How does the Australian Age Pension work?

Co-author: TJ Ryan

This is a basic explanation of the eligibility requirements for the Age Pension in Australia and how much income it could provide.

What is the Age Pension?

The Age Pension in Australia is designed to provide income support to older Australians who need it, while encouraging pensioners to maximise their overall income. According to the government’s MoneySmart website, around 65% of older Australians rely on the Age Pension or another government allowance as their main source of income during their retirement.

How does the Age Pension work?

The Age Pension is an income paid to eligible Australians by Centrelink, a division of the Australian Government, on a fortnightly basis. How much you receive depends on how much other income you receive and how much your assets are worth.

Am I eligible for the Age Pension?

In 2018, the Age Pension eligibility criteria you must meet include:

  • Be at least 65 years old
  • Meet an income and assets test
  • Be living in Australia (Australian resident for at least 10 years and physically present in Australia)

To find out how to apply for the Age Pension, read this article. You can make a claim to receive the Age Pension online, over the phone (132 300) or in person at your local Centrelink office.

Compare Superannuation

Related article: Health Insurance For Seniors  

What is the age test?

The age test is the qualifying age you must be to receive the Age Pension in Australia. Currently, the qualifying age is 65 years and six months old, but this will increase as follows:

  • July 2017: The qualifying age will increase to 65 years and 6 months.
  • July 2019: The qualifying age will increase to 66 years.
  • July 2021: The qualifying age will increase to 66 years and 6 months.
  • July 2023: The qualifying age will increase to 67 years.

You can work out what the qualifying age will be in your case by looking at your year of birth:

When will I be eligible for the Age Pension?
Date of birth Qualifying Age
1 July 1952 to 31 December 1953 65 years and 6 months
1 January 1954 to 30 June 1955 66 years
1 July 1955 to 31 December 1956 66 years and 6 months
From 1 January 1957 67 years
Source: Department of Human Services, July 2017

If you also want to know what your superannuation “preservation” age will be, you could use the free online MoneySmart Super & Pension Age Calculator. Just enter your month and year of birth and it will tell you the age at which you will be eligible for the Age Pension (your Age Pension eligibility age) and when you will be able to access your superannuation (your super preservation age).

For a comparison insight on superannuation we have formulated a table below containing details regarding superannuation funds rated by Canstar. This table has been sorted by Star Rating (highest to lowest) based on a balance of $100,000 to $250,000 for an individual aged 50-59 years.

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

Compare Superannuation Funds

What is pension means testing?

The means tests or pension means testing are used by the Department of Human Services to determine your overall wealth and therefore eligibility 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

The Age Pension income test determines the amount you are currently earning. Your Age Pension will reduce 50 cents for every dollar if your income exceeds $168 per fortnight (or $300 for a couple).

For this test, your income includes:

  • Income from financial investments
  • Income from your superannuation fund
  • Employment income if you’re still working
  • Business profits, including profits from a farm
  • Dividends from share investments or trusts
  • Income from rental properties, boarders or lodgers
  • Reportable superannuation contributions made to your superannuation fund
  • Income from outside Australia, including non-Australian pensions

Income does not include current support such as government allowances or rent assistance and scholarships for study or research.

The deemed income test

Some financial assets and investments are also deemed (assumed) to give you a small amount of income in interest, even if they’re not actually giving you income at the moment. Deemed investments include:

  • Savings accounts
  • Term deposits
  • Managed investments
  • Share investments
  • Account-based income streams (such as account-based pensions)

For example, a term deposit does not give you interest (a type of income) until the term matures, but Human Services will assume it provides a small amount of interest throughout the term.

Deeming is aimed at making the income test fair for everyone and it means that you will receive your Age Pension payments in a regular and predictable way, rather than having your payment change every time an investment produces interest.

An investment is exempt from deeming if you can show that the investment has failed completely and you have begun legal action to recover your original capital investment.

