Case studies: How is the Age Pension assessed?

For example

Maria is a retired single homeowner. She has $255,000 in assets with a deemed income of $180 per fortnight.

• Assets tested rate of pension = $909.05 per fortnight
• Income tested rate of pension = $940.89 per fortnight

Maria’s rate of pension = $909.05 per fortnight because the lower rate is used to determine your payment.

How much assets or income can I have before my pension payments reduce?

Firstly it depends on whether you are single or a couple, and secondly, whether you are classed as a homeowner or non-homeowner.

Centrelink has an assets and income free area (threshold) which allows you to have a certain amount of assets and income before your rate of pension reduces.

If both your assets and income are below the asset/income free areas you will be entitled to the maximum rate of pension.

If your assets or income exceeds the free areas (thresholds) but are below the cut off limits then you will be entitled to a part (reduced) rate of pension.

Assets test

Situation	Homeowner?	Threshold	Cut off limit
Single	Homeowner	$268,000	$585,750
Single	Non homeowner	$482,500	$800,250
Couple	Homeowner	$401,500	$880,500
Couple	Non homeowner	$616,000	$1,095,000

Income test

Situation	Threshold	Cut off limit
Single	$178 per fortnight (approximately $4,628 per year)	$2,066.60 per fortnight (approximately $53,732 per year)
Couple	$316 per fortnight (approximately $8,216 per year)	$3,163.20 per fortnight (approximately $82,243 per year)

 

Source: Department of Human Services. Applies 19 March 2021 to 30 June 2021

How much assets or income can I have before my pension payments stop?

If you fail either one of the income or assets test you will not be entitled to a pension. To fail either test your assets and income would need to exceed the cut off limits listed in the above tables.

If you are not eligible for a pension you may still be entitled to a concession card depending on your circumstances.

How can I calculate my rate of pension?

To illustrate how the Age Pension rate decreases based on the value of assets and income, below are some examples of the current Age Pension payments that Australians should be eligible for at a range of different asset and income levels, provided that they also meet the other eligibility requirements (age and Australian residency).

Click on the name of each example to view.

Assets test

Income test

The Age Pension rate increases twice per year (20^th of March and 20^th of September) and the income and asset thresholds adjust annually on the 1^st of July.

How does deeming work?

The trickiest concept of how an Age Pension is calculated is called deeming.

Instead of asking pensioners what rate of return is achieved on financial assets (bank accounts, term deposits, shares, superannuation, account-based pensions etc) the Government ‘deems’ these assets to earn a set interest rate (irrespective of the actual rate of return).

The deemed income counts towards the income test.

The balance of the financial assets counts towards the assets test.

The deeming rates and thresholds from 1 July 2021 are listed in the table below.

Situation	Deeming lower rate	Deeming higher rate
Single	0.25% on the first $53,600 of your investment assets, plus	2.25% on your investment assets over the amount of $53,600
Couple	0.25% on the first $89,000 of your combined investment assets, plus	2.25% on your investment assets over the amount of $89,000

What if my circumstances change?

As your circumstances change (your assets or income increases or reduces) then you may be entitled to more or less pension.

It is extremely important that you advise Centrelink of any changes to your circumstances so that you are paid the correct rate of payment.

What is my Age Pension age?

The Age Pension has undergone some significant changes in recent times, in part, due to our ageing population and increased life expectancy.

As a result, the Age Pension age has increased and gender discrimination has been removed.

In years gone by, men and women had different age pension ages – they’ve now been brought into line with each other.

The current Age Pension age is 66 years and 6 months, increasing to 67 from 1 July 2023.

Case studies

To assist in the explanation of how the Age Pension is assessed we have created some case studies.

• Case study 1 is a simple explanation of a single homeowner who will receive a part Age Pension.
• Case study 2 is broken up into two different scenarios. We will look at one of the strategies that can be employed to maximise pension entitlements for couples.

Case study 1: Maria

Maria is a single homeowner who has retired from work.

Her assets are as follows:

• $5,000 in her everyday bank account
• $55,000 in a term deposit earning 2.5% per year
• $145,000 in an account based pension where she draws 5% per year income
• $50,000 in shares paying her 5% per year in dividends
• A car worth $15,000 and home contents of $5,000

Financial Assets	Amount
Bank Account	$5,000
Term Deposit (assumed 2.5% per year interest rate)	$55,000
Account Based Pension (drawing 5% per year of account balance)	$145,000
Shares (assumed dividends at 5% per year)	$50,000
Total Financial Assets	$255,000

Note: Maria’s car and home contents are not counted as financial assets

Deemed income

	Asset	Deeming rate	Income
$53,000 deemed at 0.25% per year	$53,000	0.25%	$132.50
Residual is deemed at 2.25% per year	$203,200	2.25%	$4,545.00
Total	$255,000		$4,677.50

Assets and income test

Type	Asset	Income
Financial Assets (balance and deemed income)	$255,000	$4,677.50
Car	$15,000
Home contents	$5,000
Total (per year)	$275,000	$4,677.50
Total (per fortnight)		$179.90

• Assets test: Maria’s rate of pension under the assets test would be $931.70 per fortnight, which is a part pension rate.
  • Maria has $275,000 of assets, which is $7,000 over the $268,000 threshold for Single Homeowners. This reduces her fortnightly pension by $21.00 ($3 for each $1,000 of assets), from $952.70 to $931.70.
• Income test: Maria’s rate of pension under the income test would be $943.30 per fortnight, which is a part pension rate.
  • Maria earns $179.90 (in deemed income), which is $1.90 over the $178 income threshold for Singles. This reduces her fortnightly pension by $1 (50 cents for each dollar over the threshold), from $952.70 to $951.70.

