How to Calculate Your Age Pension: A Step-by-Step Guide

Calculating your potential Age Pension entitlement can feel daunting, but it doesn't have to be. By breaking it down into a step-by-step process, you can get a clear picture of what you might receive and identify strategies to legally increase your payment.

This guide will use a comprehensive example to walk you through both the assets test and the income test, sharing valuable tips along the way.

The Core Principle: Two Tests, One Outcome

Once you meet the age and residency requirements, how much Age Pension you can get is determined by two independent tests:

• The Assets Test: Looks at what you own.
• The Income Test: Looks at what you earn.

Centrelink calculates your entitlement under both tests. The test that results in the lower pension amount is the one that ultimately determines your payment, while the other is ignored.

Meet John: A Case Study

Let's work through an example together. Meet John. He is 67, single, and a homeowner. He works part-time and has a diverse range of assets, including cash, super, shares, and an investment property.

Step 1: The Assets Test Calculation

The first step is to calculate John's total assessable assets according to the Assets Test rules.

Assessing Property Assets (Family Home vs. Investment)

• Family Home: John's family home is worth $800,000, and he has a $200,000 home loan with an $80,000 offset account. Under Centrelink rules, the value of your principal residence and its associated mortgage are excluded from the assets test. However, the $80,000 cash in the offset account is treated like a normal bank account and is assessable.
• Investment Property: The net equity of an investment property is assessable. This is the market value minus any outstanding investment loan.

Strategy Tip: Because the family home is an exempt asset, using financial assets to pay down the mortgage or for home renovations can be a powerful way to reduce your assessable assets.

Strategy Tip: Always secure an investment loan against the investment property itself, not your family home. If the loan is secured against your exempt family home, the debt will be disregarded by Centrelink, and your assessable assets will be much higher.

Assessing Other Assets (Contents, Vehicles, and Financial Assets)

• Home Contents & Motor Vehicles: These are assessed at their current market value (what you could sell them for today), not their original purchase price or insured replacement value. Most people do not have more than $10,000 worth of contents. It's important to update these values with Centrelink annually to account for depreciation, as they will not do it for you.
• Financial Assets: John's cash, super, shares, and ETFs are all financial assets.
• Consumer Debt: Debts like car loans and credit card balances do not reduce your assessable assets.

After valuing all his assets according to the rules, John's total assessable assets come to $679,000.

Calculating the Pension Under the Assets Test (July 2025 Figures)

1. Compare to the Threshold: The lower assets test threshold for a single homeowner is $321,500. Since John's assets ($679,000) are above this, he won't receive the full pension.
2. Calculate the Reduction: His excess assets are $357,500 ($679,000 - $321,500). For every $1,000 of excess assets, a single person's pension is reduced by $3 per fortnight. The reduction is ($357,500 / 1000) * $3 = $1,072.50.
3. Determine the Entitlement: We subtract this reduction from the full pension rate of $1,149.00.

Under the assets test, John's pension entitlement is $76.50 per fortnight.

Step 2: The Income Test Calculation

Next, we calculate John's assessable income based on the Income Test rules.

Assessing Work Income (with the Work Bonus)

John earns a part-time salary of $12,000 per year, which is $461.54 per fortnight. To encourage pensioners to work, the government provides a "Work Bonus," which can be used to offset this income. After applying the Work Bonus, John's assessable income from his job is reduced.

Assessing Deemed Income from Financial Assets

Centrelink doesn't use the actual income your financial assets generate. Instead, it applies "deeming rates" to estimate the income.

• For John's $499,000 in financial assets, the first $64,200 is deemed to earn 0.25%.
• The remaining amount is deemed to earn 2.25%.

After calculations, his total deemed income is calculated and converted to a fortnightly figure.

Assessing Net Rental Income

For rental properties, Centrelink assesses the net rental income. This is the gross rent minus allowable deductions.

• Allowable Deductions: You can deduct things like loan interest payments, rates, insurance, and maintenance costs.
• Non-Allowable Deductions: You cannot deduct capital depreciation or special building write-offs.
• Rental Loss: If your property makes a loss, Centrelink treats the income as zero. You cannot use this loss to offset other income.

John's net rental income is $10,000 per year, or $384.62 per fortnight.

After combining his work income (minus work bonus), deemed income, and net rental income, John's total assessable income comes to $775.98 per fortnight.

Calculating the Pension Under the Income Test (July 2025 Figures)

1. Compare to the Threshold: The lower income threshold for a single person is $218 per fortnight. John's income is above this, so his pension will be reduced.
2. Calculate the Reduction: His excess income is $557.98 per fortnight. For every $1 of excess income, the pension is reduced by 50 cents. The reduction is $557.98 * 0.5 = $278.99.
3. Determine the Entitlement: We subtract this reduction from the full pension rate of $1,149.00.

Under the income test, John's pension entitlement is $870.01 per fortnight.

Step 3: The Final Result - Which Test Applies?

Now we compare the results of the two tests:

• Assets Test Result: $76.50 per fortnight.
• Income Test Result: $870.01 per fortnight.

Because the assets test produced the lower amount, this is the one that will determine John's payment. John is asset tested.