Age Pension assets test: What counts, what doesn’t, and how it affects your retirement payments
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The Age Pension means test can feel like a maze of rules. If you’ve ever wondered “How much can I have before it affects my pension?”, you’re not alone. In this article, we’ll break down the Centrelink Age Pension assets test– how it works, what’s counted (and what isn’t), and why it matters for your eligibility and payment rate. We’ll also touch on related retirement factors like the income test, superannuation, homeownership, gifting rules and downsizing incentives. Let’s dive in.
Australia’s Age Pension isn’t automatically available to everyone who hits pension age – you have to pass a means test. This means test has two parts: an assets test and an income test. Centrelink checks both, and whichever test results in a lower pension payment is the one that applies. In other words, you need to be under both the assets limit and the income limit to get the maximum pension. If you exceed one of the limits, that test will reduce your pension (or make you ineligible), even if the other test is fine. It’s a system designed to ensure the pension goes to those who need it most, but it also adds complexity.
Why focus on the assets test? For many retirees, the assets test is the tricky part. Statistics show that a majority of pensioners actually don’t have a lot of assets – over half of full Age Pensioners have assessable assets below $50,000. Meanwhile, among those on a part pension, about two-thirds are limited by the income test (they earn “too much” income), and only one-third are limited by “too much” assets. Still, the assets test raises plenty of questions and confusion, especially for homeowners whose house is exempt. Let’s unpack how the assets test works and why it can be confusing.
Importantly, your home (primary residence) is not counted in the assets test. We’ll discuss more about the home in a moment – but keep in mind that your house’s value is off the table. Almost everything else you own does count in some way. The logic is that if you have significant assets (cash, investments, property, etc.), you’re expected to draw on those before relying on a full government pension.
Centrelink considers a wide range of assets. Here are the main ones included in the assets test assessment:
In short, almost any property or possession of value you have – whether in Australia or overseas – is counted. Even debts owed to you (like if you loaned money to someone) are treated as assets. It’s a comprehensive look at your wealth.
Thankfully, not everything you own counts towards the test. The big one, as mentioned, is your principal home. If you own and live in your house (on land up to 2 hectares), its value is completely exempt – Centrelink ignores it. This is critical because for most homeowners, the house is their largest asset. (If you live on a larger block, the excess land might count unless you have special circumstances, but typical suburban homes are fine)
Other key exempt assets include:
These exemptions can get detailed, but for most people the home is the big exemption, and it’s a relief for homeowners. “If you own the home you live in…it generally won’t count as an asset in the assets test,” as AustralianSuper explains. Do note: while your home is exempt, being a homeowner versus a renter does affect how much in other assets you can have – more on that next.
So how much can you own and still get the pension? The government sets assets test limits that determine eligibility for a full pension and the cut-off for a part pension. These limits depend on your family situation and whether you’re a homeowner or not. Generally, non-homeowners are allowed to have more assets, because they don’t have the benefit of owning a home (and likely need extra savings to pay rent). The limits are indexed and adjusted three times a year (March, July, September) in line with inflation.
Let’s look at the current assets thresholds for a full Age Pension and for a part pension:
Assets limit for a full Age Pension: If your assets are at or below these values, you can potentially receive the full pension (assuming you also meet the income test and other criteria). If you exceed these values, you won’t get the full amount – your pension will taper down.
(For couples separated due to illness, or where only one partner is pension-age, the full pension asset limit is the same combined $470,000 for homeowners (or $722,000 if not homeowners))
Assets cut-off for a part Age Pension: You can still get a part pension if your assets are above the full pension limit, but below these maximum amounts. Once you exceed these cut-off values, you are not eligible for any Age Pension under the assets test.
(If illness separates a couple, their combined cut-off is higher – about $1.236 million (homeowner) or $1.488 million (non-homeowner). For a couple where only one is eligible (and the other is below Age Pension age), the cut-off is the same as for a homeowner couple above.)
Looking at the tables, you can see a single homeowner can have up to $314,000 in assessable assets and still get the full pension, whereas a single non-homeowner (renting, for example) can have up to $566,000 – the difference largely accounts for the value of a home. The pattern is similar for couples. Beyond those “asset-free” amounts, the pension entitlement starts dropping, until it cuts off entirely at the higher threshold for part pensions.
How exactly does the pension reduce once you have assets above the limit? The assets test taper rate is key. Currently, the Age Pension is reduced by $3 per fortnight for every $1,000 of assets above the minimum threshold. In annual terms, that’s a $78 per year reduction for each $1,000 in extra assets. It might not sound like much per $1,000, but it adds up over larger amounts and explains how the cut-off is determined.
For example, for a single homeowner the difference between $314,000 (full pension) and $697,000 (zero pension) is $383,000. If you divide that by $1,000 and multiply by $3/fortnight, you indeed get about the full pension amount. In practice, this means if a single homeowner has, say, $400,000 in assets (which is $86,000 above the full pension limit), their pension would be reduced by roughly $258 per fortnight. Instead of the full rate (around $1,149 per fortnight for a single), they’d get approximately $891 per fortnight in this scenario. The more assets above the threshold, the less pension – until it reaches zero at the cutoff point.
