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A Note on the Treatment of Assets in the Australian Age Pension Means Test

Monetary gains

Rafal Chomik and John Piggott

This note looks at the treatment of wealth in the income and assets tests that comprise the Age Pension means test. We demonstrate how the tests interact, the extent to which different assets are treated equally and whether the income and assets tests interact effectively across the asset distribution. Policymakers have equalised treatment of some asset classes but have been reluctant to go further.

Recent reforms have made the means test more aggressive with respect to assessable assets. This recognises the value of not only asset income but the underlying capital value. We show how a similar outcome can be achieved by implementing a comprehensive income test alongside deemed income rates that increase with assets. 

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