When you retire, you may be eligible for government benefits, such as a (part) Age Pension. To qualify, you need to be a permanent Australian resident, be at least 67 years old and pass an income and an assets test. Once both the income test and assets test are assessed, whichever awards you the lower rate will be used for your Age Pension payments. Should you not pass one of the tests, then you’re not eligible to receive the Age Pension. There are different rates of Age Pension payments for single and partnered people. If you have a partner, Centrelink will need income and asset information for both of you.

We previously unpacked what’s included in the assets test. In this article we shine a light on the income test.

ABOUT THE AGE PENSION INCOME TEST

The income test helps the government work out if you’re eligible to receive an Age Pension, and if so, how much you’d get. It includes an amount you earn or receive, as well as profits and some regular payments you may get as a gift or allowance. It can either be money or in the form of goods or services. All of you (and your partner’s) income from all sources are assessed, even it’s outside of Australia. If your income is above a certain limit, you won’t be able to receive Age Pension payments.

INCOME LIMITS

For an overview of the standard rules, which apply to most pensions go to the Services Australia website. Here, you’ll find the fortnightly income limits for a single or a couple to receive a full Age Pension. If you receive more than the lower fortnightly limit, you may still receive a part Age Pension, as long as your income does not exceed the income limits for a part Age Pension. The amount of Age Pension you’re eligible for reduces by up to 50c for every dollar earned over the income limit for the full Age Pension.

WHAT'S INCLUDED IN THE INCOME TEST

Examples of items in the Age Pension income test include:

• Investment income such as dividends

• Rental income from investment properties

• Income from superannuation pensions or annuities

• Royalties and commissions

• Payment for work you do

• Deemed interest from bank accounts and super.

The actual amount of income from some of these may be hard to assess. That’s why the government uses 'deeming rules' in some cases to come up with standard rates of income. Deeming is a calculation used by Centrelink to make an estimate of what income you'll earn from your assessable financial assets. For example, the actual income you receive from your account-based pension may not be what Centrelink use in their income calculation. For more information about the role of pensions and what you’ll need to tell Centrelink, head to the Services Australia website.

ABOUT DEEMING

Deeming is a way for the government to make an estimate of what you're likely to earn from things such as investments. Deeming uses your estimated future income earnings, regardless of what you might actually earn from them. The Minister for Social Services sets the deeming rates, which reflect expert advice about what the markets are doing.