9.1.1 Overview of Income and Assets Test Principles

The assessment process

A person's rate of service pension or ISS is based on a number of factors, including:

• the income and assets of the pensioner and, where applicable, the pensioner's partner,

(Note: service pension assesses ordinary income, whilst ISS assesses adjusted income)

• the number of dependent children (for transitional rate clients only),
• whether the person has reached qualifying age and still working,
• the person's family situation,

and whether the pensioner:

• is renting their home,
• lives in a remote area, or
• is blind.

The rate of service pension may also be affected by whether the pensioner is a war widow/widower-pensioner.    

The income and assets tests

Unless a person is permanently blind, the amount of service pension or ISS payable to a person depends on their income and assets. If the person is a member of a couple, their pension is calculated using 50% of the combined income and assets of the couple, regardless of which member of the couple actually receives the income or owns the assets.    

Changes to pension payments under the Secure and Sustainable Pension Reforms

From 20 September 2009, the income test taper rate increased from 40 cents to 50 cents per fortnight (from 20 cents to 25 cents each for couples). The additional income free area for dependent children was also removed and no longer forms part of the calculation of a person's income free area.

Transitional Provisions

The entitlements of existing pensioners whose pension would be reduced because of the income test changes, will be paid under the transitional rules. The transitional rules will ensure that these pensioners stay on the 40 cents taper and have access to the additional child income free area (if applicable) until such time as the standard rules provide a higher rate of pension.

Moving from transitional provisions

When pensioners move from the transitional rules to the standard assessment rules, they cannot return to the transitional rules even when their circumstances change and they would again be better off under the transitional rules. The only exception is temporary assessment as a respite care couple.     

Application of the assessed rate of pension

The rate of service pension and ISS is calculated on an annual basis, converted to a daily amount, and then paid in fortnightly instalments. The amount payable on a pension payday is the total amount payable for the days in the pension period during which the pension was payable.

Once the pension rate has been assessed, a number of minor adjustments may be made to the rate. The amount payable may also be reduced because of advance payments or overpayments.    

Order of reduction of payments

There is a specific order of reduction set out in the VEA.  This is so the taxable component of service pension or ISS is reduced by the income or assets test (or the maintenance income test in the case of saved children) prior to any of the non-taxable allowances.  The order of reduction of payments depends on the:

• reason for the reduction, and
• type of payment.    
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  Section 9.1.5 Order of Reduction

   

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