It works similarly for couples, just using the couple’s combined assets. Remember, if you’re part of a couple, Centrelink assesses combined assets (there’s no double-dipping on the thresholds). So you and your partner’s assets are added together for the test, and the limits apply to the couple as a unit, not to each of you separately. This sometimes trips people up – you don’t each get the single threshold. (There is a slight exception if only one partner is eligible for Age Pension – effectively the same combined thresholds apply, but the pension paid is just for the one person).
As noted, the assets test is kinder to those who don’t own a home. Why? Because homeowners’ biggest asset (their house) isn’t counted. To keep things fair, the allowable asset limits for non-homeowners are significantly higher – currently $252,000 higher, in fact, for both singles and couples, which roughly reflects typical housing equity. If you rent or otherwise don’t own property, you’re allowed to hold more in other assets and still get the pension.
For example, a single non-homeowner can have up to $566k in assets for a full pension vs $314k for a homeowner. The part-pension cut-off for a single non-homeowner is $949k vs $697k for a homeowner. That extra allowance is meant to help cover rent or housing costs. (There is also separate Rent Assistance available, and if you get Rent Assistance it actually raises your asset cut-off a bit more, acknowledging the additional support you receive for housing.)
It’s worth emphasizing again: your home is exempt. You could be living in a million-dollar house and still potentially get a full Age Pension, as long as your other assets are below the limit. In fact, about 73% of Age Pensioners are homeowners, and 17.6% of those homes were worth over $1 million, according to ANU research. That wealth in the home doesn’t count towards the test – but if those people sold their home and turned it into financial assets, then it would count. This divergence (home equity vs other assets) is often debated, but for now the rules strongly favor homeowners staying in their home.
If you do sell your home and haven’t bought a new one yet, there are temporary exemptions to avoid penalizing you. Since 1 January 2023, if you sell your principal home with the intent to buy another one, the proceeds can be exempt from the assets test for up to 24 months (2 years) while you search or build. (It used to be 12 months.) During that period, those sale proceeds also get a very low deeming rate on the income test (only 0.25%). This change was specifically made to “reduce the financial impact on pensioners looking to downsize their home”. It gives people breathing room to move house without immediately losing pension entitlements. We’ll talk more about downsizing in a bit.
We’ve focused on assets, but remember the income test runs in parallel. To get the Age Pension (full or part), you also must have income below certain limits. Income for Centrelink includes not just any work salary, but also things like deemed income from investments, rental income from properties, and superannuation pension payments.
Here’s a quick rundown of the income test rules (as of March 2025):
The income test often affects part-pensioners who still work part-time or have substantial investments. For example, a couple might be under the assets limit but have a decent amount of investment income that reduces their pension. Investment income is often “deemed” – Centrelink assumes financial assets earn a certain rate of return, regardless of actual earnings. Currently, deeming rates are quite low (the first ~$60,000 of your financial assets at 0.25%, the rest at 2.25% for singles; slightly higher combined threshold for couples). These rates have been temporarily frozen and are subject to change after June 2024. Deeming simplifies things (you don’t have to report every dividend or interest payment), but it also means low returns don’t “excuse” you from the income test – even if your money is just in the bank, Centrelink will count a nominal income from it.
Which test will hit you? It really depends on your situation. Some people are asset-rich but income-poor (e.g. a $800k house, $200k in savings yielding little income – here the assets test would be the limiting factor). Others are income-rich but asset-light (e.g. someone with a small amount of investments that pay a high income, or still working part-time – the income test might bite first). Many pensioners actually find one test completely determines their rate.
As Noel Whittaker points out, “most wealthier pensioners are asset tested,” and in that case “the income test is not relevant if you are asset tested.” In other words, if your assets are high enough to reduce your pension, you can actually earn extra income up to a point without further affecting your payments, since any reduction is already maxed-out by the assets test. And vice versa – if you’re income-tested, you might have room to hold more assets without losing more pension. It’s an interesting quirk, but managing it gets complicated – which is why many retirees seek financial advice.
Even with the basic rules laid out, real-life situations can be confusing. Let’s tackle a few frequent topics that cause confusion for older Australians: superannuation, homeownership downsizing, gifting, and general complexity.
Super is meant for retirement, so how does it factor into the Age Pension means test? The answer depends on your age and how you’re using your super:
So, super is not a magic escape from the means test (except for the timing strategy with a younger spouse). It’s still wise to save in super for your retirement, but be mindful that large super balances will affect your pension eligibility once you’re old enough to apply for the pension. Many Australians balance the goal of maximizing retirement income with qualifying for at least a part pension (for the concession cards and safety net). This can be a fine line and is one reason the system feels complicated.
What if you simply give away some of your assets – to your children or someone else – in order to get under the asset limit? The government has thought of that, of course. There are gifting rules (sometimes called deprivation rules) to stop people from shedding assets just to get the pension.
