What is the income test for the Government Age Pension?

9 February 2023 

Generating income during your retirement might help you lead your ideal life. But it’s important to know that if your income is over a certain amount, you may not be eligible to receive the Government Age Pension. The government will perform what’s called an income test to assess whether you can receive a full or part pension during retirement.

For many Australians, measuring income isn’t as simple as looking at a monthly pay slip. Income can come from a variety of sources, such as investments and interest on savings. The government will look at all your income sources when assessing whether you’re eligible for the Age Pension. There’s also a limit on how much income you can earn before your pension is cancelled or reduced. Knowing what to expect from the Government Age Pension income test can help you plan for your retirement with more confidence. 

Understanding the Government Age Pension income test

Once you’ve reached Age Pension age, you may apply to Centrelink to receive the Government Age Pension. This regular payment helps people meet their basic needs during retirement. It’s sometimes referred to as a ‘safety net’. 

Whether you’re eligible for pension payments depends on your residency status, as well as: 

• how much income you get (the income test) and
• how much your assets are worth (the assets test).

These tests also determine how much you’re paid. The test that results in the lower pension rate will be the one applied to your personal situation.  

What the income test is and who it’s for 

The government uses the income test to determine if you’re eligible for the pension, and how much your pension payments will be. They do this by looking at you and your partner’s total income across all sources, and your total asset value.  

The income test is for people applying for:  

• the Government Age Pension 
• a Carer Payment 
• a Disability Support Pension.  

For the income test, if you earn income through employment, you’ll need to report your gross (before-tax) income. If you own a business or rental property you may need to provide a profit and loss statement, and an income tax return. 

How income affects your Age Pension payments

You can 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 $190 if you’re single. Combined income must be under $336 a fortnight if you’re in a couple that lives together, or apart due to ill health¹.  

For every dollar you earn over this limit, your pension will reduce by 50c for a single person, or 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

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. 

What the Age Pension income test looks 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. 
• Investment income – Your super and income created from financial assets, such as savings accounts, managed investments, and shares. 

Income earned from overseas, directors fees, Paid Parental Leave payments, and certain scholarship amounts are all included in your income test. 

Exempt income

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 the government assesses your income from your assets

To assess the income from your financial assets, the Age Pension income test uses a set of rules known as ‘deeming’. It assumes how much your assets earn, no matter how much they actually earn.  

The government determines your ‘deemed income’ using the deeming rate, which can vary if you’re single, or in a couple.  

Deeming is part of the income test and may affect your eligibility for the Age Pension.  Learn more about deeming on the Services Australia website.  

Employment and 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 ($190 if you’re single, or $336 if you’re in a couple) before affecting your Age Pension payments. 

You can build up any unused amount of your $300 fortnightly bonus in an ‘income bank’, up to a maximum of $7,800. This can then be used to exempt future earnings from the pension test, whether it be from regular work or working on a temporary or short-term basis, such as seasonal or casual work. 

Until 31 December 2023, eligible age pensioners will also have $4,000 credited to their Work Bonus Income Bank balance. This will take the maximum Work Bonus balance from $7,800 to $11,800. 

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’ – that is, work that involves effort.  

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 benefit of compound interest, it could make a big difference to your lifestyle in retirement.

FIND OUT MORE: SUPER AND THE AGE PENSION

Get help for planning your retirement 

If you’re planning for retirement, or have retired, you’ll know that managing your financial entitlements can be complex. 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 adviser². 

FIND AN ADVISOR

References:
1. Figures correct as of 1 January 2023 servicesaustralia.gov.au
2. Personal financial product advice is provided under the Australian Financial Services Licence held by a third party and not by AustralianSuper Pty Ltd. Fees may apply