The income test is part of the means test used to determine eligibility for the Age Pension and other government benefits in Australia. It measures the level of income a person receives from work, investments, superannuation pensions, and other sources. If income is above set thresholds, the pension payment is reduced or may stop altogether.
This test ensures government support is targeted toward retirees with lower incomes, while encouraging those with higher earnings to rely more on their own resources.
Advanced
The income test is administered by Services Australia and applies alongside the assets test. The test that results in the lower pension payment is the one applied. Income includes wages, rental income, business income, and deemed income from financial assets such as bank accounts and shares.
Deeming rules are used to estimate earnings from financial investments, regardless of the actual returns received. Thresholds vary depending on whether the applicant is single or partnered. Pension payments reduce by 50 cents per dollar of income over the lower threshold for singles, and by 25 cents per dollar each for couples. Thresholds are reviewed and indexed regularly.
Relevance
- Determines how much Age Pension retirees are eligible to receive
- Supports fairness by directing benefits to those with lower incomes
- Guides retirement income planning and financial structuring strategies
Applications
- Assessing Age Pension eligibility for retirees with part-time work
- Calculating the effect of superannuation pensions on entitlements
- Applying deeming rules to estimate income from investments
- Structuring retirement income streams to maximise benefits
Metrics
- Income test thresholds for singles and couples
- Deemed income rates applied to financial assets
- Reduction rate of pension payments per dollar over the threshold
- Number of retirees receiving part pensions under the income test
Issues
- Deeming may overestimate or underestimate actual investment returns
- Complex rules can confuse applicants about their entitlements
- Earnings above thresholds can significantly reduce benefits
- Policy changes to rates and thresholds affect long-term planning
Example
A single retiree earns $200 per fortnight from part-time work and has deemed investment income of $150 per fortnight. Their total income is $350. Since this is above the income test’s free area, their Age Pension is reduced by 50 cents for every dollar over the threshold.
