Deem term deposits – ok .. not small savings accounts dr cards or access accounts.
The logic behind all comments about pension entitlements are naive to the extreme and influenced by the traditional criteria perpetuated by politicians of the past.
The two obvious rules that should be in play are as follows;
1. If a person has paid their taxes over a working life they should be entittled to the pension irrespective of their wealth. (To have people getting the pension when they had not paid tax is an injustice for those that have paid their tax)
2. People who are unable to work and pay tax and have no other means of income support/survival support they should be entitled to the pension.
IN the case of the reason in 1 above the most likely outcome is that such entitlement will increase discretionary spending which will benefit the economy and everyone.
Its not that the economy cant affrd this option in 1 but it is not applied because of envy by the non contributors to the tax system against those that have.
Tax payers have no obligation to support the non tax contributors to the nation unless they are physically disabled intellectually or physically.
so a stay at home mother/grandmother who is a widow and who has not had a job should get no pension as she has paid no income tax, brilliant idea. well done
If I hold $250k in investments, will Centrelink only assess the deeming rate on this sum? Or if I choose to engage in share trading will they also be interested in income made (net of CGT)? Will this additional income impact thresholds
Hi Paul, the only income Centrelink assess any financial asset as earning is the deemed income using their formula. Dividends, interest, returns on super etc. are not assessed as income.
If the Singles Income cap is $60,400 and the deeming rate is 0.25%, how do you calculate that deemed income on $217,000.00 is $3550 p.a.?
If we(couple) have appx.$750,000 in our Super and $160,000 in our Bank savings, are we entitled to an Age pension from Centrelink ?
Our cars together would add another $25 k
Another source of confusion is income from a lodger. Given the worsening housing crisis, Centrelink and the government should have an interest in any increase in affordable housing, especially forms that target those with the smallest incomes.
I would like Centrelink to exempt rental income from lodgers on low incomes as a contribution to the housing crisis that would actually be meaningful.
Many pensioners would rent a room out to someone on a low income if it were not for the nightmare of reporting and 50% “ tax” imposed by Centrelink.
This is a big one that works against what is best for society.
If you get a few dollars from a boarder or someone living in a granny flat then you loose pension and get hit with capital gains. No wonder pensioners don’t do this.
PS. Great articles, very helpful for those of us trying to keep our heads around entitlements, keep up the great work.
Why cant we just follow NZ. All who qualify get the aged pension. If you choose to work the pension is taxed. Started as 5 year trial and has been extended because revenue exceeds expense
Very sensible approach in NZ and the workforce participation of people over 65 is about 3 times that of Australia. You only have to have lived and paid tax in NZ for 9 years to qualify.
I am a widow 70 yrs old female and unable to get pension very little income only work casual but have 2 houses 2nd one not rented just sits there for family to use how fair is that.
Copy New Zealand age pension entitlements, please
Hi team
How does Centrelink treat sums received from parents wills (say around ($50,000). ?
Hi Neville, Centrelink will treat the amount you receive as a financial asset.
As it is my case, foreign pension is also included in income test.
Excellent article and ideas. Complexity and the computer are negating the benefits of the social safety net.
Keep it all simple. A universal age pension would be fair to all older Australians. People who create wealth are being victimised/discriminated against. Tall poppy syndrome.
A bigger pie means more for all.
Age and experience are invaluable.
You never talk about struggling self-funded retires who are sinking and have been classified as such for 24 years. We are over it.
“struggling” self funded retirees have enough funds to look after themselves, surely. I know we do and at some point you start to get the pension.
I have 300k in the bank
I have 326k in super
My car is valued at 29k
I have a lodger paying$200 a week
I have 5 k in my bank account
Am I able to get a part pention and can retirement essentials process the application form as they did my commonwealth seniors health card for me
Hi Kenneth, based on those figures you would be just under the asset threshold for a single homeowner and would be eligible for a small pension. Yes we can help with processing the claim forms for you.
This is wonderful news & great reading!! I’m a single almost 67yr old female who’s going to need help with my application for an Aged Pension. About to sell my home worth approx $600,000 with not much cash flow OR Super. Unsure whether to buy again or place a Granny flat in my Daughter & Son in law’s back yard… lots to work out & think about… but would love to be able to get the Full Pension after working all my adult life, full time but now wishing to work 2 days to spend more time with my grandchildren.
I would like all pensioners to have the same assessment rights. This would include treating those who are too old to work, or who don’t want to work, or who are doing voluntary work, to have breaks on their interest income which is commensurate with the Work Test. Discriminating against those who don’t work beyond the retirement age is not fair. I would also like the government to force banks to pay us interest rates appropriate to their lending rates. I am so over being screwed by both banks and Centrelink. There is a lot of anger out in the real world that is being expressed by older women for good reasons. Discrimination against women still seems to be the order of the day.
I think it would be simpler to just tax our over 67s on the income earned like everyone else. I’m not going to employ a person that can only work one day a week because they would loose their pension. I think nz has this
Anne couldn’t agree more. I’m in my 70s and would like to work. But I can’t because of the effect on my pension if I work more than about 1 day a week. The types of jobs that would be relevant to my skills, education and experience require people who can work at least 3, preferably 4 days a week. So I’ve given up trying. I feel I still have a lot to contribute to society and would like to, but the system works against people like me. The whole pension system was created in a time when life expectancy was much lower. It’s totally out of date. Many of us have high levels of experience built up over a lifetime of work and it’s a total waste not to utilise this untapped resource. Given that there are fewer taxpayers at younger age groups to fund pensions for older age groups it doesn’t make sense to perpetuate this outmoded system.
