Calculating your age pension

Published: 12 Dec 2019

Find out how Centrelink does the sums. Some helpful information from National Seniors.

You didn’t get an increase in your pension when deeming rates changed. Why? What’s happened? At best you’re perplexed, at worst you’re furious.

No, it’s probably not the fault of some incompetent or overzealous government bureaucrat mucking you around (although, it’s always good to check).

It’s more likely that your wealth status is such that you’re not affected by the Age Pension income test.

But hold on, you thought the income test was part of pension means testing? Confused? Then read on.

How your pension is calculated

Generally, the more wealth you have the less pension you will receive.

There are two tests Centrelink applies to assess your wealth – the income test and the assets test.

After Centrelink applies both the assets and income tests, it gives you a pension based on the test that calculates the lowest pension amount.

What is the assets test?

The assets test is applied to all your assets, except your family home.

A certain amount of these assets is exempt from the test. This depends on whether you’re single or a couple, and whether you own your home or not. This is the assets test threshold.

A taper rate is applied beyond this threshold, which reduces your pension at a rate of $3 per $1,000 of assets.

What is the income test?

To assess your income, Centrelink combines all your sources of income to provide a fortnightly estimate.

This includes the income you are deemed to receive from your financial assets. Financial assets include bank accounts, shares, wages, bonds or managed investments.

The deeming rate applied means it doesn’t matter what you actually earn on your financial assets.

According to the Government, your earnings should be in line with the deeming rate. This will be factored into the calculation of your pension.

A taper rate also applies to the income test. For every $1 of income, you lose 50c of pension per fortnight.

Asset test v Income test

If the assets test gives a lower pension, then this will be your pension.

If the income test estimates a lower pension, then this will be your pension.

So, if you didn’t get a change in your pension when the deeming rates changed in late September, it’s probably because you’re one of the 320,000 part-pensioners whose pension is calculated under the assets test.

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This article is reproduced (with edits) from the National Seniors website at 5 November 2019.