You are paid the lower rate of the income and assets tests, so the Assets test ($931.70 per fortnight) applies in this scenario.

Cashflow

Age Pension	$24,224 per year ($923.20 per fortnight)
Term deposit interest	$1,375 per year
Account based pension	$7,250 per year
Share dividends	$2,500 per year
Total income	$35,349 per year

You’ll notice that Centrelink will deem Maria to be earning $4,677.50 per year from her financial assets of $255,000.

Her actual income from the financial investments is $11,125 per year. Centrelink do not assess actual income, they only count the ‘deemed’ income towards the income test.

Case study 2: Frank and Janet

Part 1

Frank and Janet are married and own their own home.

They have both retired from work, however only Frank (66) is Age Pension age. Janet (60) does not qualify for an Age Pension until she turns 67.

Their assets are as follows:

• They have $430,000 in the bank earning 2.5% per year interest
• Frank has $300,000 in an account-based pension drawing $30,000 per year income
• Janet has $100,000 in her superannuation (exempt until she reaches Age Pension age)
• They own one car each, worth $10,000 per vehicle
• Home contents of $10,000

Financial Assets	Amount
Bank Accounts	$430,000
Superannuation – Janet ($100,000 – exempt until Age Pension age)	$0
Account Based Pension – Frank	$300,000
Total Financial Assets	$730,000

Note: Frank and Janet’s cars and home contents are not counted as financial assets

Deemed income

	Asset	Deeming rate	Income
$88,000 deemed at 0.25% per year	$88,000	0.25%	$220
Residual is deemed at 2.25% per year	$642,000	2.25%	$14,445
Total	$730,000		$14,665

Assets and income test

Type	Asset	Income
Financial Assets (balance and deemed income)	$730,000	$14,665
Cars	$20,000
Home contents	$10,000
Total (per annum)	$760,000	$14,665
Total (per fortnight)		$564.04

• Assets test: Frank’s rate of pension under the assets test would be $180.35 per fortnight, which is a part pension rate.
  • Frank and his wife have $760,000 of assets, which is $358,500 over the $401,500 threshold for Couple Homeowners. This reduces his fortnightly pension by $537.75 ($3 for each $1,000 of assets, divided by two because Frank is the only member of the couple claiming an Age Pension), from $718.10 to $180.35.
• Income test: Frank’s rate of pension under the income test would be $656.10 per fortnight, which is a part pension rate.
  • Frank and his wife’s deemed income is $564, which is $248 over the the $316 income threshold for Couples. This reduces his pension by $62.00 (50 cents for each dollar over the threshold, divided by two because he is the only member of the couple claiming an Age Pension), from $711.80 to $656.10.

You are paid the lower rate of the income and assets tests, so the Assets test ($180.35 per fortnight) applies in this scenario.

Cashflow

Age Pension	$4,689 per year ($180.35 per fortnight)
Bank interest	$10,750 per year
Account based pension	$30,000 per year
Total income	$45,439 per year

Frank’s rate of Age Pension is reduced significantly due to their large amount of combined assets.

You’ll notice that Janet’s superannuation is not counted towards Frank’s Age Pension.

This presents an opportunity to maximise Frank’s Age Pension if additional funds were invested into Janet’s superannuation which is exempt from assessment until she turns age 67.

Part 2

Frank and Janet receive personal financial advice and the following recommendations were made:

• Janet to contribute $100,000 from their bank savings into her superannuation as a non-concessional contribution immediately.
• Janet to contribute $300,000 from their bank savings into her superannuation as a non-concessional contribution utilising the bring-forward provisions in the following financial year

This will effectively remove $400,000 of assets from Frank’s Centrelink assessment until Janet turns Age Pension age.

Financial Assets	Amount
Bank Accounts	$30,000
Superannuation – Janet ($100,000 – exempt until Age Pension age)	$0
Account Based Pension – Frank	$300,000
Total Financial Assets	$330,000

Note: Frank and Janet’s cars and home contents are not counted as financial assets

Deemed income

	Asset	Deeming rate	Income
$88,000 deemed at 0.25% per year	$88,000	0.25%	$220
Residual is deemed at 2.25% per year	$242,000	2.25%	$5,445
Total	$330,000		$5,665

Assets and income test

Type	Asset	Income
Financial Assets (balance and deemed income)	$330,000	$5,665
Cars	$20,000
Home contents	$10,000
Total (per annum)	$350,000	$5,665
Total (per fortnight)		$217.90

• Assets test: Frank’s rate of pension under the assets test would be $718.10 per fortnight, which is the maximum rate because he is under the assets test threshold.
• Income test: Frank’s rate of pension under the income test would be $718.10 per fortnight, which is the maximum rate because he is under the income test threshold.

In this scenario Frank would be paid the full rate of pension ($718.10 per fortnight).

Cashflow

Age Pension	$18,670 per year ($718.10 per fortnight)
Bank interest	$750 per year
Account based pension	$30,000 per year
Total income	$49,420 per year

This strategy has resulted in an increase to Frank’s Age Pension of nearly $14,000 per annum.

They have also increased their overall cashflow by nearly $4,000 per year.

Another benefit is that because Janet has retired from work, she has attained a ‘condition of release’. This means that she can access ad-hoc lump sums from her superannuation account whenever required.

Regan Welburn is the director of My Pension Manager, an administration service specialising in Age Pension applications and dealing with Centrelink. Regan previously worked for Centrelink as a Financial Information Service Officer and has an intricate knowledge of the Social Security system.