Having more than one income stream can 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.
The Government Age Pension basics
When you reach retirement age, you may apply to Centrelink to receive the Government Age Pension. Whether you’re eligible depends on:
- How much income you get (the income test)
- How much your assets are worth (the assets test)
- Your residency status.
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. Income can come from a variety of sources, such as investments and interest on savings. When it comes to the Age Pension, your combined income has to be under a certain limit for you to be eligible for payments.
To assess your Age Pension eligibility in relation to the income test, the government looks at your total earnings across all 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 you earn before affecting your Age Pension payments?
You’re allowed to earn a certain level of income before your pension is reduced or cancelled.
To receive the maximum Age Pension payment, your fortnightly income needs to be under $180 if you’re single. Or, under $320 a fortnight if you’re in a couple that lives together, or apart due to ill health.
For every dollar you earn over this limit, your pension will reduce by 50c for a single person, and 50c per couple.
If you earn over a certain amount in a fortnight (known as the ‘cut off point’), you won’t be eligible to receive any payments.
Age Pension cut off points
|IF YOU’RE:||YOUR FORTNIGHTLY
INCOME CUT OFF POINT IS:
|A couple, living together||$3,192.40 (combined)|
|A couple, living apart due to ill health||$4,130.80 (combined)|
Your Age Pension cut off point will be higher if you get the Work Bonus. This is an incentive designed to encourage you to keep working while receiving the Age Pension. All payments may be lower if you don’t live in Australia.READ MORE: AM I ELIGIBLE FOR THE GOVERNMENT AGE PENSION?
What does the income test look at?
The income test looks at all income sources. This includes employment income – wages you might earn from working – or money you might receive from businesses you own. It also looks at investment income. This includes your super and income created from financial assets, such as savings accounts, managed investments, and shares.
Income sources exempt from the test include:
- Rental assistance payments
- Child support
- Emergency relief payments
- Regular payments from a close relative.
For more details on each of these, as well as a complete list of all the assets exempt and considered under the test, visit the Services Australia website.
How is income from your 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 your financial investments are earning a certain amount of income, rather than considering 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.
|Deeming rate||Lower rate 0.25%||Upper rate 2.25%|
|For singles||On the first $53,600 of your assets||On any additional investments over $53,600|
|For couples – where one person receives a pension already||On the first $89,000 of your assets||On any additional investments over $89,000|
|For couples – where neither person receives a pension already||On the first $44,500 of each of your own and any shared financial assets.||On any additional investments over $43,100|
How do you work out your 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 $53,600 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 $63,800 in investments. The Age Pension income test will deem that your first $53,600 in investments will earn an income of 0.25% of the investment value, and your $10,000 in investments over the $53,600 mark will earn 2.25% of the investment value.
So, to work out the deemed income of your investments, you need to multiply the value of your investments by the relevant deeming rate.
Can you work and still receive the Age Pension?
If you’d like to keep working once you reach retirement age, there’s a government incentive to encourage you to do so. It’s called the Work Bonus.
Under the Work Bonus, you can earn up to $300 of employment income a fortnight – or $7,800 a year – without reducing your pension. The $300 is on top of the money you can earn each fortnight ($180 if you’re single, or $320 if you’re in a couple) before affecting your Age Pension payments.
Getting the Work Bonus could mean you have extra income to top-up your pension, so you mightn’t need to dip into your super until later. The Work Bonus will also apply to the self-employed earning through ‘active participation’.
For more details on the Work Bonus, visit the Services Australia website.
Drawing payments from both super and the Age Pension
You may be able to use your super to top up any Age Pension payments you’re entitled to by setting up an account based pension. AustralianSuper’s account based pension is called Choice Income. 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*. 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.
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. 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.