Age Pension – 4 major changes applying from 20 September 2025

The four major changes are:

First, and most significant, the deeming rates used for the income means test will increase by 50 basis points.

Second, the maximum rate of age pension will increase by $29.70 per fortnight (single age pensioner) and by $44.80 per fortnight (pensioner couple – both eligible for the age pension).

Third, the cut off limits for part age pensions will increase.

Finally, for individuals who are otherwise eligible for the age pension but are disqualified by the means tests – the taxable income limit for entitlement to the Commonwealth Seniors Health Card will increase by $2,080 (single) and $3,328 (couple – combined).

Deeming Rate changes

What are the details?

The increase in the deeming rate by 50 basis points is the most significant change. The deeming rates (there are two rates – being the low deeming rate and the standard (or higher) deeming rate) determine the notional income of financial assets owned by age pensioners and individuals applying for the age pension.

The low deeming rate applies to the first $64,200 for single pensioners/applicants and to the first $106,300 for pensioner couples/applicants of the value of financial assets, with the standard (or higher) deeming rate applying to the balance of the value of financial assets.

From 20 September 2025 the low deeming rate will be 0.75% and the standard (or higher) deeming rate will be 2.75% (compared to the pre 20 September 2025 rates of 0.25% and 2.25% respectively).

While an increase in the deeming rate when interest rates are seemingly declining is rather strange (given that the deeming rates are proxies for returns currently available for financial assets) – it should be noted that there has been no change in the deeming rates for the previous five years – having been “frozen” as part of the Covid 19 measures. Consequently, the increase is an adjustment of the low (possibly, unreasonably low) deeming rates which have applied for the previous 5 years.

Why use deeming rates?

Deeming rates are used for administrative ease in the application of the income means test. Rather than count the actual income earned by financial assets, the deeming rate applies as a proxy for actual earning rates.

The deeming rates have no impact on the assets means test.

The typical financial assets to which the deeming rates apply are superannuation account balances, income streams – super or annuity, cash deposits, listed securities and interest rate products (term deposits, interest bearing accounts etc).

What are the effects of the changes?

Increasing the deeming rates will increase the amount of income counted for the income means test. All things being equal (ie the value of the financial asset does not change or the financial asset is not sold and the sale proceeds consumed), the increase in the deeming rate will means more income is deemed to have been earned form the financial asset, thereby reducing the age pension entitlement.

A simple illustration of the impact of the increase in the rate is that for each $1,000 of financial assets, the fortnightly age pension entitlement will decrease by $2.50. Before 20 September 2025, $1,000 of financial assets are deemed to produce $22.50 of income per fortnight. On and from 20 September 2025 – the same $1,000 of financial assets will be deemed to produce $27.50 of income per fortnight; an increase of $5.00 per fortnight which, at the 50% reduction rate, will decrease the age pension by $2.50 per fortnight. This illustration assumes that for the income free areas of $218 per fortnight (single) and $380 per fortnight (couple combined); that both the work bonus amounts and the low threshold amount have been fully utilised.

Age Pension Increase

The single rate of age pension will increase by $29.70 per fortnight from 20 September 2025. The couple combined rate of age pension will increase by $44.80 per fortnight from 20 September 2025.

As a result of these increases the maximum fortnightly age pension (before any reduction due to the means tests) will be:

Single age pensioners - $1,178.70 (previously $1,149.00)

Combine couple pensioners (both eligible) - $1,777.00 (previously $1,732.20).

The increased age pension rates will apply automatically from the 20 September 2025.

The above rates do not apply to individuals entitled to the transitional age pension (individuals who were in receipt of the age pension as at 19 September 2009 (and have not ceased entitlement to the age pension since that date) and who were grandfathered from the changes applying to the age pension from that date (primarily the increase in the pension withdrawal rate from 40 cents to 50 cents and other changes) due to the negative impact of those changes on their age pension.

Note these age pension rates are the resident age pension rates. Lower age pension rates apply for age pensioners who are not Australian residents or who have been absent from Australia for a period of 6 weeks or more.

Increase in the part pension cut off limit

The part pension cut off limit (also known as the pension disqualifying income limit) will, from 20 September 2025, be $2,575.40 a fortnight (single age pensioner) and $3,934.00 (couple combined) which is an increase of $59.40 and $89.60 respectively.

The part pension cut off limit is the amount of counted income at which the pension entitlement under the income means test is nil. This limit automatically increases, by reason of the increase in the maximum age pension amount, by twice the increase in the maximum age pension amount (as the withdrawal rate is 50%).

Those individuals who were previously excluded from the age pension, by the application of the income means test, by a small amount should consider reapplying for the age pension.

Note, these age pension cut-off limits are the resident age pension cut-off limits. Lower age pension cut-off limits apply for age pensioners who are not Australian residents or who have been absent from Australia for a period of 6 or more weeks.

Commonwealth Seniors Health Card – increase in taxable income limit

From 20 September 2025, the income limit for entitlement to the Seniors Health Card will be:

For individuals - $101,105 per annum (an increase of $2,080.00); and

For couples - $161,768 per annum (an increase of $3,328.00) – combined limit.

Individuals and couples who would, but for the application of the age pension means test, be entitled to the age pension, will, however, be entitled to the Seniors Health Card if their income is less than the specified income limits.

Individuals and couples who have previously not satisfied the income test (because their income exceeded the relevant income limit) should consider applying for the Seniors Health Card from the 20 September 2025.

While the Seniors Health Card does provide fewer benefits than the Pensioner Card which is automatically issued to age pensioners (whether receiving a full age pension or a part age pension), it is nevertheless still valuable.