When is an asset treated as income?
And when isn’t it?
Australia’s Age Pension is a main source of income for 70% of retirees. Of those who are eligible, nearly 60% are on the full Age Pension. As they reach their 80s, 80% are on the Age Pension. We call this the 80/80 rule.
Eligibility rests on two main factors; your income and your assets. So it’s vital that you understand which is which and how they are defined and measured.
It’s also fair to say that these rules are less than clear for many retirees who try to understand how their income is assessed.
We’ve done this work with some ‘simple sums’ for Sarah who asked us for help with how to define income on her Centrelink application.
She was about to enter higher income than she needed to – which could have lost her nearly $2000 per year in pension entitlements. Sarah’s sums were technically accurate, but not what Centrelink requires.
How does this work?
Sarah is 72 and is planning on leaving her full time role as a florist. She believes she could manage well if awarded the full Age Pension. This is her first attempt at a Centrelink application.
You can see her assets listed in the table below.
Her home is exempt from any Centrelink assessment.
The assets that are assets only (i.e. not deemed to earn her any income) are her household contents ($10,000) and her car ($22,000). They count toward the assets test but not the income one.
The assets that are of interest to Centrelink are those described in the table below as financial. In Sarah’s case, as she has no super, this refers to her cash account ($15,000) and her 12-month term deposit ($250,000). Sarah checked the performance of both these investments and therefore planned to report the total of $8525 on her application as income.
This would have been incorrect and would have reduced her Age Pension entitlement.
Centrelink does not require actual investment performance from you.
What it does need are the correct amounts listed as assets.
As the table demonstrates, Centrelink will then deem that the first $56400 (for a single) has earned a .25% return and any amount above this (in Sarah’s case $208,600) has returned 2.25%.
Had Sarah’s actual income of $8525 been assessed, her pension entitlement would have been $958 per fortnight or $24,897 per annum.
Instead, now that she has entered these assets in the correct fields, Centrelink will automatically deem the return to be $4834.50 and so her full entitlement of $1027 per fortnight or $26,689 per year can be achieved.
A word on deeming rates
For many years those on the Age Pension felt they were treated unfavourably as, when interest rates were at their lowest, they earned much less than Centrelink ‘deemed’ they did. This situation is changing, firstly because interest rates are rising quite quickly. Secondly, because the Albanese Government has honoured an election promise to freeze deeming rates until June 30 2024 – despite the increase in returns as a result of high interest rates for savers. We reported on this change earlier in the year, so you can read more here.
Simple sums for Sarah:
| Financial Asset | Balance | Actual earning Rate | Actual income | Impact on Age Pension |
| Cash account | $15,000 | 1% | $150 | |
| Term Deposit | $250,000 | 3.35% | $8,375 | |
| Total | $265,000 | $8,525 | -$1,792 | |
| Deeming on Financial assets | Deeming Rate | Deemed income | ||
| First $56,400 | 0.25% | $141.00 | ||
| Remaining $208,600 | 2.25% | $4,693.50 | ||
| Total | $4,834.50 | $0 |
We trust that this straightforward calculation has been helpful by allowing you to better understand how an asset can be ‘deemed’ by Centrelink to return income, and how such a return is viewed in your overall assessment.
You are encouraged to view your own income and assets evaluation by using the Retirement Essentials Age Pension Entitlements Calculator.
And if your assets and income scenario is a little more complex, our experienced advisers can also step you through the higher level rules in a one-on-one advice consultation.
I understand that the aged pension is based on taxable income and deeming on assets. The Sarah example you quoted is misleading as the income she receives on her bank accounts is declarable on her income tax return and is regarded as taxable income if she exceeds the $18200 threshold. She would have to declare her taxable income and her assets (bank deposits) which would be subject to deeming. A double dip.
For instance if she has $500000 in assets or shares earning 5% interest then the dividends/bank interest of $25000pa would be declarable as income as well as the deemed value of the investment, substantially reducing the pension,
Hi Peter, thank you for keeping us honest and querying the accuracy of the article. Centrelink do not assess you income for Age Pension based specifically on taxable income as you have suggested though. Centrelink will look at many various income sources such as gross employment income, foreign pensions, defined benefits and deemed income from financial assets (amongst others) to determine your income for Age Pension purposes.
Self funded retirees are victimised. In order for a couple with a house to get equivalent to the aged pension they would need to have about $1.6 million in capital. At safe interest rates. I am 75 and if I had my time over again I would have bought say a house worth over $2 million and get the aged pension !!
I am 76 and married. I retired at 74 after working for almost 60years. For 20 years I worked 2 jobs and paid tax on both.
I cannot even get a part pension.
I have $50,000 in super which will not last long. My wife is currently still working and earns $120,000pa (not a lot in today’s environment). We have a small mortgage on our home.
The fact my wife is still working is the reason I am ineligible for any form of pension. I believe this is totally unfair particularly when you consider a couple earning up to $503,000 are eligible for childcare support???? How is this fair? I’ve had my whinge.