You’re allowed to gift, but only up to a certain amount without penalty. Currently, you can give away up to $10,000 each financial year, with a maximum of $30,000 over a rolling 5-year period, without affecting your Age Pension. This is often referred to as the “$10k/$$30k rule.” Importantly, the five-year $30k cap means you can’t, say, give $10k every year indefinitely – once you’ve gifted a total of $30k in a five-year span, any further gifts within that period are “excess.”
And also, no single year can have more than $10k of free gifting. (A couple is considered together for these limits – you don’t get $30k each, it’s $30k combined if you’re a couple.)
If you gift more than these free areas, the excess amount is still counted as your asset – for five years from the date of the gift. In other words, Centrelink pretends you still have that money (even though you gave it away) for the purpose of the assets test, for five full years. They also deem that amount under the income test as if you were earning income from it. After five years, the gift falls off your record and no longer counts. But until then, there’s no advantage to giving away more than allowed – you won’t improve your pension by doing so.
For example, if you gave $50,000 to your daughter this year, $10k of that would be within the annual free limit, but $40k would be excess. That $40,000 will still be counted in your assets (and deemed for income) each year for the next five years, as if you still had it in the bank. In effect, you’d have lowered your own assets and gotten no pension benefit for it – a poor outcome for you, though great for your daughter! The rules are designed to prevent people from transferring wealth to family just to qualify for a taxpayer-funded pension.
So by all means, you can be generous and gift money if you can afford to – just know it won’t help your pension if you exceed the limits. As a tip: some retirees do strategic gifting of up to $10k per year if they genuinely want to help family and slowly reduce assets, but it should be within your means. Centrelink also advises informing them of any significant gifts you make (you’re required to, in fact, if you’re already on payments).
(Note: Spending money on yourself – like home renovations, holidays, a new car – is not “gifting” and there’s no direct penalty for that. However, financial advisers often warn not to overspend just to get a slightly higher pension. As Noel Whittaker illustrates, spending $100,000 to improve your house might increase your annual pension by $7,800, which would take 13 years of pension to equal the spend. In other words, don’t burn through your savings solely to chase a pension – consider the personal value of what you spend on.)
Many empty-nesters consider downsizing: selling the big family home, moving to a smaller, cheaper place, and pocketing the difference for retirement. It sounds straightforward, but how does it interact with the Age Pension? There are a couple of aspects to be aware of:
In summary, downsizing can free up a lot of money for retirement – and the rules are a bit friendlier now for pensioners. But you have to plan carefully: if the freed-up equity just ends up as cash or super, it might reduce your pension. Many retirees use downsizer contributions to boost super (for hopefully higher investment earnings), accepting that they may trade off some pension in return. Others might stagger sales or make renovations to stay put longer. It’s a balancing act between lifestyle, financial comfort, and pension benefits. The key is to not let the pension tail wag the dog – make the housing decision that’s right for your life, and then see how to optimize the finances around it.
If all the above details are making your head spin, you’re not alone. The Age Pension means test has been described as complex and confusing by many. “The system is complex, and many people find it hard to work their way through the labyrinth of regulations,” writes financial expert Noel Whittaker. Even the government acknowledges the rules can be “downright incomprehensible” for applicants. There are different thresholds for singles vs couples, homeowners vs non-homeowners, and special cases; rules that change if your circumstances change; and updates to rates multiple times a year. Not to mention you have to navigate Centrelink’s process, which can be an exercise in patience itself.
Where do people get most confused? Common pain points include: not realizing that everyday items like your car, furniture, or even personal jewelry count as assets (albeit at second-hand value) – some folks overestimate these, others forget them entirely. Many undervalue or overvalue assets; as noted earlier, you should use garage-sale value for used items, not replacement cost.
People also struggle with the interaction between the income and assets tests – for instance, worrying about earning a bit extra from work when they’re already asset-tested (in such cases, additional income might not reduce your pension further). The gifting rules catch some by surprise, especially if they’ve already given money to family without realizing it can count against them for years. And the superannuation nuances, like the younger spouse exemption or how account-based pensions are assessed, are not always well-understood without financial advice.
There are growing calls to simplify the system. Some advocate for merging the income and assets tests into a single means test, or drastically raising the asset thresholds, or even removing certain asset exemptions (like including some portion of the family home) to make it fairer – though that would be politically sensitive. Others suggest clearer communication and guidance for pensioners. The government periodically tweaks rules (for example, the taper rate was tightened in 2017 from $1.50 to $3 per $1,000, which made the asset test harsher, but they also introduced things like the Work Bonus to offset the income test for working seniors). Still, the overarching sentiment is that the means test is too convoluted. It sometimes discourages people from saving (for fear of just missing out on a pension) or from working (because of the income test), and it definitely discourages gifting or transferring assets in ways that might actually make sense for estate planning, etc., because of the penalties.
