How does the income test work?

Last week we defined the Assets Test and rules which are applied to your assets for Age Pension entitlement.

This week we look more closely at the Income Test, one of the three aspects by which an Age Pension entitlement will be assessed.

Put simply, Centrelink defines income as your total earnings across a range of sources which include (but are not confined to) the following:

  • *Financial investments (including shares, term deposits, managed funds)
  • *Income on super fund balances
  • *Income stream earnings (often from account-based pensions)
  • Wages or salary earnings
  • Rental income
  • Sole trader or partnership income
  • Dividends or distributions from private trusts or private companies
  • Overseas earnings (this includes non-Australian pensions)

Centrelink views the above income earned in one of two ways – either deemed or non-deemed. The items which are deemed are marked with an asterisk(*).

Income is ‘deemed’ by applying the current Centrelink deeming rate. These rates are 0.25% on financial assets up to $53,600 (for singles), $89,000 (for couples) and 2.25% for financial assets above these amounts.

You may actually earn more or less than this deemed amount. But that is of no concern to Centrelink – it is the deemed amount that is assessed as part of your pension entitlement.

What are the thresholds?

To be eligible for a full Age Pension:

  • Singles are entitled to a full age pension if their income is equal to or less than  $180 per fortnight or $4680 per year
  • Couples are entitled to a full age pension if their income is equal to or less than $320 per fortnight or $8320 per year

For every $1 your income over these limits your pension will reduce by $0.50 until it cuts out. This does not include the application of the Pension Work Bonus which is explained separately in the Jargonbuster.

Upper income limits

Singles will no longer receive any Pension if their income exceeds $2,115 per fortnight, or $54,990 per year

Couples will no longer receive any Pension if their income exceeds $3,237.20 per fortnight, or $84,167 per year

The devil is in the detail

Apart from needing to meet residency requirements, the income test is one of two tests you need to meet in order to receive a full or part Age Pension. Centrelink looks at both aspects of your financial situation (Income and assets) and the lower entitlement is the one which determines your Age Pension eligibility and amount. So if you have high assets, but income well below the threshold, the assets test will apply. If you have assets within the threshold, but income that means a reduced or no pension, then this outcome will be the one that counts.

Commonwealth Seniors Health Card (CSHC)

Should you not qualify for an Age Pension, you may still qualify for a Commonwealth Seniors Health Card (CSHC). The rules are different for the CSHC. Only your income is assessed. The threshold is higher. And deeming rates only apply to money in an income stream, not your super balance. With financial investments, deeming does not apply – income reported in your tax return is the guiding factor.

It’s complicated

As Jeremy Duffield points out in his recent article “Are we the luck country?” it is a complicated system and there is nothing easy or necessarily intuitive about applying both the assets and income rules to your financial assets and earnings, particularly when some assets are deemed and others are not. That is why Retirement Essentials offers an easy and efficient free eligibility calculator which takes into account all the Age Pension and CSHC rules and is always completely up to date on any changes to pension rates, deeming rates and income and asset thresholds.

You can access this free calculator at any time – and even if you already receive a full or part Age Pension, you can recheck your entitlements as often as you like, as the value of your assets either depreciates or increases and your income fluctuates.

And if you need extra support on either Age Pension rules and entitlement you can book a consultation with our customer service team. Or for more complex financial concerns, you can book an appointment with our experienced financial advisers.

Check Your Entitlements