Having more than one income stream can really help you make the most out of retirement. But there are limits to how much you can earn before your Age Pension eligibility and entitlements are affected. When assessing your income, the government performs what’s called an income test.
This article is part of a series exploring the Government Age Pension.
You may also like to read:
- Am I eligible for the Government Age Pension?
- What is the assets test for the Government Age Pension?
The Government Age Pension assets test basics
When you reach retirement age, you may apply to Centrelink to receive the Government Age Pension. Your eligibility is determined by taking into account how much your assets are worth (the assets test) and how much income you get (the income test). The test that results in the lower pension rate will be the one applied to your personal situation.
What is the income test?
For many Australians, measuring income isn’t as simple as just looking at a monthly pay slip, as income can come from a variety of sources. And your combined income has to be under a certain limit for you to be eligible for Age Pension payments.
To assess your Age Pension eligibility in relation to the income test, the government will look at your total earnings across all of your income streams. This total income value (along with your total asset value) will determine if you’re eligible for the pension, and how much your pension payments will be.
How much income can I earn before affecting my Age Pension Payments?
To receive the maximum rate of Age Pension payment, your fortnightly income needs to be under $174 if you’re single, or under $308 a fortnight if you’re in a couple.
For every dollar of income you earn over this limit, your pension will reduce by 50c for a single person, and 50c per couple. There’s also a maximum amount of income you can earn. If your income exceeds this limit, you won’t be able to get the Age Pension.
READ MORE: AM I ELIGIBLE FOR THE GOVERNMENT AGE PENSION?
What does the income test look at?
The Age Pension income test considers all of your income streams, including employment income – wages you might earn from working - and money you might receive from businesses you own. But it also looks at investment income – your super and income created from financial assets like savings accounts, managed investments and shares.
Income sources exempt from the test include rental assistance payments, child support, emergency relief payments and regular payments from a close relative.
For more details on each of these assets and their impact, as well as a complete list of all the assets considered and exempt under the test, visit The Department of Human Services website.
How is income from my investments tested?
To assess the income from your investments, the Age Pension income test uses a set of rules known as ‘deeming’.
Deeming works by assuming that your financial investments are earning a certain amount of income, rather than taking into account what they’re actually earning. The rate your investments are deemed to be earning is set by the government, and is known as the deeming rate.
COVID-19 DEEMING RATE CHANGES As of 1 May 2020, the Government has reduced the upper social security deeming rate to 2.25 per cent and the lower deeming rate to 0.25 per cent. The reductions are part of the Government response to COVID-19, and reflect the low interest rate environment and its impact on the income from savings. This may benefit members who receive the Age Pension. For details visit the Treasury website treasury.gov.au/coronavirus/households/retirees
You can read more about deeming on the Department of Human Services website.
Deeming rates are set by the Minister for Social Services. The table below shows the deeming rates as of 1 May, 2020.
|Deeming rate||Lower rate -0.25%||Upper rate 2.25%|
|For singles||On the first $51,800 of your assets||On any additional investments over $51,800|
|For couples – where one person receives a pension already||On the first $86,200 of your combined financial investments.||On any additional investments over $86,200|
|For couples – where neither person receives a pension already||On the first $43,100 of each of your own and any shared financial assets.||On any additional investments over $43,100|
How do I work out my deeming rate?
To explain further how deeming works, let’s use the figures in the chart above as an example. If you’re single and own up to $51,800 in investments, the income test will assume (deem) that your assets will earn an income of 0.25% of your investment value.
Or, let’s say you’re single and own $61,800 in investments. The Age Pension income test will deem that your first $51,800 in investments will earn an income of 0.25% of the investment value, and your $10,000 in investments over the $51,800 mark will earn 2.25% of the investment value.
So, to work out the deemed income of your investments, you just need to multiply the value of your investments by the relevant deeming rate.
Can I work and still receive the Age Pension?
If you’re keen to keep working once you reach retirement age, there are allowances due to what’s known as the Work Bonus. The Work Bonus is a government incentive that allows you to earn up to $300 of employment income a fortnight (or a maximum of $7,800 per year) that is not included in the Age Pension income test.1 That’s on top of the money you can earn each fortnight ($174 if you’re single, or $308 if you’re in a couple) before the income test reduces your payments.
The Work Bonus can allow you to work part-time without your pension being affected. Plus, if you use the extra income to top-up your pension, you might not have to dip into your super until later on. The Work Bonus will also apply to the self-employed earning through ‘active participation’.
Drawing payments from both super and the Age Pension
You may be able to draw payments from your super to top up any pension payments you’re entitled to, by setting up an account-based pension for your super. Our account based pension is called Choice Income, and it can help you turn your super savings into a regular income stream.
The benefit of opening an account based pension (as opposed to withdrawing your super as a lump sum) is that your money stays invested with your super fund, which could help your super grow until you need it*. And when you consider the long term performance of what’s known as compound interest, it could make a big difference to your lifestyle in retirement.FIND OUT MORE: SUPER AND THE AGE PENSION
Help planning your retirement
If you’re planning for retirement, or have retired, you’ll know it’s a complex space. Speaking to your super fund for general advice, or an accredited adviser for personal advice, can help.
For personal advice, connect with one of our team members who can put you in touch with an accredited financial adviser.
1. Figures correct as of 26 July 2020 humanservices.gov.au
This information is general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.
Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.