In the meantime, resources like Centrelink’s Financial Information Service (a free service that can explain rules and options), independent retirement advisors, and community organizations can help seniors navigate the maze. Many older Australians end up consulting a professional or services like Retirement Essentials to help lodge their pension applications and optimize their outcomes – and given the complexity we’ve outlined, that’s understandable.
We’ve covered how the Age Pension assets test works – what’s counted and what isn’t – and touched on related factors like the income test, super, homeownership, gifting, and downsizing. By now, you can see why people approaching retirement often feel overwhelmed by the rules. The assets test itself is a balancing act: it rewards those who have fewer assets with a higher pension, yet it has odd quirks (like completely ignoring the home or super of a younger spouse) that create planning opportunities and confusion in equal measure.
On one hand, these rules aim to be fair and targeted; on the other, they can unintentionally encourage complicated financial maneuvers or simply baffle honest retirees who just want to know what they’re entitled to. Many believe a simplification is overdue – perhaps higher free areas, or less frequent adjustments, or more intuitive rules could help. After all, seniors shouldn’t need an actuary or financial advisor just to figure out their pension.
Is the peace of mind provided by the Age Pension being undermined by the complexity of qualifying for it? The Age Pension is often described as a safety net that Australians have earned after a lifetime of work – but if the rules are so convoluted that people can’t navigate them confidently, is it fulfilling its mission?
What do you think – should the Age Pension means test be simplified, and if so, how? Feel free to share your thoughts and experiences in the comments below.
The Age Pension means test in a nutshell
Australia’s Age Pension isn’t automatically available to everyone who hits pension age – you have to pass a means test. This means test has two parts: an assets test and an income test. Centrelink checks both, and whichever test results in a lower pension payment is the one that applies. In other words, you need to be under both the assets limit and the income limit to get the maximum pension. If you exceed one of the limits, that test will reduce your pension (or make you ineligible), even if the other test is fine. It’s a system designed to ensure the pension goes to those who need it most, but it also adds complexity.
Why focus on the assets test? For many retirees, the assets test is the tricky part. Statistics show that a majority of pensioners actually don’t have a lot of assets – over half of full Age Pensioners have assessable assets below $50,000. Meanwhile, among those on a part pension, about two-thirds are limited by the income test (they earn “too much” income), and only one-third are limited by “too much” assets. Still, the assets test raises plenty of questions and confusion, especially for homeowners whose house is exempt. Let’s unpack how the assets test works and why it can be confusing.
Source: Seniors Discount Club
How does the assets test work?
The Age Pension assets test is basically a measure of your wealth – everything you own or have an interest in, minus any debts against those assets. Centrelink looks at the current market value of your assets (what you’d get if you sold them today), not what you paid originally. If you have a loan against an asset (say an investment property mortgage or a car loan), they’ll deduct that debt from the asset’s value. All these assessed assets are added up to see if you’re within the allowed limits for the pension.Importantly, your home (primary residence) is not counted in the assets test. We’ll discuss more about the home in a moment – but keep in mind that your house’s value is off the table. Almost everything else you own does count in some way. The logic is that if you have significant assets (cash, investments, property, etc.), you’re expected to draw on those before relying on a full government pension.
What assets are counted?
Centrelink considers a wide range of assets. Here are the main ones included in the assets test assessment:
- Financial assets: Bank accounts, cash, shares, bonds, managed investments, superannuation (once you’re of Age Pension age), and even gold or collectibles held for investment. (Financial assets are also subject to the income test via deeming – more on that later.)
- Personal assets: Home contents (furniture, appliances), personal effects (jewellery, electronics), vehicles (car, boat, caravan), and similar items. Yes, even your old car and the second-hand value of your furniture count (though typically at garage-sale value, not what you paid new).
- Real estate (other than your home): Investment properties, holiday homes, or land you own are assets. If you own property, any debt against it is deducted from its market value for the test.
- Business assets: If you run a business or have a farm, the assets of the business can count (with some exceptions or concessions for farms). Private trusts or company assets attributable to you are also included.
- Retirement income streams: The balance of account-based pensions or annuities counts as an asset (for defined benefit pensions there are special rules). Essentially, if you’ve converted your super into a pension stream, Centrelink counts its value.
In short, almost any property or possession of value you have – whether in Australia or overseas – is counted. Even debts owed to you (like if you loaned money to someone) are treated as assets. It’s a comprehensive look at your wealth.
What isn’t counted? (Exempt assets)
Thankfully, not everything you own counts towards the test. The big one, as mentioned, is your principal home. If you own and live in your house (on land up to 2 hectares), its value is completely exempt – Centrelink ignores it. This is critical because for most homeowners, the house is their largest asset. (If you live on a larger block, the excess land might count unless you have special circumstances, but typical suburban homes are fine)
Other key exempt assets include:
- Accommodation bonds or refundable deposits paid to aged care facilities. These don’t count in the assets test while you’re in care.
- Prepaid funeral expenses or funeral bonds (within limits) – money set aside for your funeral is generally exempt.
