centrelink income limit

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 thanYou 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.