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This topic describes the ordinary income (1.1.O.30) test and limits for pensions. The pensions income test is based on a person's annual rate of income. There are 5 pension rate calculators that use the same basic income test. The overall rate calculation for a person's assessment using rate calculators B and E, however, requires some additional steps beyond the standard rate calculation.
This topic covers the following matters:
Act reference: SSAct section 1064-E1 Effect of income on maximum payment rate, section 1065-A1 Method of calculating rate, section 1066-E1 Effect of income on maximum payment rate, section 1066A-F1 Effect of income on maximum payment rate, section 1066B-A1 Method of calculating rate
Policy reference: SS Guide 4.2.3 Pensions & Benefits Assets Tests & Limits, 4.2.1.20 Additional Free Area for Dependent Children
The following table lists the payments assessed under each pension rate calculator and the relevant act reference for each calculator.
|
Pension rate calculator… |
Is used to assess … |
And the SSAct reference is… |
|
A |
age pension, disability support pension, wife pension, or carer payment. |
SSAct section 1064-E1 |
|
B |
age pension (blind), or disability support pension (blind), 21 years or older. |
SSAct section 1065-A1 |
|
C |
bereavement allowance, or widow B pension. |
SSAct section 1066-E1 |
|
D |
disability support pension, under 21 years old. |
SSAct section 1066-E1 |
|
E |
disability support pension (blind), under 21 years old. |
SSAct section 1066B-A1 |
Part of the Budget 2009-10 (12 May 2009) the Secure and Sustainable Pension Reform Package includes measures to better target pension payments to those who most need support.
From 20 September 2009, the higher income test threshold for pensioners with dependent children will be abolished to align the pension income test with the allowance and family payments income tests.
From 20 September 2009, the rate at which extra income above the threshold affects the pension will change from 40 cents to 50 cents in the dollar for singles. For couples, the rate will change from 20 cents to 25 cents in the dollar for each member of a couple.
A transitional safety net will apply for the existing pensioners who would otherwise have their payments reduced by the new income test rules. These pensioners will continue to receive their existing payment based on the current 40 cent withdrawal rate and the additional free area for dependent children, until they are better off under the new rules, including the 50 cent withdrawal rate.
From 20 September 2009 a work bonus is used to reduce the amount of assessable employment income in an instalment period. An instalment period is a period of a maximum of 14 days. Only 50 per cent of the first $500 of employment income earned in a 14 day instalment period will be assessed under the income test. Any employment income over $500 is then added to this reduced amount and it is this total of employment income for that instalment period that will be assessed under the income test. If a person's employment income for a 14 day instalment period is less than $500, only 50 per cent of the person's total employment income for that instalment period will be assessed under the income test.
Work bonus applies to recipients who are:
PPS recipients will remain receiving their payment based on the current 40 cent withdrawal rate and the additional free area for dependent children. Work bonus will not apply to PPS recipients.
Act reference: SSAct section 1073AA Work bonus, section 1064 Rate of age, disability support, wife pensions and carer payments (people who are not blind), section 1066 Rate of bereavement allowance and widow B pension, section 1072 General meaning of ordinary income
Policy reference: SS Guide 3.1.14 Work Bonus, 5.1.8.40 Pension Reform - Transitional Arrangements
The following table shows the 5 steps involved in applying the ordinary income test for a pension.
|
Step |
Action |
|
1 |
Identify employment income and apply the work bonus if applicable. |
|
2 |
Determine the person's annual rate of income after allowing for employment income. |
|
3 |
Determine the person's ordinary income free area limit. |
|
4 |
Does the person's ordinary income exceed their ordinary income free area? - If NO, the ordinary income excess is NIL. - If yes, the difference is the ORDINARY INCOME EXCESS. |
|
5 |
Determine 50% of the ordinary income excess. RESULT: the REDUCTION FOR ORDINARY INCOME. |
Act reference: SSAct section 1064-A1 Method of calculating rate, section 1068-A1 Method of calculating rate, section 1064-E1 Effect of income on maximum payment rate, section 1068-G1 Effect of ordinary income on maximum payment rate
Policy reference: SS Guide 5.5.1 Samples of Pension Rate Calculations
Information on current income free areas and income limits can be obtained from the Payment rates and information page on the Centrelink website.
These limits are indexed from 1 July each year.
Income over the income free area limits reduces the payment by:
|
Family Situation |
Pre 1 July 2000 |
On or After 1 July 2000 |
On or After 20 September 2009 |
|
Single |
50 cents in the dollar |
40 cents in the dollar |
50 cents in the dollar |
|
Each partner in a couple |
25 cents in the dollar |
20 cents in the dollar |
25 cents in the dollar |
Compensation, such as weekly worker's compensation payments, are assessed under a separate income test. Lump sum compensation payments are also subject to special rules.
Act reference: SSAct section 17 Compensation recovery definitions, Part 3.14 Compensation recovery
Policy reference: SS Guide 3.1.9.10 Compensation & Payability, 4.13 Compensation, 6.4 Compensation Recovery
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Last reviewed: 21 September 2009
