For many Australians, the Age Pension serves as an essential source of income during retirement. However, eligibility for the Age Pension isn’t guaranteed and depends on a set of criteria established by the Australian government. One of the most significant factors is the pension asset test—a measure used to determine whether your assets fall within the allowable limits for receiving the Age Pension. At Avrion Wealth, we help clients navigate these requirements to ensure they understand their eligibility and can maximise their benefits while planning effectively for retirement.

Let’s break down what the pension asset test is, how it works, and what you need to know to make the most of your financial future

What is the Pension Asset Test?

The pension asset test is an assessment used by Services Australia to determine if you qualify for the Age Pension and, if so, how much you are eligible to receive. It calculates the value of assets you own (excluding certain exempt ones) and applies a threshold to determine your pension eligibility. Essentially, the more assets you have, the less pension you’re likely to receive.

This assets test is one of two main eligibility tests for the Age Pension, the other being the income test. Both the income test and assets test are applied, but only the one that results in the lower pension payment is used.

Understanding the pension asset test and how your assets are assessed can help you make financial adjustments, potentially increasing the amount of Age Pension you may be eligible to receive.

How Does the Pension Asset Test Work?

The asset test works by assessing the value of assets you own and comparing this to a threshold. If your assets fall below the threshold, you may be eligible to receive the full Age Pension. If they exceed the threshold, your pension payment is reduced on a sliding scale, and if they are above the cutoff limit, you may not receive any pension payments at all.

The asset thresholds vary based on several factors:

• Marital status: Whether you are single or have a partner.

• Homeownership status: Whether you own your home or are a non-homeowner.

These thresholds are regularly adjusted by the government to account for inflation and changes in the cost of living. Therefore, it’s crucial to stay updated on the current thresholds to understand how they impact your eligibility.

Current Pension Asset Test Thresholds (as of 2024)

The thresholds change depending on whether you’re single or partnered, and whether you own your home.

For homeowners:

• Single: Full pension up to $301,750, with a cutoff at $656,500.

• Couple (combined): Full pension up to $451,500, with a cutoff at $986,500.

For non-homeowners:

• Single: Full pension up to $543,750, with a cutoff at $898,500.

• Couple (combined): Full pension up to $693,500, with a cutoff at $1,228,500.

If your assets fall within these limits, you may qualify for a partial or full Age Pension, with payments reducing by $3 per fortnight for every $1,000 of assets above the lower threshold.

Which Assets Are Assessed?

The asset test covers a range of assets, but not everything you own is considered. Here’s a breakdown of which assets are included and which are exempt.

Assets Included in the Pension Assets Test

• Property (excluding your primary residence): Investment properties, holiday homes, or any other real estate (other than your principal residence).

• Financial investments: This includes savings accounts, shares, managed funds, and other investment assets.

• Vehicles: Cars, boats, and caravans.

• Household contents and personal items: The estimated value of your household furniture, appliances, electronics, and personal belongings.

• Superannuation and retirement savings: If you’re of Age Pension age, your superannuation balance is considered an asset, whether it’s in an account-based pension or not.

• Businesses and farms: The net value of business assets if you own a business or farm.

Assets Exempt from the Pension Assets Test

• Principal home: Your primary residence is exempt, regardless of its value. However, this exemption applies only if you live in it.

• Funeral bonds: Up to a certain amount may be exempt if they are designated for funeral expenses.

• Prepaid funeral expenses: These are also generally exempt, depending on how they are structured.

Knowing what’s included and what isn’t can help you make informed decisions about your financial setup.

Strategies for Managing Assets to Maximise Pension Entitlement

Here are some practical ways to optimise your assets and potentially increase your Age Pension payments:

1. Consider Downsizing:

Since your home is exempt, downsizing can free up equity to use elsewhere. But keep in mind, the proceeds from selling your home are assessable, so it’s essential to plan carefully and seek financial advice on how downsizing might impact your pension.

2. Investing in Exempt Assets:

Investing in funeral bonds or prepaying funeral expenses can reduce your assessable assets without impacting your financial security.

3. Structuring Superannuation:

Depending on your age, there are ways to manage superannuation balances. For example, superannuation held by a partner under Age Pension age is not included in the test, which can be beneficial for couples.

4. Using Gifting Rules Wisely:

While gifting assets to family can reduce your assessable assets, be aware that strict rules govern the amount you can gift. Currently, you can gift up to $10,000 per financial year (with a maximum of $30,000 over five years) without it impacting the pension asset test.

5. Reconsidering Investments:

Certain investments may have a higher impact on your pension eligibility due to their value in the pension asset test. A financial advisor can help you explore investment options that align with your financial goals while maximising your Age Pension entitlement.

Each person’s circumstances are unique, so consulting a financial advisor can help tailor these strategies to suit your specific needs.

How the Pension Asset Test Interacts with the Income Test

The pension asset test isn’t the only determinant of your Age Pension eligibility. The income test also applies, assessing income sources like investments, employment earnings, and superannuation withdrawals. The test that results in the lower pension payment is the one applied, meaning that even if you pass the pension asset test, a high income could still reduce your pension entitlement.

Understanding how the assets and income tests interact is crucial in managing your finances to optimise your Age Pension benefits. At Avrion Wealth, we help clients navigate both tests, providing insights on how to structure assets and income effectively to maximise pension payments.

Common Questions About the Pension Asset Test

1. What happens if my assets increase over time?

As your asset value rises, your Age Pension entitlement may decrease. Regularly reviewing your assets and making adjustments can help manage any impact on your pension payments.

2. How often is the pension asset test applied?

The government reviews the test regularly—typically every few months. It’s important to report any significant changes in your assets to avoid payment issues.

3. Can my pension increase if my assets drop?

Yes! If your assets fall below the threshold, you could qualify for a higher payment. Be sure to report changes to Services Australia promptly.

How Avrion Wealth Can Help You Navigate the Pension Asset Test

At Avrion Wealth, we understand that preparing for retirement involves much more than just saving—it requires strategic planning to navigate eligibility tests like the pension asset test. Here’s how we can support you:

1. Assessing and Structuring Assets: We help evaluate your assets to understand where you stand in terms of the assets test, guiding you on how best to structure them for maximum pension entitlement.

2. Superannuation Guidance: With the right approach, we can help you make the most of your superannuation in the context of the asset test, especially for couples where one partner may be under Age Pension age.

3. Investment Strategy Adjustments: Our advisors can help optimise your investment portfolio to align with your pension goals, whether that means restructuring investments or shifting funds into exempt assets.

4. Estate and Legacy Planning: For those looking to pass on their wealth, we assist with strategies that allow you to reduce assessable assets while meeting your legacy objectives.

5. Ongoing Review and Support: The pension asset test thresholds and rules can change over time. We provide regular reviews of your financial situation to ensure you remain on track to maximise your Age Pension benefits.

Planning for Your Financial Future with Avrion Wealth

The pension assets test can have a big impact on your retirement income, but with careful planning, it doesn’t have to limit your financial security. At Avrion Wealth, we’re committed to helping you navigate the complexities of the test and create a retirement plan that fits your life.

Our team of Brisbane-based advisors is committed to ensuring that your retirement plan aligns with your goals and maximises your benefits. If you’re approaching retirement and want to understand how the pension asset test impacts your Age Pension, contact Avrion Wealth today to begin planning for a secure and financially fulfilling retirement.