Co-author: Regina Collins
How does the Age Pension work?
The Age Pension is a fortnightly payment from the Australian Government and is available to eligible retirees. In order to determine your suitability, you can submit a claim to the Department of Human Services who will look at how much other income you receive and how much your assets are worth.
For a more detailed explanation of the Age Pension requirements, click here.
What is pension means testing?
The means tests (or pension means testing) is how the Department of Human Services decides whether you are are eligible to receive government benefits such as the Age Pension. Australian pension means testing includes two tests: the income test, and the asset test.
The income test
Under this test, Human Services assesses how much you currently earn from financial investments, superannuation funds, rental properties, dividends, any jobs you may have, and any other source of income. They also assess any income which you are deemed (assumed) to have such as term deposits, savings accounts, and account-based income schemes.
For more information about the income tests, click here.
The asset test
Human Services also assess how much you own in assets when seeing if you are eligible for the Age Pension. If you own more than the set limit of assets, regardless of whether they are located inside or outside of Australia, you are unlikely to receive a pension. The assets that are assessed include:
Rental properties you own
Rental properties or other real estate that you own are assessed as assets in this test, less any mortgage that may be attached to them.
The home you live in
The home you live in is generally not assessed, unless you use your home to conduct a business. If your house is on more than two hectares of land, Human Services may count it as part of your assets. If you move into a care situation such as a hospice or nursing home, your own home normally will not be assessed for the first two years. If you give someone a life interest in your home (the right to own, live in, or use your home as long as they live), then only a small portion of your home is usually assessed in the asset test.
Living in a home where you have a life interest
A life interest is where you give or sell your home to someone else, but you keep a life interest in the home, which is the right to own, live in, or use the home as long as you live. A life interest will normally not be assessed if you received the life interest in someone’s will, but a life interest may be assessed if you paid money for the right to live in the home.
Living in a retirement village
When you move into a retirement village, it’s common to pay an entry fee or entry contribution. This might be the purchase price when you buy a home in a retirement village, or you may pay a certain amount of rent if you cannot afford to buy a home. If you pay more than the threshold ($203,000 in 2018), Human Services will assume you have bought a home, it will be considered your primary residence and will not be assessed. If you pay less than the threshold, your entry contribution will be assessed as an asset. If you pay rent, you may be eligible to receive Rent Assistance payments. If you move into a retirement village but are not in care, and you still own your primary home, then your primary home will be assessed in the asset test.
Living in a granny flat
A granny flat is a separate, self-contained building or living area attached to another person’s home or property. If you pay someone for a life interest to live in a granny flat, or you pay the costs of constructing a granny flat on their property in exchange for the right to live in it, this is called a granny flat right or a granny flat interest. Special rules apply, and they can vary significantly depending on your situation.
Everything from money in a bank account to managed investments is assessed in the asset test, unless your assets and income have both been frozen.
Superannuation investments are assessed in the asset test once you reach age pension age. If you withdraw superannuation investments from your super fund and put them in a bank account, they will be assessed as a financial investment asset and as deemed income.
Any balance held in an account used to pay an income stream, such as a pension paid from your superannuation, is assessed under the assets test. Special rules apply, notably for older-style exempt income stream accounts.
Business assets held by a business partnership or a sole trader are assessed in the asset test just like personal assets.
Burial plots, prepaid funeral expenses, and funeral bonds are not assessed as assets, unless you have purchased more than two funeral bonds or you purchased funeral bonds when you have already pre-paid your funeral expenses as well. If you have over-purchased funeral investments, these will be assessed as a managed financial investment.
Gifts and donations
In the five years before you reach the qualifying age for the Aged Pension, you can give away money or other assets up to the allowable amount threshold of $10,000 per year, and $30,000 or less in five years. Gifting includes selling property for significantly less than its market value. Gifting does not include selling property in order to meet normal expenses such as renovating your home or buying equipment for your home. If you give away more than the allowable amount, the amount above the threshold will be assessed as an asset.
Stamp collections or other collections for trading or for a hobby are assessed as assets.
Other household contents.
Any miscellaneous household contents that doesn’t fit in an aforementioned category will be assessed as assets.
Additionally, the following (among others) will be assessed for their market value:
- Motor vehicles, boats and caravans
- Licences such as fixing or taxi licences
- Life insurance policies with a savings component
Compare superannuation with Canstar
If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.
To view the past performance of all super funds, rated by Canstar, use our comparison tool: