Income test
The Age Pension test that reduces payments based on your assessed income, including deemed returns on investments.
The income test counts employment income, rental income, and deemed income from financial investments. Deeming assumes your financial assets earn a set rate regardless of what they actually return.
Deeming applies a lower rate to a first tranche of assets and a higher rate above it. Because it is assumed rather than actual, holding money in a low-interest account does not reduce assessed income.
The Work Bonus disregards a portion of employment income, allowing pensioners to work part-time without an immediate reduction in payments.
Income and assets are tested separately and the lower resulting payment applies. That means improving your position under one test achieves nothing if the other is the binding constraint, which is why both need to be modelled together.
Deeming versus reality
Keeping $200,000 in a low-rate account still attracts deemed income at the applicable rates. Earning less than the deemed rate does not reduce the assessed amount.
The bit people get wrong
Deeming means chasing a poor return offers no advantage for pension purposes. Since income is assumed either way, investing for a better actual return costs nothing in entitlement.
Common questions
What are the deeming rates?
A lower rate applies to a first threshold of financial assets and a higher rate above it. Both are set by government and reviewed periodically.
Is my account-based pension deemed?
Account-based pensions started after 2015 are generally deemed under the income test. Older grandfathered pensions may use different treatment.
What is the Work Bonus?
A concession disregarding a set amount of employment income each fortnight, with unused amounts accumulating in a bank up to a maximum.