How the Age Pension works
The Age Pension is a safety net for most retirees and a top-up for many more. Even people with a reasonable amount of super can qualify for a part pension, which also brings the Pensioner Concession Card. Here’s how it works.
Who can get it
- Age: 67 or older.
- Residency: generally an Australian resident for at least ten years, with at least five of those years continuous.
- The means tests: the income test and the assets test. Services Australia works out your pension under both and pays the lower amount.
The assets test
Counts the value of what you own, other than your home:
- super, once you’ve reached Age Pension age, and any super already in an account-based pension,
- bank accounts, shares, managed funds and other investments,
- investment property and holiday homes,
- cars, caravans, boats and household contents (at garage-sale value, not replacement cost),
- business assets and interests in private companies and trusts.
The home you live in is exempt. Homeowners and non-homeowners have different thresholds. Above the lower threshold, the pension reduces gradually as assets increase, until it cuts out altogether. The thresholds are indexed each March and September, so check the current figures before relying on them.
The income test
Counts income from all sources:
- Financial assets (bank accounts, shares, managed funds, account-based pensions) are deemed to earn a set rate of income, whatever they actually earn. Two deeming rates apply, a lower rate up to a threshold and a higher rate above it.
- Employment income, after the Work Bonus.
- Rental income, less allowable expenses.
- Business and trust income, and some overseas pensions.
Above a free area, the pension reduces by 50 cents for every dollar of income for singles (25 cents each for couples).
The Work Bonus
Pensioners can earn $300 a fortnight from work without it counting under the income test. Unused amounts build up in a bank of up to $11,800, which helps people who work occasionally or seasonally.
Couples
Couples are assessed on their combined income and assets, and each receives half the couple rate. If one partner is under Age Pension age, their super in accumulation isn’t counted until they reach that age, which can be useful in planning.
Gifting
You can give away up to $10,000 a year, and no more than $30,000 over five years, without it affecting your pension. Gifts above those limits are still counted as your asset, and deemed to earn income, for five years.
Other benefits
- Pensioner Concession Card: cheaper medicines under the PBS, bulk billing, and state concessions on rates, energy, transport and car registration.
- Commonwealth Seniors Health Card: for those who don’t qualify for the pension because of assets, but have income under the limit.
- Home Equity Access Scheme: a government loan against your home’s value, paid as a fortnightly income or lump sum, available to pensioners and some self-funded retirees.
Planning makes a difference
How your assets are held and when you draw on them can change your entitlement. Common examples include spending on home improvements (the home is exempt), the timing of gifts, holding super in the younger partner’s name, and how funeral bonds and prepaid funerals are treated. See Age Pension rules that catch people out.
Clarity Wealth’s financial planners can work out your likely entitlement and how to structure your retirement income, and we look after the tax.