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.

How is the principal home treated under the Age Pension assets test?

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 12 months under SSAct s.1118(1)(f); this can be extended by a further 12 months (to a total of 24 months) if there are genuine delays in finding or building the replacement home.

Are Refundable Accommodation Deposits exempt from the assets test?

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.

How are funeral bonds treated under the Age Pension assets test?

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 under SSAct s.1118(1)(j). The exempt limit is $15,500 per person for FY2025-26 (indexed, per Services Australia). Each member of a couple can hold up to the limit separately, providing a combined exempt amount of approximately $31,000. Amounts in excess of the limit are entirely assessable. 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.

How are prepaid funeral expenses treated under the Age Pension assets test?

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.

How are qualifying lifetime income streams treated under the Age Pension assets test?

Lifetime income streams meeting the "innovative income streams" framework introduced from 1 July 2019 receive a partial assets test reduction. Under SSAct s.1118A and the associated retirement income regulations, 60% of the purchase price is assessable for the assets test initially, reducing to 30% after the product's "cessation age" (broadly, when the expected life expectancy at the time of purchase is reached). This means 40% of the purchase price is immediately exempt upon purchase, rising to 70% exempt after the cessation age. For a retiree purchasing a $300,000 qualifying lifetime annuity, $120,000 is immediately exempt and $180,000 assessable; after the cessation age, only $90,000 remains assessable (FirstTech Strategy Matrix 2025-26). 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.

How are personal contents and vehicles assessed for the Age Pension?

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.

How can multiple assets test exemptions be combined strategically?

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.