How Age Pension is Calculated in Australia — Our Model Explained

This page describes the pension model used in the calculator: Hybrid Pension = User Base Pension + Assets-Test Uplift.

Age Pension Assets Test Thresholds (20 Mar 2026)

Single + Homeowner
Free threshold$321,500
Cutoff$722,000
Max pension$1,200.90 /fortnight
Single + Non-homeowner
Free threshold$579,500
Cutoff$980,000
Max pension$1,200.90 /fortnight
Couple + Homeowner
Free threshold$481,500
Cutoff$1,085,000
Max pension$1,810.40 /fortnight
Couple + Non-homeowner
Free threshold$739,500
Cutoff$1,343,000
Max pension$1,810.40 /fortnight
Taper Rule
Above the free threshold, pension reduces by $3 per fortnight for each additional $1,000 of assets.
Annual Conversion
Annual pension = fortnightly pension × 26.

Pension Calculation Model — Hybrid Assets Test Approach

Hybrid Model

The calculator combines two inputs:

  • User pension — the fortnightly amount you enter, converted to annual.
  • Assets-test uplift — how much your pension is estimated to increase as your assets decline.

Model pension = user pension + max(0, assetsTestNow − assetsTestAtStart)

Assets Test Branch
  • Assets ≤ free threshold → full pension
  • Assets ≥ cutoff → no pension
  • Between the two → pension decreases linearly by the taper rule

Real Return & CPI Inflation Formula

Real Return Rate

The calculator converts nominal return to real return using:

realRate = ((1 + nominalRate) / (1 + inflation)) − 1
CPI Indexing
CPI is applied over time each year. Yearly spending, user-entered pension, assets-test thresholds, and maximum pension amounts are all indexed by the same CPI factor.

Year-by-Year Retirement Simulation

The model runs a monthly simulation loop until the balance reaches zero:

  1. Estimate pension from current assets (Assets Test branch).
  2. Calculate uplift = max(0, assetsTestNow − assetsTestAtStart).
  3. Model pension = user pension + uplift.
  4. Annual gap = max(0, yearly spending − annual pension).
  5. Monthly gap = annual gap ÷ 12.
  6. Update balance = balance × (1 + monthly nominal rate) − monthly gap.
  7. Repeat until balance reaches 0.
Example

Assets = $400,000  ·  Spending = $34,000 /year (Single + Homeowner)

  • At $400,000, estimated pension is below full rate (~$965.40 /fortnight).
  • As assets decline, pension gradually increases.
  • When assets fall below $321,500, pension reaches the full rate ($1,200.90 /fortnight).

Important Notes & Limitations

Estimate Only
This is an estimate tool, not a guaranteed forecast. Actual pension entitlements depend on your full financial circumstances.
Income Test
Current pension logic uses the Hybrid (User + Assets Test) model. The Income Test is not included in this version.
Policy Values
Thresholds and rates are fixed constants based on the policy period shown above. They are updated periodically as government rules change.

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