Age Pension Income Test
Why an Age Pension Income Test
The Age Pension is intended to protect seniors from living in poverty because they have no resources of their own to use.
The amount of Age Pension payable is reduced from the full rate if the senior has assets or other income. The Pension Means Tests are rules for determining any reduction in your Age Pension Payment rate.
Centrelink will assess you against the Asset Test and then against the Income Test. The Means Test that reduces your Age Pension rate the most is the Means Test that will be applied. Yes, that is, the Test that hits you the hardest will be used.
The Age Pension Income Test
The Income Test allows for your Age Pension payment to be reduced by fifty cents for every one dollar of income over your Income Test Allowance.
The Income Test Allowance increased to $172. 00 per fortnight for a single Age Pensioner from July 2018.
The Age Pension payment for each member of a ‘couple at Centrelink’ is reduced by twenty five cents, $0.25, for each dollar that the total combined income of the couple exceeds the couples Income Test Allowance. The income Test Allowance for couples increased to $304.00 per fortnight from July 2018.
You must be entitled to at least one dollar per fortnight of Age Pension to remain an Age Pensioner.
Therefore, if you have substantial income then you could be excluded from the Age Pension and also be ineligible for the Pensioner Concession Card.
Assessable income for the Age Pension Income Test
At Centrelink, ‘assessable income’ has a special definition for the Age Pension Income Test.
Assessable income for the Age Pension Income Test includes most of the payments that you receive into your bank account.
But the ‘deemed financial income’ of your ‘financial assets’ is used rather than the actual interest and dividends you received.
Assessable income for the Age Pension Income Test includes the following
• Rent net of ownership expenses, that you get from leasing a property that you own anywhere in the world
• The rental and service components of any payments that you receive from ‘home stay’ boarders or lodgers in your home, excluding any from close family members
• Net earnings or profits, from any business that you operate as a sole trader or via a partnership, trust or private company
• Distributions, directors fees or dividends from a family company or private trust
• Pensions paid from Australian superannuation funds or public sector retirement benefit schemes
• Retirement benefits in respect of your time living and working overseas including compulsory national superannuation or retirement savings schemes
• Social Security pensions from other countries to which you are entitled, even if you have not claimed or started receiving your entitlements.
• Income from employment as the gross before tax amount of salary, wages, bonuses, allowances, plus additional superannuation contributions that you salary sacrificed and the grossed up value of any FBT fringe benefits.
• Regular ‘income’ type payments from insurance or compensation for loss of earnings
• Any benefits that you get in exchange for a ‘service’ you provide; and
• Any other regular payments that look like ‘income’ to Centrelink.
Assessable income for the Age Pension Income Test specifically excludes ‘reparation payments’ for Holocaust survivors.
The ‘work bonus’ provides a discount on earnings from genuine work by the Age Pensioner, for an unrelated employer.
Also some discounts are allowed for the ‘capital return’ components of annuities and superannuation pensions.
The Income Test impact on a single senior
Sally has about $30,000 of financial assets generating a deemed income of $20 per fortnight, $520 per year. Sally has no other income so she is well below the single person’s Income Allowance of $172 per fortnight. Therefore the Income Test does not impact her.
Sally then starts working one day per week in her sister’s cake shop. Sally is paid $420 per fortnight for her work which she reports to Centrelink. Sally now has a total assessable income of $440 per fortnight.
Centrelink inform Sally that under the Income Test her Age Pension will be reduced by $134 per fortnight.
Her total fortnightly assessable income is $440 but her fortnightly Income Allowance is only $172.
Thus Sally’s assessable income exceeds the Income Allowance by $268 per fortnight, $440 less $172.
Hence her Income Test reduction is calculated as 50% of $268, that is, $134 per fortnight.
Sally is happy because she enjoys helping her sister and meeting the customers in the cake shop.
In addition, Sally is ahead by about $280 per fortnight.
Income Test impact on a senior couple.
Firstly, consider a couple who have both fully retired from work and hold only financial assets and personal items.
Mike and Mary have substantial ‘financial assets’ that generate a ‘deemed financial income’ of $760 per fortnight.
As they have no other sources of ‘income’ their ‘assessable income’ is $760 per fortnight.
The income Test Allowance for couples increased to $304.00 per fortnight from July 2018.
