What Is the Age Pension Income Test?
The Age Pension Income Test is one of the two primary means tests used by the Australian Government to determine whether you qualify for the Age Pension and how much you may receive.
It assesses the income you receive from various sources, including employment, investments, superannuation income streams, rental properties, business interests, and certain government payments. The more assessable income you receive, the more your Age Pension may be reduced.
Importantly, the Income Test does not operate in isolation. Services Australia also applies the Age Pension Asset Test. Both tests are calculated separately, and the test that results in the lower pension payment determines your entitlement.
For Australians approaching or living in retirement, understanding how the Income Test works is an important part of retirement planning because it can affect both Age Pension eligibility and ongoing payment rates.
How the Age Pension Income Test Works
The Income Test measures the assessable income you receive from a range of sources. This may include employment income, self-employment income, rental income, overseas pensions, trust distributions, company income, superannuation income streams, and income from investments.
If your assessable income exceeds the relevant threshold, your Age Pension payment begins to reduce. The reduction occurs gradually through legislated taper rates rather than stopping immediately once a threshold is crossed.
The Income Test is only one part of the Age Pension assessment process. Services Australia also applies the Asset Test, and the test that produces the lower Age Pension entitlement ultimately determines the amount you receive.
Income Test Thresholds
The Age Pension Income Test uses income thresholds to determine whether you qualify for a full Age Pension, a part Age Pension, or no Age Pension at all.
If your assessable income falls below the applicable threshold, you may qualify for the full Age Pension, subject to the Asset Test. Once your income exceeds that threshold, your pension payment gradually reduces under the Income Test taper rate.
The thresholds vary depending on factors such as:
- Whether you are single or part of a couple
- Whether you are living together or separated due to illness
- Regular government indexation adjustments
Because the thresholds are reviewed and updated periodically, it is important to refer to Services Australia for the latest figures.
Understanding the thresholds is only part of the picture. A person may satisfy the Income Test but still have their Age Pension reduced under the Asset Test, which is why both tests need to be considered together.
Income Test vs Asset Test
Many Australians assume that only one means test applies to the Age Pension. In reality, both the Income Test and Asset Test are calculated separately.
| Test | What It Measures |
|---|---|
| Income Test | Income received or deemed from investments and other sources |
| Asset Test | Value of assets owned, excluding certain exempt assets |
Services Australia applies both calculations and uses whichever produces the lower Age Pension entitlement.
For example, a retiree with substantial investments but relatively little income may be affected primarily by the Asset Test. Conversely, someone with modest assets but higher income may be affected more by the Income Test.
This interaction between the two tests is one reason why Age Pension planning can become more complex as retirement approaches.
Deeming and Investment Income
Deeming is one of the most important concepts within the Age Pension Income Test because it affects how income from many financial investments is assessed.
Rather than using the actual income earned from investments, Services Australia often applies deemed rates of return to certain financial assets. This means your assessable income may be calculated using a standard formula, regardless of whether your investments earn more or less than the deemed rate.
Financial assets commonly subject to deeming include:
- Bank accounts
- Term deposits
- Managed funds
- Shares
- Cash investments
Superannuation can also be affected by deeming rules. For many retirees, account-based pensions are deemed under the Income Test. However, some account-based pensions that commenced before 1 January 2015 may continue to receive grandfathered treatment under older assessment rules.
Types of Income Assessed Under the Income Test
The Income Test captures income from a wide range of sources.
Employment Income
Many Australians continue working after reaching Age Pension age. Wages and salary generally count as assessable income, although provisions such as the Work Bonus may reduce the amount assessed for eligible pensioners.
Superannuation Income Streams
Income received from account-based pensions and other retirement income streams may be assessed under Income Test rules. The treatment can vary depending on the type of income stream and when it commenced.
Investment Income
Income from financial investments may be assessed directly or through deeming rules depending on the type of asset involved.
Rental Income
Rental income from investment properties generally counts as assessable income, although certain allowable expenses may reduce the amount assessed.
Business and Trust Income
Income received through businesses, trusts, partnerships, or private companies may also be assessed under Income Test rules. These arrangements can become complex and often require more detailed analysis.
Why the Income Test Matters in Retirement Planning
The Income Test can influence a wide range of retirement planning decisions. Choices about when to commence a retirement income stream, how investments are structured, when assets are sold, and how retirement income is withdrawn may all affect assessable income under Centrelink rules.
This does not mean retirement decisions should be made solely to maximise Age Pension eligibility. Rather, the Income Test is usually one factor among many that retirees consider alongside tax outcomes, investment objectives, cash flow requirements, and long-term financial security.
Because relatively small changes can sometimes affect Age Pension outcomes, many retirees choose to model different scenarios before making significant financial decisions. A licensed financial adviser can help assess how the Income Test and Asset Test may interact within a broader retirement strategy.
Common Situations That Affect the Income Test
Continuing to Work in Retirement
Many Australians continue working after reaching Age Pension age through part-time, casual, or self-employed work. While employment income may reduce Age Pension payments, eligible pensioners may benefit from the Work Bonus, which can reduce the amount of employment income assessed.
Starting an Account-Based Pension
Moving from the superannuation accumulation phase into an account-based pension can change how retirement savings are assessed under Centrelink rules. Depending on when the pension commenced, different assessment methods may apply.
Receiving an Inheritance
An inheritance may not immediately affect the Income Test, but the way inherited funds are invested can influence future assessable income. Money invested in financial assets may become subject to deeming rules.
Selling Investments
Selling investments can alter both assessable income and assessable assets. The impact depends on what happens to the sale proceeds and how those funds are subsequently held or invested.
Frequently Asked Questions
Does the family home count under the Income Test?
No. Your principal family home is not assessed as income under the Age Pension Income Test. However, income generated from other assets and investments may be assessed.
Is superannuation counted under the Income Test?
For people who have reached Age Pension age, many superannuation balances and retirement income streams are assessed under Centrelink rules. Account-based pensions commenced after 1 January 2015 are generally subject to deeming, while some older account-based pensions may continue to receive grandfathered treatment.
What is deeming?
Deeming is the method Services Australia uses to estimate income from certain financial investments. Rather than assessing actual returns, deemed rates are applied to calculate assessable income.
Can working reduce my Age Pension?
Yes. Employment income can affect Age Pension payments. However, eligible pensioners may benefit from the Work Bonus, which can reduce the amount of employment income assessed.
Which matters more: the Income Test or the Asset Test?
Neither test automatically takes priority. Services Australia applies both tests and uses whichever produces the lower Age Pension entitlement.
The Bottom Line
The Age Pension Income Test assesses income from employment, investments, superannuation income streams, rental properties, and other sources to determine Age Pension eligibility and payment rates. It operates alongside the Age Pension Asset Test, with the lower entitlement from the two calculations determining the pension you receive.
Because deeming rules, retirement income streams, investment structures, and employment income can all influence Income Test outcomes, understanding how the rules apply to your situation is an important part of retirement planning. If you are unsure how the Income Test may affect your retirement income, speaking with a licensed financial adviser can help you understand your options and assess how Age Pension considerations fit within your broader financial strategy.
Related glossary terms
Age Pension
Age Pension Asset Test
Deeming Rates
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