Age Pension assets test exemptions: a complete overview

For retirees whose assessable assets sit near the Age Pension means test thresholds, the difference between the partial pension and no pension — or between a reduced rate and a higher rate — is determined partly by which assets are counted and which are not. The Social Security Act 1991 includes a series of specific exemptions, and the strategic use of multiple exemptions together is more powerful than deploying any single tool in isolation. Understanding the full landscape of what is and is not assessable is the starting point for any assets test review. The assets test taper reduces pension by $3 per fortnight for every $1,000 of assessable assets above the full-pension threshold (since 1 January 2017, per DSS Guide 4.2.3), so each $1,000 moved from assessable to exempt adds $3 per fortnight — $78 per year — to the pension entitlement. Combined strategies that shift $100,000 or more from assessable to exempt categories can produce meaningful annual pension uplift.

The principal home

The principal home — the dwelling and the land it sits on, up to two hectares — is entirely exempt from the assets test under SSAct s.1118(1)(a), regardless of its value. A $2 million home in a capital city produces no assets test disadvantage compared to a $400,000 regional property. Improvements and renovations to the principal home therefore convert assessable cash into exempt home value — a legitimate strategy for retirees near the threshold who have genuine home maintenance or improvement needs. Sale proceeds from the principal home, where the person intends to purchase another home, are exempt for up to 24 months for homes sold on or after 1 January 2023 (SSAct s.1118(1)(f); Services Australia and DSS Guide 4.6.3.90); this can be extended by a further 12 months (to a maximum total of 36 months) if there are genuine delays in finding or building the replacement home.

Refundable Accommodation Deposits

Where a retiree enters residential aged care and pays a Refundable Accommodation Deposit (RAD), the RAD amount is exempt from the Age Pension assets test under SSAct s.1118 once paid to the facility. The practical effect is that assessable funds — whether from super, savings, or an account-based pension — are converted to an exempt deposit, typically improving the Age Pension position. This is covered in the companion article on funding aged care from super.

Funeral bonds

Funeral bonds are purpose-specific financial products under which funds are set aside for funeral expenses and cannot be redeemed during life. These non-redeemability characteristics are what give the bonds their assets test exemption. As at 1 July 2026 the Funeral Bond Allowable Limit is $16,250, reviewed on 1 July each year in line with CPI (Services Australia, page current at 1 July 2026). Note that the DSS Social Security Guide's own threshold table has not yet been updated past its "from 1 July 2025 — $15,750" row, so if you see the lower figure quoted elsewhere, check the date it applies from. Services Australia will disregard the value of up to 2 bonds, provided the amount invested is under the allowable limit.

Two conditions on that exemption are routinely misunderstood, and both can cost a pensioner real money. A jointly owned bond counts as a single bond, and the limit is not doubled — if you and your partner put $32,500 into one joint bond expecting two allowances, the limit that applies is the ordinary $16,250 and the excess becomes an assessable financial investment that is also deemed to earn income. And the bond and the prepaid funeral do not simply stack. The DSS Guide defines an exempt funeral investment as one that, among other things, "does not relate to a funeral for which funeral expenses have been paid in advance" (Guide 4.6.2.10) — so a bond bought to top up a funeral you have already prepaid is not exempt. Services Australia puts the same condition more bluntly, saying it will disregard up to 2 bonds only where you do not also have prepaid funeral expenses. On a page about combining exemptions this is the pair to be careful with: if you are considering both, confirm your specific arrangement with Services Australia before assuming two exemptions apply. If you hold several bonds you may nominate which one or two to exempt, and it is worth choosing the combination that shelters the most. For retirees near the threshold with genuine intent to pre-fund funeral arrangements, funeral bonds allow a modest but real shift of assets to the exempt category.

Prepaid funeral expenses

Genuinely prepaid funeral expenses — where funds are paid directly to a funeral director and held in a trust arrangement for that purpose — are fully exempt under SSAct s.1118(1)(k), with no upper limit. This is more generous than the funeral bond exemption in terms of amount. For retirees with greater pre-funding intent, a prepaid funeral arrangement can remove more capital from assessable assets than the capped funeral bond option. The arrangement must be genuine — a prepayment for actual funeral services, not simply a deposit held in a name.

Qualifying lifetime income streams (post-2019)

Lifetime income streams meeting the "innovative income streams" framework introduced from 1 July 2019 receive a partial assets test reduction. From the assessment day, 60% of the purchase price is assessable for the assets test, dropping to 30% after the threshold day (DSS Guide 4.9.3.35). So 40% of the purchase price is exempt from the outset, rising to 70% exempt after the threshold day. For a retiree purchasing a $300,000 qualifying lifetime annuity, $120,000 is immediately exempt and $180,000 assessable; after the threshold day, only $90,000 remains assessable.

Two cautions belong with that arithmetic. The threshold day is not a fixed age — it tracks life expectancy, so it moves for later purchasers, and for an older buyer it can instead be the last day of a 5-year period beginning on the assessment day. Ask the issuer to state the threshold day for your specific product and purchase date rather than assuming one. More importantly, where the product has a surrender value or death benefit above the Capital Access Schedule limits, the assessable asset is the higher of the 60%/30% figure and those amounts — which can mean the full purchase price is assessed for years, and the $120,000 exemption above simply does not materialise. Note also that only the assets test steps down: 60% of the gross payments is assessed as income for the duration of the income stream, with no equivalent reduction. This concession is specific to products that meet the 2019 framework criteria — including a capital access schedule — and does not apply to guaranteed-withdrawal products or older complying lifetime income streams that do not have a capital access schedule. The partial exemption combined with the longevity protection of a lifetime income stream makes qualifying annuities a dual-purpose tool for retirees near the threshold with longevity concerns.

Personal contents and vehicles

Household contents — furniture, clothing, ordinary household items — are assessable for the assets test at their second-hand (market) value. Services Australia applies a default value of approximately $10,000 for a standard furnished household, which is typically modest. Specific high-value items (art, antiques, jewellery) should be listed at actual market value and can be worth accurate low-end valuation if the second-hand value is genuinely modest. Vehicles, boats, and caravans are similarly assessable at their second-hand market value rather than replacement cost, which is often substantially lower.

Strategic deployment — using multiple tools together

For retirees near the assets test threshold, the value of these exemptions comes from combining them. A coordinated approach might include home renovations that convert assessable cash to exempt home value where genuine works are needed; funeral bonds or a prepaid funeral arrangement to shift a modest amount; a qualifying lifetime annuity allocation to achieve a partial exemption on a larger sum while adding longevity protection; and, where aged care is being entered, payment of the RAD to remove a substantial amount from assessment. Spousal super contributions from the assessable assets of a retired member to the accumulation account of a younger spouse (if eligible) can also remove those assets from the retired member's assessable position. Debt repayment reduces net assessable assets directly. No individual exemption is large enough on its own for most retirees, but combined strategies that move $100,000 or more from assessable to exempt categories are achievable within the framework and can produce material ongoing pension uplift.

Sources

• Assets test for Age Pension — Services Australia
• Exempting the principal home — sale proceeds (homes sold on or after 01/01/2023) — DSS Social Security Guide 4.6.3.90
• Funeral bonds and prepaid funerals — Services Australia
• Means test assessment of asset-tested income streams (lifetime) — DSS Social Security Guide 4.9.3.35
• Pensions & benefits assets tests — DSS Social Security Guide 4.2.3
• Means assessment for residential aged care — Department of Health, Disability and Ageing