Thus Mike and Mary have an ‘excess income’ of $760 less $304, that is, $456 per fortnight.
The Income Test reduces the combined Age Pension entitlements of Mike and Mary by 50% of their ‘excess income’, that is, by $228 per fortnight for the couple.
Centrelink check that the Income Test would yield a bigger reduction than the Asset Test for Mike and Mary.
So Centrelink apply the Income Test reduction by cutting each of Mike and Mary’s Age Pension rates by $114 per fortnight.
As a couple living together Mike and Mary get the same amounts of Age Pension paid into their individual bank accounts each fortnight.
Secondly consider another couple are not yet ready to quietly retire.
Eric and Emma have many sources of income but they would still like to qualify for the Pensioner Concession Card.
Currently Eric runs his own business that generates $39,000 per year of ‘profits’.
Centrelink accept the $39,000 of ‘assessable income’ shown in the tax return prepared by Eric’s accountant and count it as $1,500 per fortnight spread across the next year.
Emma is a retired teacher with a public sector superannuation pension of $1,000 per fortnight.
Centrelink assess their ‘deemed income from financial assets’ as $13,000 per year, $500 per fortnight.
Thus the combined total ‘assessable income’ for Eric and Emma is $3,000 per fortnight.
The Age Pension Income Allowance for a couple is $304 per fortnight.
Thus the Income Test would reduce the Age Pension payments of Eric and Emma by a combined $1,348 per fortnight, $674 each per fortnight.
But the maximum Age Pension for each member of a couple is less than $674 per fortnight so Eric and Emma are excluded from the Age Pension by the Income Test in July 2018.
Later Eric stops working and sells the business.
The extra money from the business sale pushes their ‘deemed income from financial assets’ up to $18,200 per year, $700 per fortnight.
Eric and Emma now have a total combined ‘Age Pension assessable income’ of $1,700 per fortnight.
The Income Test would then reduce each of their fortnightly Age Pensions by $349.00.
This reduction is calculated as one quarter of the ‘excess income’ amount for each member of the couple.
The ‘excess income’ is the total combined ‘assessable income’ of $1,700 less the Income Allowance for a couple, of $304 per fortnight.
That is a combined reduction of 50% of ($1,700 -$304) that is, 50% of $1,396 or $698, split as $349 each per fortnight.
Centrelink also check Eric and Emma’s position against the Asset Test before granting them part Age Pensions.
Emma is now happy to have some Age Pension and the Pensioner Concession Card.
Annual adjustments to Income Test Allowances
The Age Pension Income Test Allowances are reviewed each year. A small increase in the Age Pension Income Test Allowances is usually applied each July. The last increase in the Age Pension Income Test Allowances for couples and singles was by four dollars per fortnight effective from July 2018.
Help to understand how your situation fits in the Age Pension system.
Christine at Financial Care Services writes this Age Pension Guide. She can help you to understand your Age Pension situation.
Ask Christine to help you navigate your Age Pension challenge.
Contact Christine at Christine@financialcareservices.com.au or call 03 9808 0338 to book a consultation.
Christine at Financial Care Services is experienced with Pension Applications and the many Centrelink financial means tests.
Financial Care Services helps seniors with Centrelink Pension issues. Christine at Financial Care Services could help you check if you are eligible for an Age Pension.
An estimate of your potential Age Pension amount before you apply could spare you a rejection letter from Centrelink.
Financial Care Services offers ‘personal financial factual information’ consultations to help you check your asset and income position against the Centrelink Pension means tests. Christine is also able to assist with filling in your Centrelink forms ready for you to sign. She will accompany you to a Centrelink office to lodge your Pension claim form and show your proof of identity documents.
Financial Care Services charges hourly rate fees for ‘personal financial factual information’ consultations, assistance with personal data collation, completing Centrelink forms and attendance at a Centrelink office with you. Email Christine@financialcareservices.com.au now for the Financial Care Services Client Services Guide and Financial Care Services Age Pension Personal Data Checklist.
Disclaimer This Age Pension Guide is based on our understanding of the current Social Security provisions. Your claim for a Social Security Pension will be based on your personal situation as documented to Centrelink and the Social Security legislation and Regulations in force at that date.
Updated 12 July 2018
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