In this guide
- Who gets impacted by means testing?
- What is the taper trap?
- How can new retirement products help?
- How are lifetime products treated for the Age Pension?
- How do the calculations work?
- Case study 1: Single 70-year-old homeowner with $450,000 in superannuation
- Case study 2: A 72-year-old homeowner couple with $700,000 in superannuation
- The need for projections
- The bottom line
A major issue with retirement planning for some people is the way the Centrelink assets test penalises people who have saved more. This is sometimes referred to as the ‘taper trap’.
In 2025, only 42% of Australians who have reached Age Pension age (67) receive the full rate of Age Pension each year.
A further 36% receive no Age Pension – either because they don’t meet other eligibility criteria (such as residency rules), their assets or incomes are too high, or they haven’t applied.
The remainder (22%) receive a part Age Pension, where the amount of income they receive varies depending on the value of their assessable assets or income over time. This can make retirement income planning difficult.
The good news is that for some retirement income products, only 60% of their value counts toward the means tests. Knowing these rules can potentially help to secure a higher and more stable income from the Age Pension.
Who gets impacted by means testing?
Under the means-testing rules, there is an assets test and an income test. People with fairly low assets and low incomes receive a full Age Pension. People with very high assets or incomes receive no Age Pension and people in between get a reduced Age Pension depending on where they are within the bands.
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The lower assets test threshold is $481,500 for couples who own their own home ($321,500 for singles). The value of the home doesn’t count toward the means tests.
For non-homeowners, the lower assets test threshold is $739,500 for couples and $579,500 for singles. These figures are from December 2025. An income test also applies.
A lot of retirees enter retirement as couples, so they need to consider all their combined superannuation and savings when considering the means tests. The rules apply to the household’s combined total assets, including all super accounts (other than the accumulation super balance of a younger spouse under age 67), cash accounts, term deposits, shares, investment properties and personal assets such as cars and furniture.
The most recent ABS Income and Wealth Survey showed the average household in the 65–74-year-old group had net assets of around $1.05 million plus the value of their home, if they own one. But averages can be misleading, as a small number of very wealthy people can push the figures up significantly.
ATO data shows the median super balance (that is, the balance that half of people are above and half are below) in the age 60–64 bracket was around $219,700 for males and $163,200 for females.
These figures are expected to rise rapidly as each generation of retirees spends a higher proportion of their careers subject to compulsory super contributions.
In 2025, more than half of retirees who were old enough to receive an Age Pension either received a reduced amount due to means testing or received no Age Pension. This is shown in the following chart.
What is the taper trap?
Retirees who are subject to means testing often raise concerns that for each additional dollar of assets they hold, they face a relatively large reduction in their Age Pension income, leaving them no better off overall.
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Find out moreFor retirees in this situation, each $1,000 of assets above the lower threshold means their Age Pension income is reduced by $78 per year (7.8% of the $1,000). This is called the ‘taper rate’.
It can be difficult to reliably earn an investment return of 7.8% (net) per year in retirement, which means those affected can lose more in Age Pension than they earn on those extra savings.
How can new retirement products help?
Currently, the main retirement product offered by most super funds is still an account-based pension (ABP). With an ABP, you get to choose your investment option(s), but you must make a minimum withdrawal from your balance every year, which is how an ABP delivers retirement income. The full balance in the account is counted towards the assets test for means-testing purposes.
Government policy is encouraging super funds to offer new products that better assist with these issues. Several funds and insurers now offer ‘lifetime’ income products in addition to ABPs.
With a lifetime income product, you transfer some of your super (or other savings) into a product that contractually pays a defined annual income stream to you for the rest of your life (and for the life of your spouse if you choose) – even if you live to 100 or more.
For customers who pass away early, most lifetime income products can offer a lump sum benefit, which protects the purchaser and their estate from losing their initial investment.
Previously referred to as annuities, rule changes have allowed a broader range of products that pay lifetime incomes. This includes investment-linked annuities where the payments are guaranteed to continue for life, but the level of payments varies over time to reflect the performance of your chosen investment option(s), which you can change from time to time.
How are lifetime products treated for the Age Pension?
Only 60% of the purchase price of a lifetime income product counts towards the assets test. After age 84 (or a minimum of five years), only 30% of the purchase price counts.
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Only 60% of the income paid from all lifetime income products counts towards the income test.
This means lifetime income products can help means-tested pensioners achieve higher, more predictable and more stable income from the Age Pension.
How do the calculations work?
The means-testing rules apply differently for lifetime income products than they do for account-based pensions, as follows. For ease of understanding, we have omitted additional detail that applies to rounding these figures.
In summary, there is an assets test, which takes into account your assessable assets. And an income test, which takes into account your assessable income. The Age Pension you receive is the lower of these two results.
Assessable assets excludes your own home you live in, but includes financial investments (including cash, term deposits, managed investments, shares, super balances), personal assets, other real estate, the value of a business and the value of any annuities.
Assessable income includes most types of income, including employment earnings (subject to a ‘work bonus’), commissions, rental income, deemed income from financial investments, income from a business interest, farm, private company and royalties.
