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Aged Pension Income Test: All You Need To Know

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Your pension is a key part of your retirement plan. Your well-being in your retired life is mostly dependent on your pension. Therefore, it’s important that you have an idea about your pension and an aged pension income test can help you out .

In Australia, superannuation and pension funds make up a large portion of the retirement fund for most retirees. However, unlike superannuation, your pension depends on multiple factors. Your income and assets play a role in determining how much pension you’ll get from the government.

According to Australian Super, 62% Australians above the retirement receive some form of pension from the government. The aged pension income test determines how much pension one will get after retirement.

What is The Aged Pension Income Test?

Aged pension income test - money in a jar

The aged pension income test is a method used by the Australian Government to determine how much pension you’ll get based on your finances.

The test has two major parts, the income test and the assets test. The rate of your pension depends on your income. The higher your income is, the less you’ll receive in pension. Furthermore, after a specific limit, your pension is subjected to tax as well.

Income Test:

We use the income test to determine your fortnightly income post-retirement. Unlike superannuation, your pension is based on how much you earn after you’ve retired from services. 

You’ll receive the highest rate of pension if you make less than 178AUD (for singles) or 316AUD (for couples). Once you reach the cap, you’ll receive 50cents per 1AUD you make. 

Assets Test:

The assets test takes into account how much money your investments and assets make for a specific amount of time. However, instead of calculating your income from your investments, the Australian uses a method called “deeming” to estimate your income from assets.

However, your family home won’t be considered for the assets test since it doesn’t generate any income on its own. But other houses and vehicles you own will be considered for the assets test. Your assets are exempted from taxes up to a specific limit, these include:

Status:Own’s a homeDoesn’t own a home:
Single $263,250 $473,750
Couple (none receiving pension yet)$394,500 $605,000
Couple (One receiving a pension)$394,500$605,000

Deeming and Deeming Rates:

In the case of deeming, the government takes into account the value of your assets and determines a certain percentage of its value as its income.

If you’re single and have assets are valued at 51,800AUD, your deeming rate will be 0.25% of your property value. However, the Government will consider any investment above 51,800AUD for a rate of 2.5%

For couples, the lower rate is at 86,200AUD, and any income afterwards will be subjected to the higher rate. But, if either one of the couples is already entitled to a pension plan, they will be considered eligible for the higher rate for any asset worth more than 41,800AUD. The benchmark amount for the lower deeming rate based on demographics are:

StatusHighest Amount for Minimum Deeming Rate (0.25%)
SingleFirst 51,800AUD of total investment
Couple (None receiving pension yet)First 86,200AUD of total investment
Couple (At least one receiving a pension)First 41,800AUD of total investment

However, the current deeming rates have been set lower than usual due to the COVID-19 pandemic, and it might be changed whenever the situation gets back to normal.

Eligibility for Aged Pension Income Test:

In order to receive a pension, you have to meet certain criteria. These include:

1. Age:

You have to reach a certain “qualifying age” to be considered eligible for the pension plan. Your qualifying age depends on your year of birth.

Since Australians are working for more years than in the past, and the average life expectancy is increasing, the qualifying age is also increasing.

If you were born before 1 July 1952, you’d start receiving pension once you reach 65. However, if you’re born After January 1957, you’ll be eligible for the pension after you reach 67 years. 

The year of birth and it’s designated qualifying age is given below:

Year of birthQualifying age
1st July 1952 or earlier65 years
1st July 1952- 31st December 1953  65 years 6 months
From 1 January 1954 to 30 June 1955                                                                          66 years
1st July 1955 – 31st December 195666 years 6 months
1 January 1957 and afterwards67 years

2. Residency:

The retirement fund is exclusive for Australian citizens only. However, you have to live in Australia for a minimum of 10 years and five consecutive years to receive your pension.

However, you’ll be eligible for pension if you live outside Australia after retirement. In that case, your pension might be subject to taxes based on the laws of your country of residence.

3. Income:

The Government of Australia provides the aged pension to its senior citizens to provide them with stability and assurance at the twilight of their lives. So, it generally caters towards the ones’ with low income.

Your pension rates will reduce with increased income. If you earn more than 2,062.60 (single) or 3,155.20AUD (couple) fortnightly, you won’t receive any pension funds.

What is the Maximum Aged Pension You Can Receive?

According to the most recent pension rates, the highest amount you can receive is 944.30AUD (single) per fortnight and 1,423.60(couple). The pension amounts are paid based on average living costs, inflation rates, healthcare costs etc.

Can You Still Work After Being Eligible For Pension?

To keep Australians’ motivated for work even after the age of retirement, the Australian government started providing work bonuses. These bonuses provide exclusive premiums and subsidies to your pension plan.

If you have a regular work after reaching your qualifying age and make more than 300AUD fortnightly, you’ll be eligible for work bonuses. The scheme will not consider any income you make below 300AUD for pension rates. Only the amount after 300AUD will be taken into account.

However, you have to have a regular job to be eligible for the work bonus scheme. Businesses and personal investments won’t be considered useful.

Conclusion:

Finding stability after retirement isn’t easy. Tight finances, lack of stable income paired with ailments and stress can be hard to deal with.

But, not all of us can retire with adequate funds on our bank accounts. The aged pension plan is our key to stability. The Australian Government is trying it’s best to provide its citizens with an amazing retired life.

However, your pensions should not be your only means of money after retirement. Make Investments for retirement that will act as a secondary source of income to add to your super and pension funds. Calculate your retirement savings and make decisions accordingly!

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