The Age Pension is determined by running both an assets test and an income test simultaneously. The payment you receive is the lower of the two results — whichever test produces the smaller pension governs. For most pensioners with large superannuation balances, the assets test binds. For pensioners with defined benefit pensions, significant rental income, or foreign pensions, the income test is more likely to be the binding constraint.
The Age Pension is determined by two separate means tests — an assets test and an income test — applied simultaneously. The payment you receive is the lower of the two results. Most pensioners know they're subject to means testing but not everyone understands that both tests run in parallel and that the more restrictive result governs, which has direct implications for which strategies are worth pursuing.
How does the Age Pension assets test work?
The assets test applies a taper rate of $3 per fortnight for every $1,000 of assessable assets above the full-pension threshold. From 20 March 2026, those thresholds for homeowners are $321,500 for a single pensioner and $481,500 combined for a couple. Below those levels, the full pension is paid regardless of asset values. Above them, the pension reduces at $3 per fortnight per $1,000 — equivalent to $78 per year per $1,000 — until it reaches zero at the cut-off. The cut-off for a single homeowner is $722,000; for a couple homeowner combined, $1,085,000. Non-homeowners have higher thresholds, by approximately $242,000 as at the same date.
Assessable assets include superannuation (whether in accumulation or pension phase for those at Age Pension age), investment properties at net market value, shares, managed funds, bank accounts, term deposits, and most other financial and non-financial assets. The family home — the principal residence — is exempt from the assets test in full, regardless of its value.
How does the Age Pension income test work?
The income test applies a taper of 50 cents per dollar of assessable income above the income free area. From 20 March 2026, the income free area is $218 per fortnight for a single pensioner and $380 per fortnight combined for a couple. For couples, the taper works as 25 cents per partner for every dollar of combined income above $380 — producing the same 50-cent combined effect. The pension reaches zero for a single pensioner at $2,619.80 per fortnight in combined assessable income, and for a couple at $4,000.80 per fortnight combined.
For most pensioners, the dominant income test item is not wages or investment earnings but deemed income: Centrelink applies a notional return to all financial assets at 1.25% on the amount up to the deeming threshold and 3.25% on amounts above it (rates from 20 March 2026). For a single pensioner, the lower deeming rate applies to the first $64,200 of financial assets. For a couple, the combined below-threshold rate applies to the first $106,200. Financial assets above those levels are deemed to earn 3.25%, and that notional income feeds into the income test whether the assets are actually earning that return or not.
Which test — assets or income — determines the pension payment?
For most pensioners with substantial superannuation balances, the assets test binds — producing a lower pension than the income test would. This is the most common pattern. A couple with $750,000 in super and minimal other assets has a large assets test exposure but modest deemed income relative to the income free area.
The income test binds in fewer situations: pensioners with substantial income from defined benefit pensions, work, rental income, or foreign pensions; or pensioners with relatively modest assets but higher actual income. In these cases, reducing assets wouldn't directly help the pension unless the reduction was large enough to shift which test is binding.
For pensioners below both thresholds — assets below $321,500 for a single homeowner, for example — neither test is a factor and the full pension is paid.
How do both tests combine for a single pensioner?
A single homeowner with $400,000 in total assessable assets (mostly super) and $20,000 per year in income (mostly deemed) faces two calculations:
Assets test: excess above $321,500 is $78,500. At $3 per fortnight per $1,000, the reduction is $235.50 per fortnight.
Income test: $20,000 per year is approximately $769 per fortnight. Above the $218 free area, the excess is $551 per fortnight. At 50 cents per dollar, the reduction is $275.50 per fortnight.
The income test produces the larger reduction in this example — $275.50 versus $235.50 — so the income test binds. The pension paid is $1,200.90 − $275.50 = $925.40 per fortnight.
How do both tests combine for a couple?
A couple homeowner with combined assessable assets of $750,000 (primarily superannuation) and combined income of approximately $15,000 per year (mostly deemed):
Assets test: excess above $481,500 is $268,500. At $3 per fortnight per $1,000, the reduction is $805.50 per fortnight combined.
Income test: $15,000 per year is approximately $577 per fortnight. Above the $380 combined free area, the excess is $197 per fortnight. At 50 cents per dollar combined, the reduction is $98.50 per fortnight combined.
The assets test produces the far larger reduction — $805.50 versus $98.50 — so the assets test binds substantially. For this couple, asset reduction strategies (gifting within limits, NCC to super, pre-paying allowable expenses) would have a material effect on pension; income management strategies would not, until the balance of the tests shifts.