Hi, is it possible to access age pension before reaching your pensionable age? Friend of mine says yes but at reduced rate. I do not believe that is correct.
Hi Bozena, perhaps your friend was referring to a pension through their Super Fund? You are correct though, the Age Pension is only paid once you turn Age Pension age which is 67.
A face to face consultation , is that possible and what are the costs both myself and my spouse are ready to retire
Hi Reno, our consultations are all done online as either a video or phone call. CLICK HERE to see which option best suits you.
It is interesting to see the old chestnut of the universal pension and comparison with NZ
In NZ, there is no SAPO, all income, including the pension is taxed and franking credits are not returned and a 15% GST. Superannuation contributions are fully taxed and employers contribute way less than our 11.5% here. Super income is also taxed, but unlike here.In a nutshell, as we are not taxed in a way to provide for a universal pension, most people over the age of 67 are better off here, especially as more have some Super into the future. We can forget that our super and pension system really is world class and that, some believe that we older folk should pay some tax on Super and the pension and not get franking credits. and
New Zealand had it worked out years ago – yes copy NZ and the sooner the better. They’ve already done all the calculations and it works just fine – we don’t have to reinvent the wheel.
Why is a person who works beyond 75 years of age not allowed to salary sacrifice beyond that age to their allocated pension? These days people are needing to work beyond what was considered retirement age just to survive.
It is all very confusing, not fair, and if simplified people would understand it better. To me the pension should not be taxed if you earn any extra money. Example, I am currently entitled to $841.40 per fortnight pension which is not taxed, however work one day a week and earn on average $560 per fortnight. Therefore, my earnings for a year are $21,876.40 pension and $14,560.00 work income. Total annual income $36,436.40. The major problem with all this and put simply is because no tax is payable on the pension and the earnings don’t attract tax, I end up with an annual tax bill of around $2917.82 under the new tax from 1st July 2024 as the pension is added to any earnings. Taking the $7,800 work bonus from earnings of $14560.00 gives $6,760 which I lose 50c in every dollar in reduced pension a total of $3,380.00 in reduced pension. Therefore, my extra earnings of $14560.00 cost me $6,297.82 or 43,25% of my earnings which is nearly the tax rate for earning over $190,000.00 per year. Make the pension completely tax free is the simple solution and the more you earn working the more tax you pay. The current system is a dinosaur and not working fairly.
I will be 67 next year & currently working part time (30 yours per week) & earning a net salary of $1800 per fortnight.
Will I qualify for the age Pension
Hi Mx Guillard, Centrelink assess your gross income, not net, and the current threshold (presuming you are single) is $2,444 per fortnight. There is a good chance that the threshold will increase between now and when you turn of age.
Hi James thanks for your informative article. It prompts a question. Do you, or any of your readers, know if there is any kind of parliamentary enquiry into the subject of pension eligibility?
It’s high time there was a review of the system. As a baby boomer I’m quite weary hearing how millennials think we have stolen their inheritance. However when I think about how much of Australia’s talent is closed out of the job market, thus putting a high tax burden onto younger generations, I guess I can begin to understand their complaints. (Even though it doesn’t take into account the massive intergenerational wealth transfer taking place).
Closing out people from the job market who are willing and able to work because of an artificial age cutoff and Centrelink’s arbitrary rules just doesn’t make sense no matter which way you look at it. Any suggestions as to how I might make my views known to decision makers would be appreciated.
Thank you for the compliment Kara! We are not aware of any such enquiries being made into this topic at the moment but would suggest you consider making contact with your local MP and/or Bill Shorten as he is the Minister for Government Services.
The government should be thinking ……. how can we get the most value out of our baby-boomers. Give them an incentive to work, if they can or want to. The more active they are, the less our medical expenses will be, and the more they will pay in income tax, and if they get rich, their kids will be sure to spend their inheritance, thus keeping the money circulating..
I don’t own a home and my car is eleven years old. My superannuation is a TPI pension which gives me $1600 a fortnight. I don’t have any other income. Where does this put me for a pension. Also single.
How much do you charge to do paperwork for applying for pension?
I also have$340,000 in investment account ( trying to buy a house) and $1200 in everyday account.
Hi Nina, it appears you have already completed our eligibility calculator and based on those details we believe you are eligible for a part Age Pension. If your situation has changes then you can LOGIN and update the calculator to confirm if you are still eligible or not.
I have a part pension. I am 76 years old. My wife is 14 years younger than me and plans to work until she is 67. Recently she was granted a 5% pay rise. My part pension was reduced. She paid tax on her increase. Effectively we received only 20 cents in the dollar of the increase. She now works less hours and has forgone the pay rise. She pays the max allowable in salary sacrifice. Effectively she is taxed at *80 Cents in the dollar. Millionaires pay far less.
How much superannuation can I have as income stream per fortnight without losing any of the aged pension?
Hi Sharon, there are many factors that go in to calculating how much pension you receive so we could not give you a set dollar amount. We would need to have an in-depth discussion to understand your situation in full the then advise you. Please CLICK HERE to make a booking.
Just because you have paid taxes all of your life ought not and does not have any relevance to your entitlement to the aged pension. Paying taxes is to fund government expenditure for that particular year.