The Age Pension income test is one of two means tests used by Centrelink to determine your pension entitlement. It assesses income from all sources — including deemed income on your financial assets — and reduces the Age Pension progressively as income rises. The test that results in the lower pension payment (assets test or income test) determines your actual entitlement.
Age Pension Income Free Areas (FY2025–26 Approximate)
| Situation | Income free area (full pension) | Pension reduces to nil above |
|---|---|---|
| Single | $204/fortnight (~$5,304/year) | ~$2,397/fortnight |
| Couple (combined) | $360/fortnight (~$9,360/year) | ~$3,666/fortnight (combined) |
For every dollar of income above the free area, the Age Pension reduces by 50 cents (0.50 per dollar).
Thresholds change twice yearly — verify with Services Australia (Centrelink).
What Counts as Income?
Centrelink assesses a wide range of income types:
- Employment income (wages, salary, self-employment income)
- Investment income (dividends, rental income, distributions)
- Deemed income on financial assets (see Deeming, below)
- Income from foreign pensions and income streams
- Business income (net)
- Employer salary-packaged benefits
Some income is exempt or assessed differently:
- The principal home does not generate assessable income
- Some carer payments are exempt
- The work bonus (see below) provides relief for pensioners continuing to work
Deeming — How Financial Assets Are Assessed
Rather than assessing the actual income earned by financial assets (which could be manipulated), Centrelink deems financial assets to earn income at fixed rates — regardless of what they actually earn.
Deeming rates — FY2025–26 (approximate)
| Financial assets | Deeming rate |
|---|---|
| First $62,600 (single) / $103,800 (couple combined) | 0.25% per year |
| Above those thresholds | 2.25% per year |
Example (single person with $300,000 in financial assets):
- First $62,600 × 0.25% = $156.50/year deemed income
- Remaining $237,400 × 2.25% = $5,341.50/year deemed income
- Total deemed income = $5,498/year ($211.46/fortnight)
Compared to the single income free area of $204/fortnight, this person would have their pension slightly reduced by the income test.
Financial Assets Subject to Deeming
Deemed assets include:
- Bank accounts and term deposits
- Shares, ETFs, managed funds
- Account-based pensions (opened after 1 January 2015)
- Superannuation in accumulation phase (once holder reaches Age Pension age)
- Loans to private companies or trusts
Note: Account-based pensions opened before 1 January 2015 by recipients already receiving the Age Pension at that time may be exempt from deeming — they are assessed on actual income.
Work Bonus
Age Pension recipients who continue to work receive a Work Bonus — the first $300/fortnight of employment income (or self-employment income) is excluded from the income test. Unused work bonus accumulates in a credit balance up to a maximum of $11,800.
This allows pensioners to earn modest employment income without reducing their Age Pension — incentivising continued workforce participation.
Income Test vs Assets Test
Centrelink calculates the pension entitlement under both the assets test and the income test, then pays the lower resulting pension. Most retirees with moderate balances are more likely to be limited by the assets test, but this varies.
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Frequently Asked Questions
What are the current deeming rates in Australia? For FY2025–26, deeming rates are approximately 0.25% on the first threshold of financial assets ($62,600 for singles) and 2.25% above. These are set by the government and have been at historically low levels to account for the low-interest-rate environment.
Do I have to report my actual investment returns to Centrelink? No — Centrelink deems income on financial assets at the standard deeming rates, regardless of actual returns. If your investments earn less than the deeming rate, Centrelink still uses the deeming rate. If they earn more, Centrelink still uses the deeming rate (which may be lower).
How does employment income affect the Age Pension? Employment income (above the $300/fortnight work bonus exclusion) reduces the Age Pension by 50 cents for every dollar earned above the income free area. The work bonus credit can offset employment income in higher-earning months.
This article provides general financial information only. Deeming rates and thresholds change regularly. Always verify current rates at servicesaustralia.gov.au. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.