- Superannuation in accumulation phase for those under Age Pension age – if you (or your partner) haven’t reached pension age yet, any super savings in your name are not counted by Centrelink. (This changes once you hit pension age – see the super section below.)
- Certain annuities or income streams can be partially exempt, especially older lifetime products (there are specific rules).
- Assets you can’t readily access yet, like the value of a deceased estate that is still in probate (usually exempt up to 12 months).
- Compensation or insurance payouts intended to buy or repair a home. For instance, if your house was destroyed and you receive an insurance payout to rebuild, that money can be temporarily exempt (typically up to 12 months) while you use it to fix or replace your home.
These exemptions can get detailed, but for most people the home is the big exemption, and it’s a relief for homeowners. “If you own the home you live in…it generally won’t count as an asset in the assets test,” as AustralianSuper explains. Do note: while your home is exempt, being a homeowner versus a renter does affect how much in other assets you can have – more on that next.
Source: Seniors Discount Club
Assets test limits and thresholds (how much is too much?)
So how much can you own and still get the pension? The government sets assets test limits that determine eligibility for a full pension and the cut-off for a part pension. These limits depend on your family situation and whether you’re a homeowner or not. Generally, non-homeowners are allowed to have more assets, because they don’t have the benefit of owning a home (and likely need extra savings to pay rent). The limits are indexed and adjusted three times a year (March, July, September) in line with inflation.
Let’s look at the current assets thresholds for a full Age Pension and for a part pension:
Assets limit for a full Age Pension: If your assets are at or below these values, you can potentially receive the full pension (assuming you also meet the income test and other criteria). If you exceed these values, you won’t get the full amount – your pension will taper down.
| Your situation | Homeowner | Non-homeowner |
|---|---|---|
| Single | $314,000 | $566,000 |
| Couple (combined) | $470,000 | $722,000 |
(For couples separated due to illness, or where only one partner is pension-age, the full pension asset limit is the same combined $470,000 for homeowners (or $722,000 if not homeowners))
Assets cut-off for a part Age Pension: You can still get a part pension if your assets are above the full pension limit, but below these maximum amounts. Once you exceed these cut-off values, you are not eligible for any Age Pension under the assets test.
| Your situation | Homeowner | Non-homeowner |
|---|---|---|
| Single | $697,000 | $949,000 |
| Couple (combined) | $1,047,500 | $1,299,500 |
(If illness separates a couple, their combined cut-off is higher – about $1.236 million (homeowner) or $1.488 million (non-homeowner). For a couple where only one is eligible (and the other is below Age Pension age), the cut-off is the same as for a homeowner couple above.)
Looking at the tables, you can see a single homeowner can have up to $314,000 in assessable assets and still get the full pension, whereas a single non-homeowner (renting, for example) can have up to $566,000 – the difference largely accounts for the value of a home. The pattern is similar for couples. Beyond those “asset-free” amounts, the pension entitlement starts dropping, until it cuts off entirely at the higher threshold for part pensions.
The taper rate – how your pension reduces with assets
How exactly does the pension reduce once you have assets above the limit? The assets test taper rate is key. Currently, the Age Pension is reduced by $3 per fortnight for every $1,000 of assets above the minimum threshold. In annual terms, that’s a $78 per year reduction for each $1,000 in extra assets. It might not sound like much per $1,000, but it adds up over larger amounts and explains how the cut-off is determined.
For example, for a single homeowner the difference between $314,000 (full pension) and $697,000 (zero pension) is $383,000. If you divide that by $1,000 and multiply by $3/fortnight, you indeed get about the full pension amount. In practice, this means if a single homeowner has, say, $400,000 in assets (which is $86,000 above the full pension limit), their pension would be reduced by roughly $258 per fortnight. Instead of the full rate (around $1,149 per fortnight for a single), they’d get approximately $891 per fortnight in this scenario. The more assets above the threshold, the less pension – until it reaches zero at the cutoff point.
It works similarly for couples, just using the couple’s combined assets. Remember, if you’re part of a couple, Centrelink assesses combined assets (there’s no double-dipping on the thresholds). So you and your partner’s assets are added together for the test, and the limits apply to the couple as a unit, not to each of you separately. This sometimes trips people up – you don’t each get the single threshold. (There is a slight exception if only one partner is eligible for Age Pension – effectively the same combined thresholds apply, but the pension paid is just for the one person).
Homeowners vs non-homeowners – a crucial distinction
As noted, the assets test is kinder to those who don’t own a home. Why? Because homeowners’ biggest asset (their house) isn’t counted. To keep things fair, the allowable asset limits for non-homeowners are significantly higher – currently $252,000 higher, in fact, for both singles and couples, which roughly reflects typical housing equity. If you rent or otherwise don’t own property, you’re allowed to hold more in other assets and still get the pension.
For example, a single non-homeowner can have up to $566k in assets for a full pension vs $314k for a homeowner. The part-pension cut-off for a single non-homeowner is $949k vs $697k for a homeowner. That extra allowance is meant to help cover rent or housing costs. (There is also separate Rent Assistance available, and if you get Rent Assistance it actually raises your asset cut-off a bit more, acknowledging the additional support you receive for housing.)
