15 August 2023
Generating income during your retirement might help you lead a better life in retirement. But it’s important to consider how it will affect your eligibility for the Age Pension, as well as the amount of pension you may receive. The government performs what’s called an ‘income test’ to assess whether you can receive a full or part pension during retirement. Understanding what to expect from this test can help you plan for your retirement with more confidence.
Measuring income may not be as simple as looking at a monthly pay slip. Your income may come from a variety of sources, such as investments and interest on savings. The government will look at all of these as part of the income test.
Understanding the Government Age Pension income test
Once you’ve reached Age Pension age, you may apply to Centrelink to see if you’re eligible. This regular payment can help people meet their basic needs during retirement. It’s sometimes referred to as a ‘safety net’.
Apart from your age, your eligibility also 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).
The income and assets tests also help determine how much Age Pension you may be paid. The test that results in the lower pension rate is the one that’s applied to your situation.
The income test
In performing the income test, the government looks at your total income across all sources. If you have a partner, their income will be assessed jointly with yours. Income sources may include:
- Employment – wages, or money received from a business you own
- Financial assets – super, and income from sources such as savings accounts, managed investments and shares
- Other – income earned from overseas, director’s fees, Paid Parental Leave payments, and certain scholarship amounts.
If you earn employment income, you’ll need to report your gross (before-tax) income to the government as part of the income test. 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
To receive the maximum Age Pension payment, your fortnightly income needs to be below $204 if you’re single. Your combined income must be under $360 a fortnight if you’re in a couple who live together, or apart due to ill health1.
For every dollar you earn over this limit, your fortnightly pension will be reduced by 50c for a single person or couple.
If your income goes over the cut-off point, you won’t be eligible to receive any payment that fortnight.
Age Pension cut-off points
| IF YOU’RE: | YOUR FORTNIGHTLY INCOME CUT OFF POINT IS: |
|---|---|
| Single | $2,332 |
| A couple, living together | $3,568 (combined) |
| A couple, living apart due to ill health | $4,616 (combined) |
It is worth noting that your Age Pension cut-off point may be higher if you get the Work Bonus. You can find out more about that below. All payments may be lower if you don’t live in Australia.
READ MORE: AM I ELIGIBLE FOR THE GOVERNMENT AGE PENSION?
Exempt income
Income sources that are exempt from the income test include:
- rent assistance
- 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 assets exempt and considered under the test, visit the Services Australia website.
How the government assesses income from financial assets
The government assesses the income from your financial assets, by applying a process called ‘deeming’. It assumes that you receive a set income from these assets or investments. The deeming rate can vary depending on whether you’re single or in a couple.
Learn more about deeming on the Services Australia website.
Employment and the Age Pension - The Work Bonus
If you’d like to keep working after retirement age, there’s a government incentive to encourage you to do so.
Under the Work Bonus, you can earn up to $300 of employment income a fortnight – or $7,800 a year – without it affecting your Age Pension. This is regardless of whether it’s regular, casual or short-term work. It is also on top of the money you can earn each fortnight under the standard rules of the income test. Any unused amounts of your Work Bonus can be built up to a maximum of $7,800.
From 1 December 2022 to 31 December 2023, eligible age pensioners will be able to credit an additional $4,000 of employment income to their Work Bonus balance limit, taking their maximum balance of exempt income to $11,800. From 1 January 2024 this will reset to $7,800.
For more details on the Work Bonus, visit the Services Australia website.
Super, account based pensions and the Government Age Pension
You may be able to top up any Age Pension payments you’re entitled to by withdrawing lump payments from your super account.
Alternatively, you may wish to set up an account based pension to help turn those super savings into a regular income stream. AustralianSuper’s account based pension is known as Choice Income.
One possible advantage of opening an account based pension (compared to withdrawing all your super) is that your money stays invested in your super. This could make a big difference to your life in retirement, especially when you consider the potential benefits of compound interest.
Income and assets tests applied to super and account based pensions
This table shows how the income test is applied to your super, as well as your account based pension, if you have one.
| SUPER | ACCOUNT BASED PENSION2 | |
|---|---|---|
| BALANCE |
Below Age Pension age: Not subject to income or assets tested. Age Pension age and over: Subject to income and assets tests using deeming |
Subject to income and assets tests, using deeming |
| LUMP SUM WITHDRAWALS | Not subject to income test (although subject to condition of release) |
Not subject to income test. May be subject to assets test, depending how the lump sum is used |
| INCOME PAYMENTS | NA | Balance subject to income test, using deeming |
The Government Age Pension is complex and subject to individual’s circumstances. Other types of income streams may have different income and asset assessment rules, such as those pre 1/1/2015, annuities, and defined benefit pensions.
FIND OUT MORE: SUPER AND THE AGE PENSION
Help for planning your retirement
If you’re planning for retirement, or have retired, you may feel that managing your financial entitlements can be complex. AustralianSuper offers access to different advice options depending on your needs. Connect with one of our team members who can put you in touch with an accredited financial adviser3.
References:
1. Figures correct as of 6 July 2023 servicesaustralia.gov.au
2. Includes transition to retirement income
3. 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
The government may change eligibility criteria and pension payment amounts. For the latest information on the Government Age Pension please see servicesaustralia.gov.au
This may include general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision consider if the information is right for you and read the relevant Product Disclosure Statement, available at australiansuper.com/pds or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD.
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