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The Age Pension income test is a means test used by Centrelink to determine your eligibility for the Age Pension. The income test works by reducing your Age Pension payment for every dollar you have earned, or are deemed to have earned, over a certain amount.
This income test is one of two means tests used by Centrelink, the second being an assets test. All Age Pension applicants are subject to both tests, with the test that produces the lowest Age Pension payment, or zero, being applied.
The presentation below explains how the Age Pension income test works and outlines how different levels of income could affect your Age Pension payment. The presentation also covers how certain income types are treated by Centrelink and explains how Centrelink’s deeming rules work.
Your total income in retirement may comprise a part Age Pension to complement a pension from your super, as well as income from other sources.
The table below outlines the current income test rates, as at September 2016. These rates, often referred to as the income test lower thresholds, stipulate how much income a pensioner can earn, or be deemed to earn, before their pension payment is reduced.
*Figures correct as at September 2016. Source: Department of Human Services website.
The income test cut off points, or upper thresholds, determine how much income can be earned before your pension payment is reduced to $0. The table below outlines the cut off points for different family situations, effective from September 2016. The income test cut off points are revised in March, July and September each year.
The charts below illustrate the total fortnightly income a couple or single will receive when personal income is combined with any eligible Age Pension income.
Source: derived from Department of Human Services data
The deeming rules for the Centrelink Age Pension income test assume that financial investments are earning a certain rate of income, regardless of the amount of income they are actually earning. The deemed income from financial investments is added to any other assessable income to work out a single’s or couple’s total assessable income.
Deeming rules 2016
The current Centrelink deeming rates, effective since 1 July 2016, are as follows:
A deeming rate of 1.75% applies to the first:
Eligible financial assets over these amounts attract a deeming rate of 3.25%.
Deeming rates are continually monitored to ensure that they're appropriate and reflect returns across a range of investment choices available in the market. Deeming rates are set by the Minister for Social Services.
Note: On 1 January 2015 the deeming rules were extended to include superannuation account-based pension income streams. Under the new rules deeming of account based pensions is based upon the pension account balance, not the pension payment rate.
A grandfathering principle applies to the January 2015 rules; if a person received an Age Pension payment on 31 December 2014 and had a superannuation account-based pension, this account based pension will continue to be assessed under the pre January 2015 rules. However, if the person chooses to change or recommence their account based pension after 1 January 2015, the grandfathering will no longer apply and the new product will be assessed under the current deeming rules. This is similarly the case if the person’s Centrelink Age Pension payment ceases at any point.
The Centrelink income test takes into account money from employment, pensions, annuities and money deemed to be earned from investments. It also includes money from outside Australia.
Examples of income assessable under the Centrelink Age Pension income test include:
There may be strategies you can employ to reduce your assessable income level and maximise your Age Pension payment.
For more information on what is classified as assessable income, visit the Department of Human Services website.
Some income sources are not included in the Centrelink Age Pension income test. Examples of exempt income include:
For more information on what is classified as exempt income, visit the Department of Human Services website.
The Centrelink Work Bonus is an incentive for pensioners of Age Pension age to remain in the workforce by allowing them to keep more of their Age Pension payment when earning income from working.
Under the Work Bonus, the first $250 of fortnightly employment income you earn is not assessed under the Age Pension income test. For example, if you earned $400 in a fortnight from casual work, once the $250 Work Bonus was applied, only $150 of your earnings would be assessed under the income test.
If you earn no income from employment during a fortnight, or earn less than $250, the unused Work Bonus amount is saved and added to an income bank called the Work Bonus balance. If you earn more than $250 in a fortnight, any Work Bonus balance accumulated can be used to reduce your remaining employment income. You can accrue up to $6,500 per year in your Work Bonus balance.
The Centrelink Work Bonus applies to income from employment, including:
The Centrelink Work Bonus is not applied to income from:
You do not need to apply for the Centrelink Work Bonus. If you receive eligible employment income Centrelink will automatically apply the Work Bonus to your Age Pension income test.
Watch the video below for more information on how the Centrelink Work Bonus works:
Do you have questions about the Centrelink Age Pension or do you require specific advice on your own situation? You could benefit from meeting with a financial planner at Australian Catholic Superannuation.
Learn more about our financial advice services or book an appointment with us today.
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The Centrelink Age Pension is sometimes referred to as the "Old Age Pension".
Find out more about your Age Pension rates here.