How working affects your Age Pension and tax (including calculator)

Single continuing work and applying for Age Pension

Julianne is about to turn 67, reaching the eligible age to receive Age Pension. She is a single homeowner with a balance of $20,000 in her accumulation super account and $400,000 in an account-based pension. She earns $20,000 a year from work and draws $16,000 a year (the minimum) from her account-based pension. Julianne will declare $20,000 in other assets (outside super) for Age Pension purposes.

To estimate how working affects Julianne’s Age Pension we need to calculate her entitlements under both the assets test and income test. The test that reduces her Age Pension the most is the one that will apply.

Assets test

The current assets test limit for a single homeowner to receive the full rate of Age Pension is $321,500. Julianne’s total assets exceed the limit by $123,500. The Age Pension is reduced by $3 per fortnight for each $1,000 above the limit, cutting her entitlement by $370.50 a fortnight ($3 x 123.5).

Income test

Under the income test, Julianne’s super accumulation account and account-based pension will be subject to deeming. Using current deeming rates, the assessable income from these is $10,403.50 a year (approximately $400 a fortnight). The actual income withdrawn from the account-based pension is not important in the income test, only the deemed income is assessable. Julianne’s work income of approximately $770 a fortnight will attract the work bonus of $300, reducing the assessable amount to $470 a fortnight.

The combination of assessable work income and deemed income is a total of $870. The excess above the $218 fortnightly income limit for a single person reduces the Age Pension by 50c for each dollar. In Julianne’s case this is a $326 Age Pension reduction under the income test ([$870–$218] x $0.50c).

Julianne’s Age Pension result

After applying both tests, it is the assets test that reduces Julianne’s Age Pension entitlement more. Her payment will be $808.20 a fortnight (the full rate of $1,178.70 minus $370.50 reduction under the assets test).

If Julianne stopped working completely, her Age Pension entitlement would not change because she is affected more by the assets test than the income test.

Total income after-tax working vs not working

If Julianne continues her current work, her taxable income will be approximately $21,013 annual Age Pension plus $20,000 from work, a total of $41,013 per year. Her account-based pension payments from super are tax free.

The income tax payable is $1,658 after considering the low-income tax offset (LITO) and seniors and pensioners tax offset (SAPTO).

While continuing to work, Julianne’s total income will be:

$21,013 Age Pension

+ $20,000 work income

+ $16,000 account-based pension

– $1,658 tax

= $55,355 after tax

If she stops work, her income will be:

$21,013 Age Pension

+ $16,000 account-based pension

= $37,013

By working and earning $20,000 a year, Julianne adds $18,342 to her after-tax income. This is equivalent to keeping just under 92c of each dollar she earns from working.

Couple with one partner considering a return to the workforce

Patrick and Jie Eun are both 70 and receiving the Age Pension. They have a combined total of $450,000 in account-based super pensions and own their home. They’re declaring $30,000 of additional assets (home contents and cars) to Centrelink.

The couple’s current assets are slightly below the limit to receive full Age Pension but under the income test, the deemed income from their account-based pensions reduces their payment slightly to $885 each per fortnight from the maximum of $888.50.

Patrick has been offered the opportunity to return to work and earn $45,000 per year for a part-time role.

Initial Age Pension impact

Because he has not been working, Patrick has built up a work bonus bank of the maximum $11,800. If he starts work, he will earn approximately $1,730 a fortnight. The first $300 of fortnightly income will be disregarded in the income test under the work bonus for that fortnight. The remaining $1,430 will be drawn from the work bonus bank until it is exhausted before Patrick’s work income starts to reduce the couple’s Age Pension.

After 8 fortnights (16 weeks) $11,440 from the work bonus bank has been consumed (8 x $1,430). During these first 16 weeks, the couple’s Age Pension will continue at the same rate as before.

Ongoing Age Pension impact

The remaining $360 in Patrick’s work bonus bank will be used in the ninth fortnight, leaving $1,070 in employment income that will count in the income test and reduce the Age Pension ($1,730 income – $300 work bonus for that fortnight – $360 work bonus bank). This assessable income reduces the couple’s Age Pension by 25c each for each dollar of income – a reduction of $267.50 per person for that fortnight.

Going forward, Patrick’s work bonus bank has been completely used, so $1,430 work income will be included in the income test ($1,730 income – $300 work bonus). This will reduce the couple’s pension by $357.50 per person ($0.25 x 1,430). Their new payment rate will be $527.50 per fortnight per person.