The full Age Pension for a couple is $46,202 per year and for singles it’s $30,646 per year (as at September 2025).
| Account-based pension means-testing formulas | Lifetime income product means-testing formulas |
| The Age Pension payable is the lower of the assets test result and the income test result, below. | |
| Assessable asset value = 100% of the balance Assessable income value = deemed amount* * Deemed income is an assumed percentage of the balance, irrespective of the actual income earned, as follows: – First band**: 0.75% p.a. – Remaining balance: 2.75% ** The first band for couples relates to amounts up to $106,200 and for singles it’s $64,200. | Assessable asset value = 60% of the purchase price* Assessable income value = 60% of the actual income paid * The percentage of purchase price reduces to 30% after age 85 (or a minimum of five years), so less counts toward means testing. |
| Assets test result: Age Pension under the assets test = Full rate per year – (assessable assets value – threshold) × 7.8% Note that with an account-based pension, the balance may increase for a few years but then typically declines over the course of retirement as the balance is drawn down and can run out. This can result in a higher Age Pension under the assets test as the super balance decreases. | Assets test result: Age Pension under the assets test = Full rate per year – (assessable assets value – threshold) × 7.8% Note that with a lifetime income stream, the purchase price is fixed at the time the product is purchased. This results in a steadier assets test result over the course of retirement, which improves when the 30% rate subsequently applies. |
| Income test result: Age Pension under the income test = Full rate per year – 50% × (assessable income value – threshold) Note that the assessable income value reduces as the balance reduces. This can result in a higher Age Pension under the income test as the super balance decreases. | Income test result: Age Pension under the income test = Full rate per year – 50% × (assessable income value – threshold) The income test threshold for couples is currently $9,880 per year and for singles it’s $5,668 per year. Note that the assessable income from a particular retirement product can increase faster or slower than increases in the threshold over time, depending on the product’s rules and investment returns. |
The interaction of the means tests and remaining super balances makes it difficult to generalise about which test applies to different households’ situations over the course of retirement. The case studies below are designed to illustrate a range of possible outcomes.
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Find out moreTo simplify the case studies, we have assumed in each case study that there are no assets or income sources other than superannuation balances and the Age Pension.
Case study 1: Single 70-year-old homeowner with $450,000 in superannuation
Currently, this retiree receives a reduced Age Pension because of the assets test. His assets above the applicable threshold of $321,500 are multiplied by the taper rate (7.8%) and result in a reduction in his Age Pension of $10,023 per year.
The full Age Pension calculations based on this account-based pension are as follows:
| Assets test | Income test |
| Actual assets: Account-based pension balance = $450,000 | Actual income from super: Minimum withdrawals from the account-based pension = 5% × $450,000 = $22,500 per year |
| Assessable assets for assets test: Assessable assets = $450,000 | Assessable income for income test: Assessable income from the account-based pension is deemed to be: – First $64,200 × 0.75% – Remaining $385,800 balance x 2.75% = $11,091 per year |
| Age Pension under the assets test: = $30,646 per year – ($450,000 – $321,500) × 7.8% = $20,623 | Age Pension under the income test: = $30,646 per year – 50% x ($11,091 – $5,668) = $27,934 |
Is the assets test or the income test lower? Assets test (left column)
Age Pension payable = $20,623 per year
His combined income from super and the Age Pension = $22,500 + $20,623 = $43,123 per year
Single 70-year old homeowner who transfers $250,000 from his $450,000 account-based pension balance into a new investment-linked lifetime income stream.
If he switches $250,000 into the lifetime income product, then this might pay a starting level of income of $15,500 per year. His Age Pension calculation would change significantly.
The assets test (and taper rate trap) now no longer impacts our retiree as the income test is the relevant one instead, as follows:
| Assets test | Income test |
| Actual assets: – Account-based pension balance = $200,000 – Lifetime income product (purchase price) = $250,000 | Actual income from super: – 5% (minimum) × $200,000 from the account-based pension = $10,000 – $15,500 per year from the lifetime income product Total = $25,500 per year |
| Assets test: Assessable assets: – Account-based pension: $200,000, plus – Lifetime income product: 60% × $250,000 = $150,000 Total = $350,000 | Income test: Assessable income: Deemed income from the account-based pension: – First $64,200 × 0.75%, plus – Remaining $135,800 × 2.75% = $4,216, plus Lifetime income product: – 60% × $15,500 = $9,300 Total = $13,516 |
| Age Pension under the assets test: = $30,646 per year – ($350,000 – $321,500) × 7.8% = $28,423 | Age Pension under the income test: = $30,646 per year – 50% × ($13,516 – $5,304) = $26,722 |
Is the assets test or the income test lower? Income test (right column)
Age Pension payable = $26,722 per year
His combined income from super and the Age Pension = $25,500 + $26,722 = $52,222 per year
That’s $9,099 higher than the $43,123 per year he would receive if his money was all in an account-based pension.