What are the strategic implications of knowing which test binds?
Knowing which test binds is the starting point for any pension optimisation. If the assets test binds, every $1,000 removed from assessable assets produces a $3 per fortnight pension increase — approximately $78 per year. This is a meaningful return that structures like the gifting allowance, NCC super contributions, funeral bonds, or pre-payment of genuine expenses can exploit within their respective limits. If the income test binds, the focus shifts to minimising assessable income — either by holding assets that produce lower deemed income relative to their value, or by structured moves that alter the income-producing composition of the portfolio.
The binding test can also change over time. Rising asset values from investment returns can increase the assets test exposure. A deeming rate increase can shift income test outcomes. A change in living arrangements — homeowner to non-homeowner, or single to couple following a partnership change — alters the applicable thresholds. Annual review of which test applies, particularly for pensioners close to a cut-off or approaching a major financial change, is worth building into a regular planning cycle.
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Key takeaways
- The Age Pension lower-of test means both the assets test and the income test are calculated simultaneously, and you receive the lower of the two results. Knowing which test is binding — assets or income — is the starting point for any pension optimisation strategy.
- The assets test applies a taper of $3 per fortnight per $1,000 of assessable assets above the full-pension threshold. From 20 March 2026, those thresholds are $321,500 for a single homeowner and $481,500 for a couple homeowner, with cut-offs at $722,000 and $1,085,000 respectively.
- The income test applies a taper of 50 cents per dollar of assessable income above the income free area. From 20 March 2026, the income free area is $218 per fortnight for singles and $380 per fortnight for couples. For most pensioners, deemed income on financial assets is the dominant income test item.
- When the assets test binds, every $1,000 removed from assessable assets adds $3 per fortnight — approximately $78 per year — to the pension. Strategies including gifting within limits, non-concessional super contributions, funeral bonds, and prepayment of genuine expenses can each reduce assessable assets within their applicable rules.
- The binding test can change as asset values rise, deeming rates change, or living arrangements shift. Annual review of which test is currently limiting the pension is worthwhile for pensioners close to a threshold or approaching a significant financial change.
Frequently asked questions
What is the Age Pension lower-of test?
The lower-of test refers to the way the Age Pension means test operates: both the assets test and the income test are calculated simultaneously, and you receive the lower of the two results. The pension is not averaged between the two tests — the more restrictive result governs. If the assets test would pay $800 per fortnight and the income test would pay $600, you receive $600. Understanding which test is the binding constraint is essential before deciding on any strategy to improve pension entitlement.
How does the assets test affect the Age Pension?
The assets test reduces the pension at a taper of $3 per fortnight for every $1,000 of assessable assets above the full-pension threshold. From 20 March 2026, those thresholds are $321,500 for a single homeowner and $481,500 combined for a couple homeowner. Non-homeowners have higher thresholds by approximately $242,000. Below the threshold, the full pension is paid. Above it, the pension reduces until it reaches zero at the cut-off ($722,000 for a single homeowner; $1,085,000 for a couple homeowner). The family home is fully exempt from the assets test regardless of its value.
How does the income test affect the Age Pension?
The income test reduces the pension at 50 cents per dollar of assessable income above the income free area. From 20 March 2026, the free area is $218 per fortnight for singles and $380 per fortnight combined for couples. For most pensioners, the dominant income test item is deemed income — Centrelink applies a notional return of 1.25% on financial assets up to the deeming threshold and 3.25% above it, regardless of actual earnings. Work income, rental income, defined benefit pension income, and foreign pensions also count, using the actual amounts.
Which test — assets or income — usually limits the Age Pension?
For most pensioners with substantial superannuation balances and modest actual income, the assets test is the binding constraint. This is the most common pattern. The income test binds in fewer situations: pensioners with defined benefit pensions, rental properties with high net income, employment income, or significant foreign pensions may find the income test more restrictive despite modest assessable assets. For pensioners well below both thresholds, neither test is a factor and the full pension is paid.
What can I do if the assets test is limiting my Age Pension?
If the assets test is the binding constraint, every $1,000 of assessable assets removed adds $3 per fortnight to the pension — approximately $78 per year. Legitimate options include gifting within the annual limits ($10,000 per year, $30,000 over any rolling five-year period), making non-concessional contributions to superannuation (for members below Age Pension age, accumulation super is generally excluded), prepaying funeral bonds within the applicable caps, and pre-paying genuine planned expenses. Income management strategies don't help pension entitlement when the assets test is binding — the effort needs to go where the constraint actually sits.