Income test made easy: How Centrelink assesses your earnings
How much can you earn and still qualify for an Age Pension?
Most pre-retirees and retirees would quite reasonably expect this question to be answerable in one sentence, or maybe two, to allow for single and couple circumstances.
But no, there’s way more to it than that. Income is viewed in three different ways for Age Pension entitlement and with recent changes to the Work Bonus, such assessments can be difficult to understand in your own particular circumstances.
Today we simplify the income assessment process with thanks to Steven Sadler, Head of the Retirement Essentials Customer Services Team. Steven is frontline for queries about eligibility and so knows how the rules work. And how to explain them in plain English. He suggested we break down our explanation into two vital, consecutive steps.
Income assessment, Part One – thresholds
For anyone to receive an Age Pension, they will need to pass two out of two Centrelink tests; an income test and an assets test. To pass and at least get some Age Pension, you need to come in under the current upper limits in the thresholds. These are:
Income thresholds upper limits
- Single 58,318 per annum
- Couple $89,211 per annum
More detail can be found here.
Asset thresholds upper limits
- Single Homeowner $622,250
- Single Non Homeowner $846,750,
- Couple Homeowner $935,000
- Couple Non Homeowner $1,159,500,
More detail can be found here.
Just to repeat the rule, you need to come in under both the income and the assets thresholds, or, as Steven puts it, ‘No ifs, buts or maybes’.
If you do pass both tests, you will qualify for at least some Age Pension, which leads us to the second part of income assessment.
Once qualified, how is income assessed?
The income you earn is next assessed in order to ascertain the amount of pension you will receive. There are two main components to this income assessment:
- Income from ‘exertion’ (work, employment, effort)
- Income which is ‘deemed’ to have been earned from certain assets
It is the work income (earned from ‘exertion’) to which the Work Bonus will be applied. You do not have to do this calculation. Once your Centrelink application is approved, a credit (or ‘bonus’) of $11,800 will be set against your earnings before your rate of Age Pension payments can be affected.
But conversely, in your application, you cannot use the $11,800 to ‘reduce’ your income in order to report lower than the threshold. It is only after you have achieved Age Pension status that such a credit comes into play.
Here’s a quick example:
Jennifer has found out she is entitled to a full Age Pension as she is under assets test thresholds and also the income threshold as she earns just $180 per fortnight babysitting. This is below the threshold of $4940 per annum for full Age Pension entitlement.
After receiving her Age Pension entitlement, she is offered extra work, which will pay $200 per fortnight, or $5200 extra a year. When added to her existing babysitting income, this will total $10,140.
Her assessment allows for $4940 earnings, and then a Work Bonus of $11,800 will be set against the remaining $4940, meaning she has retained her full Age Pension entitlement, and has $6860 remaining in a Work Bonus credit which can be used as needed over coming years.
In this example, Jennifer has no assets, so cannot be ‘deemed’ to earn such income. Those with assets which do need to be deemed will have to factor in these amounts, alongside their actual work or ‘exertion’ income.
It’s really important to understand the full implications of income earned from work, as it is easy to exceed thresholds if you are unsure of what they are or how different income is assessed.
One more thing:
The current Work Bonus which is $11,800 p/a will return to the base rate of $7800 p/a as of January 1, 2024.
If you would like further support with Age Pension entitlements, help is at hand in the form of tailored consultations.
Our Age Pension eligibility calculator takes the work bonus into account by first assessing your eligibility and then if you are eligible it will automatically apply the work bonus to assess the amount of your entitlement. You can check your entitlements below.