Case study 2: A 72-year-old homeowner couple with $700,000 in superannuation
Currently, this couple receives a reduced Age Pension because of the way the assets test applies to their account-based pension. Their assets above the applicable threshold of $481,500 are multiplied by the taper rate (7.8%) and result in a reduction from their Age Pension of $17,043 per year.
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The full Age Pension calculations based on this account-based pension are as follows:
| Assets test | Income test |
| Actual assets: Account-based pension balance = $700,000 | Actual income from super: Minimum drawings from the account-based pension = 5% × $700,000 = $35,000 per year |
| Assessable assets for assets test: Assessable assets = $700,000 | Assessable income for income test: Assessable income from the account-based pension is deemed to be: – First $106,200 × 0.75% – Remaining $593,800 × 2.75% = $17,126 per year |
| Age Pension under the assets test: = $46,204 per year – ($700,000 – $481,500) × 7.8% = $29,16 | Age Pension under the income test: = $46,204 per year – 50% × ($17,126 – $9,880) = $42,581 |
Is the assets test or the income test lower? Assets test (left column)
Age Pension payable = $29,161 per year
Their combined income from super and the Age Pension = $35,000 + $29,161 = $64,161 per year.
A 72-year-old homeowner couple who transfer $350,000 from their account-based pensions into a new investment-linked lifetime income stream.
They opt for a product that continues to pay 65% of the income level if one spouse passes away.
If they switch $350,000 into the lifetime income product, then this might then pay a starting level of income of $22,500 per year. Their Age Pension calculation would then be:
| Assets test | Income test |
| Actual assets: – Account-based pension balance = $350,000 – Lifetime income product (purchase price) = $350,000 Total = $700,000 | Actual income from super: – 5% (minimum) × $350,000 from the account-based pension = $17,500 – $22,500 per year from the lifetime income product Total = $40,000 per year |
| Assets test: Assessable assets: – Account-based pension: $350,000, plus – Lifetime income product: 60% × $350,000 = $210,000 Total = $560,000 | Income test: Assessable income: Deemed income from account-based pension: – First $106,200 × 0.75%, plus – Remaining $243,800 × 2.75% = $7,501, plus Lifetime income product: – 60% × $22,500 = $13,500 Total = $21,001 |
| Age Pension under the assets test: = $46,204 per year – ($560,000 – $481,500) × 7.8% = $40,081 | Age Pension under the income test: = $46,204 per year – 50% × ($21,001 – $9,880) = $40,643.50 |
Is the assets test or the income test lower? Assets test (left column)
Age Pension payable = $40,081 per year
Their combined income from super and the Age Pension = $40,000 + $40,081 = $80,081 per year
That’s $15,920 higher than the $64,161 per year they would receive if their money were all in an account-based pension.
If we consider eight different 70-year-old couples, each with different levels of super, the impact of putting half their balance into the lifetime income product can be seen in the table below. Each couple owns their own home and has no other assets or income.
| Superannuation balance | 100% in an account-based pension | 50% in an account-based pension, 50% in a lifetime income product | ||||
| Income from super per year | Age Pension per year | Total income per year | Income from super and lifetime income per year | Age Pension per year | Total income per year | |
| $200,000 | $10,000 | $46,202 | $56,202 | $11,000 | $46,202 | $57,631 |
| $400,000 | $20,000 | $46,202 | $66,202 | $22,100 | $45,597 | $68,454 |
| $600,000 | $30,000 | $36,959 | $66,959 | $33,100 | $42,294 | $76,579 |
| $800,000 | $40,000 | $21,359 | $61,359 | $44,200 | $33,839 | $79,553 |
| $1,000,000 | $50,000 | $5,759 | $55,759 | $55,200 | $21,359 | $78,502 |
| $1,200,000 | $60,000 | $0 | $60,000 | $66,300 | $8,879 | $77,450 |
| $1,400,000 | $70,000 | $0 | $70,000 | $77,300 | $0 | $80,000 |
| $1,600,000 | $80,000 | $0 | $80,000 | $87,300 | $0 | $91,429 |
Note: The taper trap is highlighted in yellow.
The need for projections
It’s important to remember these figures are not static over the course of retirement. The level of income, the assessable asset value and the assessable income from an account-based pension all change over time as the balance moves in line with investment performance and withdrawals made. Likewise, with the lifetime income product, the level of income can change over time in accordance with the product’s rules. This impacts the assessable income value for means-testing purposes (the assessable asset value is based on the purchase price, which is a fixed amount).
It’s therefore important to consider the time dimension or likely future income from these decisions.
The bottom line
You can see in the table above – which is based on the current rules and rates – that by allocating half their super to the lifetime product, the taper trap problem is greatly reduced for these couples and their income is increased, substantially in some cases. The effect of the taper rate still operates (mainly because of the account-based pension product) but is greatly reduced.
As the calculations will be different for everyone, and the projected amounts, bands and thresholds change over time, we recommend you seek financial advice before determining the most appropriate retirement income solution for your needs and circumstances.
David Orford and Jim Hennington are qualified actuaries who specialise in retirement income.
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