The asset test

Human Services assesses how much you own in assets when determining your eligibility for the Age Pension. Your assets both within and external to Australia will be assessed and similar to the income test, if your assets have a net worth over a certain threshold your Age Pension will decrease, or possibly be denied.

Read more about the Age Pension Asset Test here.

How much income can I earn before my age pension is affected?

Single Person
Earning up to $168/fortnight Age Pension is unaffected
Earning more than $168/fortnight Reduced by 50c for every dollar over $168
Earning $1,956.80/fortnight Cut off point: Not eligible for Age Pension
Couple living together (‘couple combined’)
Earning up to $300/fortnight Age Pension is unaffected
Earning more than $300/fortnight Reduced by 50c for every dollar over $168
Earning $2,996.80/fortnight Cut off point: Not eligible for Age Pension
Couple separated due to ill health
Earning up to $300/fortnight Age Pension is unaffected
Earning more than $300/fortnight Reduced by 50c for every dollar over $300
Earning $3,877.60/fortnight Cut off point: Not eligible for Age Pension
Source: Department of Human Services, January 2018

There is also a transitional rate pension that applies to people who had been receiving a pension on 19 September 2009. This transitional rate will be paid until the pension aligns with the current income tested rate (and is no longer higher). Transitional rate pensioners have their payment reduced by less if they earn more than the threshold per fortnight (40c instead of 50c) and they have a higher maximum threshold before their payment is cut off completely.

What is the residence test?

Another Age Pension eligibility criteria is that you must be an Australian resident. To be eligible for the Australian pension you must be an Australian resident and be physically present in Australia. You must have been an Australian resident for at least 10 years continuously (10 years in a row), or 10 years all up, with at least one stay lasting a minimum of five years.

There are exceptions to the residence test for certain people, including:

  • Refugees and former refugees
  • Women who are on a Partner or Widow Allowance before reaching the Age Pension qualifying age
  • Widows who are an Australian resident for two years before reaching the Age Pension qualifying age

There are also exceptions to the residence test for people who lived or worked in a country that has an international social security agreement with Australia.

What are the Age Pension rates?

Below are the amounts that you could receive each fortnight on various rates of the Age Pension, depending on your eligibility and your personal and financial situations (current as at 30 January 2018).

The Pension Supplement payment is added to the Age Pension base rate payment for eligible pensioners, in order to help meet daily household and living expenses.

The Energy Supplement payment is added to the Age Pension base rate payment for eligible pensioners, in order to help meet the costs of clean energy supply to their home.

Single
Maximum base rate $814.00
Maximum pension supplement $66.30
Energy supplement $14.10
Total $894.40
Couple Combined
Maximum base rate $1,227.20
Maximum pension supplement $100.00
Energy supplement $21.20
Total $1,348.40
Couple separated due to ill health, each
Maximum base rate $814.00
Maximum pension supplement $66.30
Energy supplement $14.10
Total $894.40
Source: Department of Human Services, December 2017

What if my situation changes?

If your situation changes at any time while you are receiving the Age Pension or after you’ve made a claim to receive the Age Pension in Australia, you need to let Centrelink know. Usually, you will need to let Centrelink know within 14 days (because the payment is made fortnightly).

Is the Age Pension a fixed rate or indexed?

The Australian pension payment rates are indexed twice a year to make sure they are still in touch with the cost of the living and the average wage that Australians earn. The cost of living is measured by growth in the Consumer Price Index (CPI, a.k.a. inflation) and the Pensioner and Beneficiary Living Cost Index.

For more information

You can find more information on the Human Services website. You can also speak to a Financial Information Service (FIS) officer from the Department of Human Services for free, who can help you understand how the Age Pension relates to your situation. Call 132 300 to speak to an FIS officer.

Receiving the Age Pension

If you’re receiving the Age Pension, you need a good savings or transaction account to put it in. We’ve researched and rated 438 savings and transaction accounts to help you determine value.

The table below provides a snapshot of high interest savings accounts available on the Canstar database, with links direct to the providers’ website. Please note this table has been formulated based on a regular saver with $5,000 savings living in New South Wales.

 

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