It’s worth emphasizing again: your home is exempt. You could be living in a million-dollar house and still potentially get a full Age Pension, as long as your other assets are below the limit. In fact, about 73% of Age Pensioners are homeowners, and 17.6% of those homes were worth over $1 million, according to ANU research. That wealth in the home doesn’t count towards the test – but if those people sold their home and turned it into financial assets, then it would count. This divergence (home equity vs other assets) is often debated, but for now the rules strongly favor homeowners staying in their home.
If you do sell your home and haven’t bought a new one yet, there are temporary exemptions to avoid penalizing you. Since 1 January 2023, if you sell your principal home with the intent to buy another one, the proceeds can be exempt from the assets test for up to 24 months (2 years) while you search or build. (It used to be 12 months.) During that period, those sale proceeds also get a very low deeming rate on the income test (only 0.25%). This change was specifically made to “reduce the financial impact on pensioners looking to downsize their home”. It gives people breathing room to move house without immediately losing pension entitlements. We’ll talk more about downsizing in a bit.
The income test – don’t forget the other half
We’ve focused on assets, but remember the income test runs in parallel. To get the Age Pension (full or part), you also must have income below certain limits. Income for Centrelink includes not just any work salary, but also things like deemed income from investments, rental income from properties, and superannuation pension payments.
Here’s a quick rundown of the income test rules (as of March 2025):
- Income-free area: You can earn up to $212 per fortnight (single) or $372 per fortnight (couple combined) with no reduction in your pension. This is often called the “free area.” It’s relatively low – roughly $5,500 a year for singles – so it covers maybe a bit of bank interest or a small amount of casual earnings. Anything above that starts to reduce your pension.
- Taper rate (income test): Once you exceed the free area, the pension is reduced by 50 cents for each $1 of income over the limit (for singles). For couples, it’s effectively the same 50c per dollar combined (technically 25c reduction on each partner’s pension per $1 over the limit combined). This means if a single has $100 over the limit, their fortnightly pension goes down by $50.
- Income cut-off: If your assessable income gets too high, your pension goes to $0. For a single, around $2,510 per fortnight (about $65,000 a year) is the cut-off for any pension. For a couple, it’s about $3,836 per fortnight combined (~$99,700 a year). (These cut-offs can be higher if you’re eligible for certain concessions like the Work Bonus for employment income, which currently allows an extra $300 a fortnight of work income per person to be disregarded, plus a one-time $4,000.)
The income test often affects part-pensioners who still work part-time or have substantial investments. For example, a couple might be under the assets limit but have a decent amount of investment income that reduces their pension. Investment income is often “deemed” – Centrelink assumes financial assets earn a certain rate of return, regardless of actual earnings. Currently, deeming rates are quite low (the first ~$60,000 of your financial assets at 0.25%, the rest at 2.25% for singles; slightly higher combined threshold for couples). These rates have been temporarily frozen and are subject to change after June 2024. Deeming simplifies things (you don’t have to report every dividend or interest payment), but it also means low returns don’t “excuse” you from the income test – even if your money is just in the bank, Centrelink will count a nominal income from it.
Which test will hit you? It really depends on your situation. Some people are asset-rich but income-poor (e.g. a $800k house, $200k in savings yielding little income – here the assets test would be the limiting factor). Others are income-rich but asset-light (e.g. someone with a small amount of investments that pay a high income, or still working part-time – the income test might bite first). Many pensioners actually find one test completely determines their rate.
As Noel Whittaker points out, “most wealthier pensioners are asset tested,” and in that case “the income test is not relevant if you are asset tested.” In other words, if your assets are high enough to reduce your pension, you can actually earn extra income up to a point without further affecting your payments, since any reduction is already maxed-out by the assets test. And vice versa – if you’re income-tested, you might have room to hold more assets without losing more pension. It’s an interesting quirk, but managing it gets complicated – which is why many retirees seek financial advice.
Navigating common questions and scenarios
Even with the basic rules laid out, real-life situations can be confusing. Let’s tackle a few frequent topics that cause confusion for older Australians: superannuation, homeownership downsizing, gifting, and general complexity.
Superannuation – how is it treated?
Super is meant for retirement, so how does it factor into the Age Pension means test? The answer depends on your age and how you’re using your super:
- If you are over Age Pension age: Any superannuation you have in accumulation or in an account-based pension is counted as an asset (and if it’s in a pension, the payments count as income). Once you hit age 67 (for those born after 1957) – or whatever the qualifying age is for you – super is just another financial asset as far as Centrelink is concerned. If you have, say, $200,000 in a super account, that $200k will be part of your assets test calculation (and deemed for income).
