New income test for Age Pension

Although the Government has increased Age Pension rates, the income test for determining whether you can receive the Age Pension is set to become tougher for some Age Pensioners.  (For more information about the Age Pension rates see the articles Age Pension: September 2009 rates and thresholds now available and Age Pension set to increase from September 2009).

You can expect two major changes to the Age Pension income test, taking effect from 20 September 2009.

1. Increase in taper rate for income test

Taking effect from 20 September 2009, the Age Pension will be reduced by 50 cents for every dollar (previously reduced by 40 cents for every dollar) above the income threshold that delivers the full Age Pension income. For couples, the Age Pension will reduce by 25 cents for every dollar rather than 20 cents for each member of a couple. The income threshold allowing the payment of the full Age Pension is currently $142 a fortnight ($3,692 a year) for singles and $248 a fortnight ($6,448 a year) for couples (combined). If you earn income below this income threshold, then the changes to the taper rate will have no effect on the Age Pension payable.

Note: The Age Pension income thresholds, taking effect from September 2009, are now available. You can find the thresholds for the Age Pension income test and assets test in the article Age Pension: September 2009 rates and thresholds now available.

The practical effect of this change is that the more income an individual has, the more dramatic will be the cut in Age Pension, compared to the income test rules in place before 20 September 2009.

Note: Existing Age Pensioners, that is individuals eligible for the Age Pension prior to 20 September, will be assessed under the rules in place prior to 20 September 2009 AND assessed under the new rules. When the new rules produce the same or a higher Age Pension payment, then the individual will be assessed under the new system going forward.

According to the Government, around 70 per cent of all pensioners (including 93 per cent of all single pensioners) will be unaffected by the pension income test change and will move to the new system immediately.

According to Centrelink, if an existing Age Pensioner is worse off under the new rules, then the individual will be paid a transitional Age Pension rate. Any Age Pensioner paid the transitional rate will receive a pension increase of $20.20 a fortnight (singles) or $20.30 a fortnight (couples, combined). The new transitional rate will be indexed every six months, and will be paid until an individual’s entitlement is the same, or higher under the new income test.

Note: If you become eligible for the Age Pension on or after 20 September, then you’re subject to the new income test.

Confused? Fortunately, Centrelink has prepared some useful Q and As on the topic. You can access these questions and answers by clicking on the link below:

http://www.centrelink.gov.au/internet/internet.nsf/individuals/ssp_pension_increase.htm#changes

2. Work bonus: Excluding half of first $500 of employment income

In recognition of the fact that many Age Pensioners are forced to supplement the Age Pension with part-time work, the Federal Government has introduced a work bonus for Age Pensioners. If an Age Pensioner receives income from work (not investment income), then only half of the first $500 of gross fortnightly employment income will count for the income test. For example, if you earn $300 in a fortnight then $150 of that $300 is counted as fortnightly income against the Age Pension income test. If you earn $600 in a fortnight, then $350 ($250 +$100) is counted towards the income test.

Note that the work bonus measure is in addition to the normal income threshold for full Age Pension eligibility.

Again, Centrelink has been kind enough to prepare some Q and As on the work bonus. You can access these questions and answers by clicking on the link below:

http://www.centrelink.gov.au/internet/internet.nsf/individuals/ssp_work_bonus.htm