Australians aged 67 years or older may be entitled to receive the Age Pension to help them fund basic living costs in retirement.
The Age Pension is paid on a fortnightly basis up to a maximum total payment of $1,200.90 per fortnight for singles and $1,810.40 for couples combined.
These sums include the maximum basic rate, the maximum pension supplement, and the energy supplement.
The catch is, not everyone is eligible.
It is heavily dependent on your income level and the assets that you own.
The problem is that many Australians miss out on payments because they don't really understand how the income test works.
Overlooking income limits could quickly reduce your Age Pension payment, or you could lose it altogether.
Here are the most important things Australians at age 56 need to know about the Age Pension income test before they retire.
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1. Income applies to all incoming money, not just wages
The income test assesses all of your income pooled from all sources. That includes anything from superannuation contributions, investment income, part-time wages, bonuses or commission payments. It's applicable regardless of your age.
2. Income thresholds for the maximum Age Pension
In order to receive the full Age Pension, singles can't earn more than $218 per fortnight, while couples can't earn more than $380 per fortnight.
But it's still possible to receive a part pension if you earn over those thresholds.
3. The sliding scale
Singles can earn up to $2,619.80 per fortnight, and couples (living together) can earn up to $4,000.80 per fortnight and still qualify for at least a part-Age Pension.
Couples living apart due to ill health can earn a little more, at up to $5,183.60.
But, it's important to note that your income is assessed on a sliding scale.
For a single person, your Age Pension will reduce by 50 cents for each dollar over $218 and for couples it will reduce by 25 cents for each dollar over $380.
In other words, the more you earn, the lower your Age Pension payment will be, until it reaches zero when your income hits the maximum allowed figure.
4. Age Pension deeming rules apply
Deeming is a calculation centrelink uses to determine how much income you make from your financial assets.
Deeming assumes your financial assets (like bank accounts, superannuation, and shares) earn a fixed, set rate of income, regardless of what they actually earn.
This assumed income is then added to your other income to determine your Age Pension rate.
For single Australians, the first $64,200 of your financial assets has the deemed rate of 1.25% applied. Everything over that is deemed to earn 3.25% interest.
Couples have a 1.25% deeming rate on their first $106,200 of combined financial assets (this includes superannuation). Anything over $106,200 is deemed to earn 3.25%.
5. The 'lower of two' rule
The Age Pension eligibility depends on your income and the assets that you own. But to ensure the system is fair, unfortunately the Australian Government assesses you under both tests and will apply whichever test the lowest rate of payment for your individual circumstances.