- If you’re under Age Pension age: Here’s a valuable tip – super in your name is NOT counted while you’re under the qualifying age (as long as it’s not yet being paid out as a pension to you). This leads to a common strategy: in couples with one younger and one older, people often park as much money as possible in the younger spouse’s super. For example, if the husband is 67 and the wife is 62, the wife’s super balance is invisible to Centrelink until she reaches pension age. Financial commentator Noel Whittaker describes this as keeping super in the younger person’s name because “then it is exempt from assessment by Centrelink” – at least until they hit pension age. This is perfectly legal and can help the older partner qualify for a higher Age Pension in the interim. (Of course, the moment the younger spouse does turn pension age, or if they withdraw/start a super pension earlier, that money becomes assessable.)
- If your super is in pension phase: Once you convert super to an income stream (often called an account-based pension or annuity), the account balance is counted as an asset, and the income you draw is usually subject to deeming (the rules changed in 2015 – newer account-based pensions are deemed, older ones may have grandfathered rules). In short, you don’t avoid the means test by drawing a pension – Centrelink will still account for that money. There are some products like certain lifetime annuities that have special treatment, but those are case-by-case.
So, super is not a magic escape from the means test (except for the timing strategy with a younger spouse). It’s still wise to save in super for your retirement, but be mindful that large super balances will affect your pension eligibility once you’re old enough to apply for the pension. Many Australians balance the goal of maximizing retirement income with qualifying for at least a part pension (for the concession cards and safety net). This can be a fine line and is one reason the system feels complicated.
Gifting rules – can I give money to the kids?
What if you simply give away some of your assets – to your children or someone else – in order to get under the asset limit? The government has thought of that, of course. There are gifting rules (sometimes called deprivation rules) to stop people from shedding assets just to get the pension.
You’re allowed to gift, but only up to a certain amount without penalty. Currently, you can give away up to $10,000 each financial year, with a maximum of $30,000 over a rolling 5-year period, without affecting your Age Pension. This is often referred to as the “$10k/$$30k rule.” Importantly, the five-year $30k cap means you can’t, say, give $10k every year indefinitely – once you’ve gifted a total of $30k in a five-year span, any further gifts within that period are “excess.”
And also, no single year can have more than $10k of free gifting. (A couple is considered together for these limits – you don’t get $30k each, it’s $30k combined if you’re a couple.)
If you gift more than these free areas, the excess amount is still counted as your asset – for five years from the date of the gift. In other words, Centrelink pretends you still have that money (even though you gave it away) for the purpose of the assets test, for five full years. They also deem that amount under the income test as if you were earning income from it. After five years, the gift falls off your record and no longer counts. But until then, there’s no advantage to giving away more than allowed – you won’t improve your pension by doing so.
For example, if you gave $50,000 to your daughter this year, $10k of that would be within the annual free limit, but $40k would be excess. That $40,000 will still be counted in your assets (and deemed for income) each year for the next five years, as if you still had it in the bank. In effect, you’d have lowered your own assets and gotten no pension benefit for it – a poor outcome for you, though great for your daughter! The rules are designed to prevent people from transferring wealth to family just to qualify for a taxpayer-funded pension.
So by all means, you can be generous and gift money if you can afford to – just know it won’t help your pension if you exceed the limits. As a tip: some retirees do strategic gifting of up to $10k per year if they genuinely want to help family and slowly reduce assets, but it should be within your means. Centrelink also advises informing them of any significant gifts you make (you’re required to, in fact, if you’re already on payments).
(Note: Spending money on yourself – like home renovations, holidays, a new car – is not “gifting” and there’s no direct penalty for that. However, financial advisers often warn not to overspend just to get a slightly higher pension. As Noel Whittaker illustrates, spending $100,000 to improve your house might increase your annual pension by $7,800, which would take 13 years of pension to equal the spend. In other words, don’t burn through your savings solely to chase a pension – consider the personal value of what you spend on.)
Downsizing your home – new incentives, but be cautious
Many empty-nesters consider downsizing: selling the big family home, moving to a smaller, cheaper place, and pocketing the difference for retirement. It sounds straightforward, but how does it interact with the Age Pension? There are a couple of aspects to be aware of:
- Downsizer super contributions: The government allows those aged 55 and over (as of 1 Jan 2023, it was lowered from 60) to make a one-time downsizer contribution to super of up to $300,000 per person (so $600k for a couple) from the proceeds of selling their home. This is a great way to turn home equity into investable retirement savings without breaching normal super contribution caps. It can be very tax-effective: you move money into the concessionally taxed super environment even if you’re already retired or wouldn’t otherwise be allowed to contribute due to age.