Total income after tax working vs not working in the first year

In the first financial year, assuming Patrick starts work on 1 July, their total combined income will be $90,520, made up of:

• $33,490 Age Pension
• $45,000 work income
• $22,500 account-based pension (approx.)
• Less $10,470 tax on Patrick’s income (2025–26 rates)

Patrick will pay income tax because his Age Pension and employment income are taxable. Ji Eun will not pay tax because her taxable income from Age Pension is below the tax-free threshold. The account-based super pension is tax-free.

If Patrick chooses not to work, their total income will be $66,960, made up of:

• $46,020 Age Pension
• $22,500 account-based pension (approx.)

By working and earning $45,000, Patrick and Ji Eun’s combined after-tax income will be $23,560 higher in the first financial year. This is equivalent to Patrick keeping 52c of every dollar he earns.

Total income after tax working vs not working in following years

If Patrick keeps working in future years the couple’s total combined income will be $85,740, made up of:

• $27,430 Age Pension
• $45,000 work income
• $22,500 account-based pension (approx.)
• Less $9,190 tax (2026–27 rates)

If he stops work, their total income will be $66,960, made up of:

• $46,020 Age Pension
• $22,500 account-based pension (approx.)

With Patrick earning $45,000, the couple’s income would be $18,780 higher than if he chooses not to work. This is equivalent to Patrick keeping approximately 42c for each dollar he earns.

Because the work bonus bank has run out, Patrick and Ji Eun’s Age Pension is more than $6,000 lower in the second year than the first year of employment.

Seasonal work

Phil is single and usually receives the full rate of Age Pension. He has no other taxable income. Phil is considering doing some exam supervision once a year for end of high school exams. This work lasts four weeks and pays $1,200 a week.

Because Phil doesn’t ordinarily work, he has a work bonus bank of $11,800. Earning $4,800 over 2 fortnights will reduce his bank by $4,200 ($4,800 – 2 x $300 work bonus for 2 fortnights) to $7,600.

Because his work bonus bank will not run out, Phil can do his four weeks of work without affecting his Age Pension. It will take 14 fortnights after stopping work for his work bonus bank to accumulate back up to the maximum $11,800 at the rate of $300 a fortnight.

With Age Pension of $30,646.20 for the year and employment income of $4,800, Phil’s total taxable income will be $35,446.20. The low-income tax offset (LITO) and seniors and pensioners tax offset (SAPTO) for a single person combine to reduce his tax liability to zero.

Phil can do his planned work without affecting his Age Pension and without paying any tax. He will keep 100% of what he earns.

Couple with a partner below Age Pension age working

Maria is 60 and her husband Dimitri is 67 and about to apply for the Age Pension for the first time. He has been retired for three years and has an account-based super pension worth $300,000. The couple are declaring $30,000 of other assets to Centrelink (cars and home contents).

Maria is working earning $75,000 a year and has $300,000 in a super accumulation account. Her super is not assessed in Centrelink’s means tests because she is under 67, but all her employment income counts in the income test. She is not entitled to the work bonus because she is not receiving Age Pension.

The couple’s total assessable assets of $330,000 are under the limit to receive full Age Pension for a homeowning couple.

The income test will reduce Dimitri’s Age Pension. He has $6,126 in annual deemed income from his account-based pension and $75,000 income to declare from Maria’s work. The total of $3,120 per fortnight will reduce his Age Pension by $685 a fortnight ([$3,120 – $380 income test threshold for couples] x $0.25) from the full rate of $885.50 to $203.50 a fortnight.

Maria is considering reducing her work to half time, earning half her current salary. She and Dimitri are interested in how this could impact their total income.

Outcome with Maria earning $75,000

With Maria continuing to earn at her current rate, the couple’s total income will be:

$5,291 from Dimitri’s Age Pension

+ $15,000 from Dimitri’s account-based pension (drawing the minimum)

+ $75,000 from Maria’s work

– $14,788 income tax on Maria’s income

= $80,503 per year after tax

Outcome if Maria reduces to half-time

If Maria goes half time, her income will reduce by $37,500 a year ($1,442 a fortnight). This will improve Dimitri’s Age Pension by $360.50 a fortnight (25c per dollar).

Their new position will be:

$14,664 from Dimitri’s Age Pension

+$15,000 from Dimitri’s account-based pension (drawing the minimum)

+ $37,500 from Maria’s work

– $2,388 income tax on Maria’s income

= $64,776 per year after tax

The couple’s income is only $15,727 lower than before, despite Maria earning $37,500 less from work. The difference is due to Maria’s reduced income tax liability and a $9,373 more per year coming from Age Pension.