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Age Pension Income Test Explained
The income test determines how much Age Pension you receive based on your regular income. Every dollar you earn above the income-free area reduces your pension — but it doesn't stop immediately. This guide explains what counts as income, how the reduction works, and how to apply it to your situation.
⚠️ The income test alone doesn't determine your pension
Centrelink runs your situation through both the income test and the assets test, then pays whichever gives the lower result. So an income-test answer alone isn't your pension — it's only half the picture. To see your actual entitlement (with both tests run together), use the How Much Age Pension Can I Get? calculator.
The Income-Free Area
Centrelink allows you to receive a certain amount of income each fortnight before your pension starts to reduce. This is the income-free area:
| Situation | Income-Free Area (per fortnight) | Annual Equivalent |
|---|---|---|
| Single | ~$5,512/year | |
| Couple (combined) | ~$9,672/year |
💡 How the Reduction Works
Singles: For every $1 of income above per fortnight, your pension reduces by 50 cents.
Couples: For every $1 of combined income above per fortnight, the combined pension reduces by 50 cents (25 cents per person).
What Counts as Income?
✅ Income That IS Counted
- Employment and self-employment income (subject to the Work Bonus — see below)
- Superannuation pension payments — if you are receiving regular drawdowns from a super pension
- Deemed income from financial assets (bank accounts, shares, managed funds, account-based pensions) — see our Deeming Rules guide
- Rental income from investment properties (net of allowable expenses)
- Overseas income and pensions — including foreign government pensions
- Business income — profit from any business activity
- Trust and company distributions
❌ Income That Is NOT Counted
- The family home (exempt from both income and assets tests)
- Age Pension payments themselves
- The first per fortnight of employment income under the Work Bonus
- Gifts, inheritances (but the assets received may then be counted)
- One-off irregular windfalls (assessed case-by-case)
ℹ️ Superannuation in Accumulation Phase
If your super is still in the accumulation phase (not yet converted to an income stream), it is not assessed under the income test — only under the assets test. Once you start drawing an account-based pension, it is deemed to earn income at the standard deeming rates. This is a key planning consideration for couples where one partner is under Age Pension age.
The Work Bonus
The Work Bonus is a special concession that allows Age Pension recipients to earn money from employment or self-employment without it counting toward the income test — up to a generous limit.
| Work Bonus Feature | Amount |
|---|---|
| Fortnightly work bonus | |
| Maximum annual work bonus bank |
Unused Work Bonus accumulates in a "bank" up to the maximum annual amount. This means if you don't work for several months and then take on a short contract, you may have a large credit built up that protects a significant period of employment income. See the Work Bonus Explained guide for full details.
Income Test Cut-off Points
Once your income reaches the cut-off point, your Age Pension payment reduces to zero. The cut-off is calculated from the maximum pension rate and the taper rate:
| Situation | Approx. Income Cut-off (per fortnight) |
|---|---|
| Single (no Work Bonus) | ~$2,500 |
| Single (with full Work Bonus bank of ) | Much higher — depends on timing |
| Couple combined (no Work Bonus) | ~$3,820 |
Note: cut-offs are approximate as they depend on the current maximum rate. .
Worked Examples
📝 Example 1: Retired Single with Investment Income
Margaret is single, a homeowner, and receives deemed income of $180 per fortnight from her bank accounts and managed funds. She has no other income.
- Income-free area:
- Her income: $180/fortnight
- Income below the free area — no reduction
📝 Example 2: Part-Pensioner Working Casually
Robert is single and does occasional casual work. He earned $800 in employment last fortnight and has $250/fortnight in deemed income from his account-based pension.
- Employment income: $800 → Work Bonus reduces to $800 − = $500 assessable
- Deemed income: $250
- Total assessable income: $750/fortnight
- Income above free area: $750 − = $532
- Pension reduction: $532 × 0.50 = $266
📝 Example 3: Couple with Super Pension
David and Judy are a couple. David receives a super pension paying $600/fortnight (deemed at the deeming rate, not the actual payment). Judy has a small term deposit. Their combined deemed income is $330/fortnight.
- Combined income: $330/fortnight
- Income-free area (couple):
- Amount over free area: $330 − = approximately $0 (below the limit)
⚠️ Both Tests Apply Simultaneously
Centrelink calculates your pension under both the income test and the assets test and pays the lower amount. A low income does not guarantee a high pension if your assets are above the threshold — and low assets don't help if your income is high. Always check both tests when estimating your entitlement.
How to Report Your Income
If you receive Age Pension, you must report your income to Centrelink. Depending on your circumstances:
- Employment income must be reported every fortnight (online, via the Express Plus app, or by phone)
- Investment income is generally reported annually — Centrelink will use deemed rates for financial assets
- Rental income changes must be reported when they occur
- Lump sum payments (such as a superannuation withdrawal) must be reported promptly
Want to Know Your Exact Entitlement?
The income test is only half the story — to see your actual pension, run both tests with the How Much calculator. Or get personalised guidance from a specialist.
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Last reviewed: 8 May 2026