The Income You Can Have Before the Pension Starts Falling
The Age Pension income test ignores your income up to a free area, then reduces the fortnightly payment by a set amount for each dollar above it. Most of the income being counted is not money you receive — it is the deemed return on your savings — which is why people who earn nothing at all can still have the income test reduce their payment.
- The answer: Assessable income below the free area is ignored entirely; above it, the fortnightly payment falls by the taper rate for each dollar of excess.
- The trap: Assessable income includes the deemed return on your financial assets whether or not you actually receive it, so the test bites even on a household with no wages and no rent.
- The recommendation: Add the deemed figure to any real income before comparing against the free area. The deemed component is usually the larger half.
Where the AI summary above gets this wrong
"You can earn up to $212 a fortnight before your Age Pension is reduced."
That's surface-true. Here's what it misses:
- The free area is not a wages allowance — It applies to all assessable income, and most of that is the deemed return on savings rather than earnings. A retiree with $400,000 in financial assets has used up the free area before working an hour.
- The Work Bonus sits on top of it, not inside it — Employment income is reduced by the Work Bonus first, and only what survives that is measured against the free area. Treating them as the same allowance understates what a working pensioner can earn.
01 What the income test counts
Assessable income is deemed income on financial assets, gross employment income after any Work Bonus, net rental income, income from a business, most foreign pensions, and income from family trusts and private companies you control. It is not the same figure as taxable income and it is not on any tax return.
Payments from an account-based pension are not counted as income in their own right, because the balance behind them is deemed instead. Counting both would assess the same money twice, and the deeming rules set out in the deeming guide are what replace them.
For most retired households the deemed component is the majority of assessable income. That is the fact that makes the free area misleading when it is described as an earnings allowance: the allowance is usually already spent before any work happens.
02 How the free area and the taper fit together
Income up to the free area reduces the payment by nothing. Each dollar above it reduces the fortnightly payment by the taper rate, and for a couple the assessment is on combined income with the reduction shared between the two payments.
The free area is larger for a couple than for a single person, but not double, and there are higher free areas for couples separated by illness. The current figures are indexed and published on the income test page rather than restated here, because they move every July.
The worked example below combines a real income figure with the deemed return on a balance you type in, and applies the free area and taper to the total. What it shows most usefully is the crossover: the balance at which deemed income alone starts reducing the payment.
Shows: your total assessable income for the Age Pension income test — real income plus deemed income on financial assets — and the fortnightly reduction the taper applies to it. Ignores: the assets test, which is assessed separately and is often the binding one, the Work Bonus, and the maximum payment rate that caps the reduction.
03 Where the income test stops mattering
For most part-pensioners the assets test produces a lower payment than the income test, and the lower of the two is what is paid. Optimising income when assets are the binding test changes nothing at all, which is the most common wasted effort in this area.
The exception is a household with high income relative to assets: a large defined benefit pension, substantial rent from a property held in someone else's name, or continuing business income. There the income test binds and the Work Bonus becomes worth planning around.
The two tests are also applied on different timing. Income is assessed as it arises and can be reassessed fortnightly; assets are assessed at their current value and reviewed periodically. A household whose income is lumpy will see the payment move in ways the assets test alone would never produce.
Source: Services Australia — How much Age Pension you can get
People overweight the income test because it is the one with a number they recognise. For most part-pensioners it is not the binding test, and the effort spent arranging income around it does nothing. I would work out which test is producing your payment first, and only then decide whether any of this is worth your attention.
FAQ
How does the income test free area let me earn some income before my pension reduces?
Assessable income up to the free area is ignored, and only the excess above it reduces the payment at the taper rate. The free area applies to all assessable income, not only earnings, so deemed income on your savings uses it up first.
How are my account-based pension payments assessed under the income test?
They are not counted as income. The balance of the account-based pension is deemed instead, and the deemed figure is what enters the income test. Counting the payments as well would assess the same money twice.
Which test decides my payment if both reduce it?
Whichever produces the lower payment. Services Australia calculates the rate under both tests and pays the smaller result, so improving your position under the test that is not binding changes nothing.
Sources
Regulator references
- Services Australia — Income test for Age Pension · Services Australia · 2026The income test: what is assessed, including deemed income on financial assets.Last verified: 2026-09-07
- Services Australia — How much Age Pension you can get · Services Australia · 2026The current payment rates, and the March and September indexation that moves them.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.