Michael Hallinan

The income free areas applying for 2024/25 financial year are $212 (single – previously $204) and $372 (couple combined – previously $360).

The income free area is the amount of income which can be received in respect of each fortnight without adversely affecting entitlement to the age pension under the Income Means Test.

Any amount in excess of the free income area will reduce the age pension by 50 cents per fortnight for each $1 above the income free area.

Example – single self-funded retiree

John’s only income earning asset is his SMSF pension balance of $400,000 (as at 1 July 2024). The SMSF pension is a financial asset so the deeming test will apply. Under the deeming test John will be assessed as receiving $298 per fortnight. The first $212 has no impact on his age pension. The balance above the income free area is $86. His pension entitlement per fortnight will be reduced from $1,116.30 (maximum pension entitlement before reduction due to means tests) by $43.

Whether John draws down $20,000 or $35,000 from his pension is irrelevant. Entitlement to the age pension is based on the deemed income from the pension account and not the amount of the pension payment.

The $400,000 pension balance will be treated as producing $156.50 on the first $62,600 (ie at 0.25%) and $7,591.50 on the balance (being $337,400 at 2.25%). This total of $7,748.00 is converted to a fortnightly rate which is $298 ($7,748/26). The first $212 of the $298 is within the income free area and so has no effect on John’s age pension entitlement. However, the balance – being $86 – will reduce his age pension entitlement by $43 (given the reduction rate of 50 cents in the dollar).

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