Means testing just got simpler:
Here’s how it works
The application of the Age Pension means test to your income or assets means the difference between a higher or lower pension payment – or whether you receive one at all. We know the very term ‘taper rates’ is off-putting, so today we explain how your entitlements may change according to these very important rates.
Two-part means test.
There are two components to means testing. These are:
- The ‘free’ area, which means that people can have certain levels of income or assets without affecting their Age Pension rate.
- The ‘taper’ rate, which progressively reduces the Age Pension payments for people with higher levels of assessable means. The taper rate is usually associated with the assets test but there is also a tapering associated with the income test.
Let’s consider each of these aspects of eligibility. There is also a link to the current (20 March 2023) thresholds at the end of this article.
Income test free area
The maximum amount of assessable income a person can receive before their payment is reduced. A person with assessable income of less than or equal to the free area amount will be eligible for the maximum rate of the payment under the income test.
Income test cut-off value
The maximum amount of assessable income a person can receive before they become ineligible for the payment. A person with assessable income above the cut-off value will be ineligible for the payment under the income test.
Income test taper rate
Your pension payment will be reduced by $0.50 for every $1 that your income exceeds the test free area (minimum threshold). This does not include the Work Bonus.
Assets test free area
The maximum amount of assessable assets you may have before your pension entitlement is reduced.
Assets test cut-off value
The maximum amount of assessable assets a person can hold before they are ineligible for the payment. A person who holds assessable assets above the cut-off value will be ineligible for the payment under the assets test.
Assets test taper rate
The amount a person’s payment is reduced due to holding assessable assets above the assets test free area. Since 2017, the Age Pension taper rate reduces payments by $3 a fortnight for every $1,000 of assets above the assets test free area.
These are the rules, but it’s far easier to see how they work in practice.
How the taper rate (assets) reduces Eloise’s payments
Eloise is a 69 year-old single homeowner.
She earns no wages or salary, and her income which is deemed on assets of $331,250 is far below the income threshold.
So her Age Pension entitlement is assessed on the basis of her assets.
The full Age Pension assets threshold is $301,750 for single homeowners.
Because Eloise is $29,500 over the threshold, a taper rate of $3 per fortnight, per $1000 in excess of the threshold, means that her pension will be reduced by $3 x 29.5, or $88.50 per fortnight ($2301 per annum).
How the taper rate (income) reduces Sue and Ian’s payments
Sue and Ian are both 70 years old and although they no longer work, they do still each receive income from their United Kingdom pensions.
Their combined assets are under the threshold as home-owners, so their Age Pension entitlement is assessed based on their income.
The maximum they can earn as a couple each year before their pension is reduced is $9,360 but their United Kingdom pensions combine for a total of AUD $80,000
This means that a taper rate of 50c per $1 will be applied to the $70,640 in excess of the threshold resulting in a reduction to Fred and Wilma’s pension of $35,320 per annum ($1,358 per fortnight). In other words, they will receive a combined pension payment of $295 per fortnight or $7,658 per annum
As always, there can be exceptions to the rules. It is worth checking exempt assets if you have annuities or lifetime income streams (they can be partially exempt) as well as a main residence held after a move to a care facility.
Here are the current income and assets thresholds
If you would like more support to better understand how the taper rate works in your particular situation we are happy to offer tailored consultations for out experienced advisers to step you through the detail
Or you can check your current entitlements by clicking below.
My husband was suffered massive head injuries in 2019at age 64. He is currently in a care facility but coming home this year. I have just started our pension applications. Apparently I have to do mine first. We have no income, except my UK pension of $300 per month. We have about $160k in the bank which is from a compensation payment in 2020. We own our home an there is about $200k in my husband’s super. Will I qualify for a pension, will my husband? Or will my husband receive a disability pension?
Hi Barbara, sorry to hear of your husband’s injury. It looks like you have already started filling in our website which will confirm what you are entitled to upon completion. You can either LOGIN to pick up where you left off and finish it yourself or if you would like help completing everything CLICK HERE to book in a phone application where we will call you and review everything together.
We are both now on a very low pension. Due to my fathers recent death, I will inherit half of his unit which needs to be sold when we are in a position to. Do I tell Centrelink when the title comes thru or when it is sold. If I tell them when title comes thru how do I put a value on the unit?
Hi Sue, I’m sorry to hear of your Father’s passing, my condolences on your loss. You should notify Centrelink of the change in asset position as soon as it is in your name. The way to notify Centrelink is by completing a Real Estate Details form (MOD R) which you can get from Centrelink HERE.
how does an inherence effect the aged pension?
Hi Michael, thank you for your question! Generally speaking an inheritance is a lump sum of cash in which case this would mean the value of your assets would increase by the amount received and therefore could mean a reduction in your Age Pension. There are various factors though such as whether you are under the minimum asset threshold even with the inheritance and are Centrelink using your income to calculate your pension which need to be taken into account as to whether there will be any impact and if so how much.
Thank you for this report. I am the administrator for my sister in aged care and I am endeavoring to learn the rules. I find it very difficult dealing with/contacting Centrelink
In 1999 (aged 46years) I suffered a stroke,returning to work in 2000. I was only able to work until 2001, when to changes in my work place, I had to re-apply for my position but was unsuccessful. I applied for a disability support payment and received one until I attained the required age for aged pension in 2021.During that time I was on a reduced payment Because my wife is still working . She has another 3-4years to go before retirementas we still have a mgte of $225,000. During tht last 20years I reported to centrelink fortnightly as required and on a number of occasions spent time with centrelink fixing their mis-stakes.
Not having any super when going to an aged pension. I asked centrelink for a long service payment,super, (accordingly to Aust .Industry Super for those 20 years $243K to $500K.With out success.They said that we did not work for centerlink?
Can you explain how Means Testing got simpler? How was it more complex before?
Regardless of that, I don’t think your article explains the important issue that both income and asset tests are calculated and then only the one that reduces the pension the most is applied. This may still result in the maximum being paid if both tests are under their respective thresholds.
Also, although this is semantics, my understanding is that everyone is either eligible or not eligible based on legislated qualifying criteria. If eligible, then the means test is designed to calculate their payability.
Hi Andrew thank you for your contribution! Our article was designed to make means testing simpler by explaining how it works for those who were previously unaware. You are correct that this particular article does not go into detail regarding how Centrelink assess either income or assets depending on which equates to a lower pension however this was deliberate to keep the focus on the one topic. We definitely are aware of this and have explained it on other articles.