However – if you are already of Age Pension age and you make a downsizer contribution, that money goes into your super and will count towards the assets test (and deeming) as soon as it’s in there. Some retirees are surprised by this: they sell the house, put $300k into super for future income, and then realize their pension drops because their assessable assets just jumped. In other words, moving money from an exempt asset (the home) into an assessable asset (super/financial investment) can reduce or eliminate your Age Pension. One Retirement Essentials article bluntly notes, “Once in super, downsizer contributions become financial assets assessed under Centrelink’s asset test for those over 67, and they also generate deemed income”. So the downsizer contribution is best seen as a long-term retirement planning tool, not a way to game the pension. If one member of a couple is under 67, you might contribute to their super (then it stays exempt until they hit pension age), but eventually it will count. - Asset test exemption period (while downsizing): To encourage pensioners to downsize, the government, as mentioned earlier, extended the assets test exemption on home sale proceeds to 24 month. This means when you sell your home, the proceeds that you intend to use to buy or build your next home won’t count as assets for up to two years. Plus, the deeming on those proceeds is minimized (only the lower deeming rate) during that time. This policy change (effective Jan 2023) was aimed at removing the disincentive for older people to move to housing that better suits their needs. It gives you time to purchase or build your new downsized home without immediately losing pension. After 24 months, any unused portion of the money will become assessable, so the clock isn’t infinite – but an extra year can be a big relief. There’s also provision for an additional 12-month extension in extenuating circumstances (e.g. construction delays).
In summary, downsizing can free up a lot of money for retirement – and the rules are a bit friendlier now for pensioners. But you have to plan carefully: if the freed-up equity just ends up as cash or super, it might reduce your pension. Many retirees use downsizer contributions to boost super (for hopefully higher investment earnings), accepting that they may trade off some pension in return. Others might stagger sales or make renovations to stay put longer. It’s a balancing act between lifestyle, financial comfort, and pension benefits. The key is to not let the pension tail wag the dog – make the housing decision that’s right for your life, and then see how to optimize the finances around it.
Why does it feel so complicated?
If all the above details are making your head spin, you’re not alone. The Age Pension means test has been described as complex and confusing by many. “The system is complex, and many people find it hard to work their way through the labyrinth of regulations,” writes financial expert Noel Whittaker. Even the government acknowledges the rules can be “downright incomprehensible” for applicants. There are different thresholds for singles vs couples, homeowners vs non-homeowners, and special cases; rules that change if your circumstances change; and updates to rates multiple times a year. Not to mention you have to navigate Centrelink’s process, which can be an exercise in patience itself.
Where do people get most confused? Common pain points include: not realizing that everyday items like your car, furniture, or even personal jewelry count as assets (albeit at second-hand value) – some folks overestimate these, others forget them entirely. Many undervalue or overvalue assets; as noted earlier, you should use garage-sale value for used items, not replacement cost.
People also struggle with the interaction between the income and assets tests – for instance, worrying about earning a bit extra from work when they’re already asset-tested (in such cases, additional income might not reduce your pension further). The gifting rules catch some by surprise, especially if they’ve already given money to family without realizing it can count against them for years. And the superannuation nuances, like the younger spouse exemption or how account-based pensions are assessed, are not always well-understood without financial advice.
There are growing calls to simplify the system. Some advocate for merging the income and assets tests into a single means test, or drastically raising the asset thresholds, or even removing certain asset exemptions (like including some portion of the family home) to make it fairer – though that would be politically sensitive. Others suggest clearer communication and guidance for pensioners. The government periodically tweaks rules (for example, the taper rate was tightened in 2017 from $1.50 to $3 per $1,000, which made the asset test harsher, but they also introduced things like the Work Bonus to offset the income test for working seniors). Still, the overarching sentiment is that the means test is too convoluted. It sometimes discourages people from saving (for fear of just missing out on a pension) or from working (because of the income test), and it definitely discourages gifting or transferring assets in ways that might actually make sense for estate planning, etc., because of the penalties.
In the meantime, resources like Centrelink’s Financial Information Service (a free service that can explain rules and options), independent retirement advisors, and community organizations can help seniors navigate the maze. Many older Australians end up consulting a professional or services like Retirement Essentials to help lodge their pension applications and optimize their outcomes – and given the complexity we’ve outlined, that’s understandable.
Is it time for a simpler system?
We’ve covered how the Age Pension assets test works – what’s counted and what isn’t – and touched on related factors like the income test, super, homeownership, gifting, and downsizing. By now, you can see why people approaching retirement often feel overwhelmed by the rules. The assets test itself is a balancing act: it rewards those who have fewer assets with a higher pension, yet it has odd quirks (like completely ignoring the home or super of a younger spouse) that create planning opportunities and confusion in equal measure.
On one hand, these rules aim to be fair and targeted; on the other, they can unintentionally encourage complicated financial maneuvers or simply baffle honest retirees who just want to know what they’re entitled to. Many believe a simplification is overdue – perhaps higher free areas, or less frequent adjustments, or more intuitive rules could help. After all, seniors shouldn’t need an actuary or financial advisor just to figure out their pension.
Is the peace of mind provided by the Age Pension being undermined by the complexity of qualifying for it? The Age Pension is often described as a safety net that Australians have earned after a lifetime of work – but if the rules are so convoluted that people can’t navigate them confidently, is it fulfilling its mission?
What do you think – should the Age Pension means test be simplified, and if so, how? Feel free to share your thoughts and experiences in the comments below.
