The Age Pension and aged care means testing, in plain English

Two different means tests shape the money side of later life in Australia, and people often assume they are one and the same. They are not. The Age Pension has its own income and assets tests, run by Services Australia. Aged care has a separate means assessment, run for the aged care system. They use similar ideas and some of the same information, but they are different tests, with different rules, done by different parts of government.

The short version: the Age Pension is income support you may receive fortnightly, worked out by testing your income and your assets and paying on whichever test gives the lower amount. Aged care means testing is a separate calculation that decides how much you contribute towards your own care and accommodation. Getting the pension does not exempt you from aged care contributions, and the family home is treated differently again in each.

This guide explains both, in plain language, and how they interact. Because the actual thresholds, rates and caps are indexed and change regularly, this guide focuses on how the tests work; always check Services Australia and My Aged Care for the current figures before making a decision.

How the Age Pension is worked out

To qualify for the Age Pension you need to have reached Age Pension age and meet residency rules. After that, how much you receive depends on two tests.

The income test looks at income from most sources: employment, and importantly, income "deemed" to be earned by your financial assets. Rather than tracking what your savings, shares and super actually earn, Services Australia assumes ("deems") they earn a set rate. That deeming approach means the real returns on your investments do not change your pension; the deemed figure does.

The assets test looks at the value of most things you own, such as savings, investments, super in the accumulation or pension phase, a second property, and personal contents at second-hand value. There is a threshold you can hold before your pension starts to reduce, and it is higher for non-homeowners than homeowners.

Services Australia applies both tests and pays you under whichever produces the lower pension. So a person can be limited by the assets test while a neighbour with the same assets but more income is limited by the income test.

The family home and the Age Pension

For the Age Pension, your principal home is an exempt asset: its value is not counted in the assets test, no matter how much it is worth, while you live in it. What your homeownership does affect is the threshold that applies to you, because homeowners and non-homeowners have different asset limits.

This exemption is exactly why selling the home can change your pension. Money locked in the house does not count; the cash, shares or extra super you hold after selling generally does. Our guide to downsizing in retirement covers that trade-off, and the downsizer super rules, in more detail.

How aged care means testing is different

Aged care has its own, separate means assessment. Its job is not to decide a pension; it is to decide how much you contribute towards your care and, in residential care, your accommodation. Broadly, the more income and assets you have, the more you are asked to pay, up to annual and lifetime caps that protect people from unlimited fees.

The categories of fee differ between care at home and residential aged care, and the rules changed with the move to the Support at Home program. Rather than repeat the detail here, our guide to aged care fees explained breaks down the basic daily fee, means-tested contributions, accommodation costs and the caps. The key point for this guide is simply that being on the Age Pension does not mean you pay nothing for aged care; a separate assessment decides your contribution.

The family home in aged care means testing

Here is where the two systems diverge most. Unlike the Age Pension, where the home is fully exempt, the home can be counted in the residential aged care means assessment, but only up to a capped value, not its full market value, and it is exempt entirely if a "protected person" (such as a spouse or a dependent child) still lives there. This capped treatment is one of the most misunderstood parts of aged care costs, and one of the biggest reasons to get advice before selling a home to fund a move into care.

How the two tests interact

Because both tests draw on your income and assets, a change in your finances can move both at once, and not always in the same direction. Selling the home, gifting money to family, or restructuring investments can raise your assessable assets for the pension and change your aged care contribution at the same time. Gifting has its own "deprivation" rules in both systems, so giving money away shortly before applying rarely works as people hope.

The practical takeaways:

• Do not assume the pension and aged care use the same numbers or the same home rules. They do not.
• A financial move that helps one can hurt the other, so model both before acting.
• Services Australia's free Financial Information Service (FIS) offers general guidance at no cost, and My Aged Care has a fee estimator; for anything significant, a fee-for-service financial adviser who specialises in aged care is worth the cost. You can find financial advice services in our directory.

Planning ahead also means having the right people able to act for you if you cannot manage your own finances later; our guide to the enduring power of attorney explains how that works.

Frequently asked questions

Does getting the Age Pension mean I pay nothing for aged care?

No. The Age Pension and aged care fees are decided by separate means tests. Being a pensioner does not exempt you from aged care contributions; a separate aged care means assessment decides how much you pay towards your care and accommodation.

Is my home counted for the Age Pension?

Not while you live in it. Your principal home is exempt from the Age Pension assets test regardless of its value. Your homeowner status does, however, change which asset threshold applies to you, because homeowners and non-homeowners have different limits.

Is my home counted for aged care fees?

It can be, but differently. In the residential aged care means assessment the home may be counted only up to a capped value, not its full worth, and it is exempt if a protected person such as your spouse still lives there. This is a common source of confusion, so get advice specific to your situation.

What is deeming?

Deeming is the rule that assumes your financial assets (savings, shares, super) earn a set rate of return for the income test, regardless of what they actually earn. The deemed amount counts as income; your actual returns are not separately assessed. The deeming rates are set by the government and change from time to time.

Where can I get help working this out for free?

Services Australia's Financial Information Service (FIS) provides free, independent general information about the pension and how decisions affect it. My Aged Care can help with aged care fee estimates. Neither replaces personal financial advice, but both are a good, no-cost starting point.

This is general information, not financial advice, and thresholds and rules change regularly; check Services Australia and My Aged Care for current figures, and consider independent financial advice for your situation.