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Offset Account and the Age Pension Assets Test: How It Counts

Retiree reviewing a home loan statement

Yes, the money in your mortgage offset account counts as an asset for the Age Pension assets test. The balance is treated as a financial asset, and the home loan it is linked to does not reduce it. Your home is exempt, but the cash sitting beside it is not. Below we cover how the balance is assessed, why the loan debt does not cancel it out, and how to compare your options before you move any money.

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TL;DR

  • An offset account balance is a financial asset. It counts in the assets test and is also deemed to earn income under the income test.
  • The mortgage on your home does not net off against the offset balance, because your principal home is exempt and the debt is tied to an exempt asset.
  • Redraw balances are treated differently from offset balances, so offset and redraw are not interchangeable for Age Pension purposes.
  • Thresholds change several times a year. Check Services Australia for the current figures before you decide.
  • Model the options side by side, with and without the offset, before you pay down the loan or move cash.

Table of Contents

Is an offset account an asset for the Age Pension?

It is. A mortgage offset account is a transaction account, usually linked to a variable-rate home loan, whose balance reduces the amount of the loan charged interest. That is the banking side. Centrelink and the Department of Veterans’ Affairs (DVA) look at it differently: it is money you hold and can reach.

DVA’s policy library lists money in home loan offset accounts among financial assets for deeming purposes, even where the interest benefit is applied against a loan. Commentary published by InvestSMART explains the reasoning: because you can get at the funds at any time, the full value is counted under the assets test.

The practical result is simple. If you have $150,000 in an offset account, the assets test sees $150,000 of financial assets, in the same way it would see $150,000 in a savings account.

How the assets test works in a few lines

The assets test measures the value of your assessable assets. If they sit above the free area, your pension reduces until a cut-off point where no payment is payable. Assets are generally valued at current net market value minus debts owed on the asset.

There is a second test running in parallel. Your payment rate is calculated under the income test and under the assets test, and the test giving the lower rate applies. So an offset balance can matter twice: once as an asset, and once through deeming, which assumes your financial assets earn a set rate of income whatever they actually earn. The same InvestSMART commentary notes that offset funds are included in the assets test and, through deeming, also in the income test.

For a fuller walk through the numbers, see our guide to the Age Pension assets test thresholds and our explainer on the Age Pension income test.

Current thresholds

As of 20 September 2026, Services Australia lists the assets test cut-off point for a single homeowner at $745,750. The limits are reviewed in March, July and September each year, so any figure you read, including this one, can be out of date within months. Use the Services Australia page for the current free areas and cut-offs for your situation (single or couple, homeowner or non-homeowner).

Why the mortgage does not cancel the offset balance

This is the point that trips people up. Many homeowners reason like this: “I owe $300,000 on the house and I hold $100,000 in offset, so my net position is $200,000 of debt.” The assets test does not follow that logic.

The reason is how debts are treated. Services Australia says debt secured against an asset is deducted from that asset’s market value. If an unsecured loan was used to buy an asset, it may also be deducted from that asset’s value. The debt travels with the asset it relates to.

Your principal home is exempt, so the mortgage against it has nothing to be deducted from. The offset balance is a separate financial asset. According to the InvestSMART commentary, the mortgage debt is only subtracted from assets secured by that mortgage, and the principal residence is exempt, so the offset does not reduce the loan for assets test purposes.

How home debt and offset cash are assessed

DVA makes a related point: a mortgage raised against an exempt asset such as your home, then used to finance other investments, does not reduce the assessable value of those other investments.

A worked example

Take a single homeowner with a $250,000 loan and $120,000 in an offset account. These numbers are illustrative only.

Item How the assets test treats it
Family home Exempt (within the home’s land limits, see below)
Home loan of $250,000 No deduction, because it is secured against an exempt asset
Offset balance of $120,000 $120,000 financial asset, and deemed income
Other assessable assets Added on top

So the offset adds $120,000 to the assessable total, and the loan does not take any of it away. Whether that tips you over a free area depends on everything else you own, which is why a one-off calculation is rarely enough.

The exemption for the home itself has its own limits on land size. We cover that in when the first 2 hectares of your family home count.

Offset versus redraw: a difference that matters

The InvestSMART commentary points out that redraw facilities are not counted as assets, while offset balances are. It also says a lump sum is usually best used to pay off a mortgage rather than deposited in an offset account, from an assets test point of view.

That is a 2016 source, so treat it as a pointer to what to ask, not as a rule to apply blindly. Rules, thresholds and how lenders describe redraw can change, and a lender’s product terms decide how a redraw balance actually works. What stays useful is the question itself: does the money I keep available count as something Centrelink assesses?

Offset and redraw also differ on everyday matters like fees, access and how interest is calculated. Our comparison, offset vs redraw, sets those out from the borrower’s side.

Weighing the trade-offs before you move money

There is no single right answer. The question is which combination of loan balance, cash and pension entitlement suits your plan. A few things sit on the table.

Interest saved versus pension impact

An offset account saves interest because less of your loan balance is charged interest. Paying the loan down does the same job in a different way, and shifts money from an assessable asset (cash) to an exempt one (home equity). The cost is access: cash in an offset is there when you need it, while equity in the home is not. If you want to see the interest side clearly, a mortgage amortization worked example shows how a loan balance falls over time at a given rate.

The pension side needs its own modelling, because the effect depends on where you sit relative to the free areas. If you are well under the free area, the offset balance may not change your payment at all. If you are close to a cut-off, a lump sum moved from offset to the loan could change the payment noticeably.

Is the offset worth its cost?

MoneySmart advises weighing the benefits against the costs. An offset account may not be worthwhile if the balance is typically low, or if the loan carries higher fees for the offset feature. Compare the annual package fee with the interest the offset actually saves you.

ASIC has urged borrowers to check regularly that the offset account is correctly linked to the home loan, since technical failures or refinancing can break the link and cost you the interest savings. A quick look at your latest loan statement is enough to confirm the offset is reducing the interest charged.

Staying in the mortgage longer

Many Australians now carry a mortgage into retirement, and the offset decision is part of that. Our piece on modelling three paths with a mortgage in retirement shows how paying off, keeping, or restructuring a loan can play out. If you are weighing a different route to free up cash, read reverse mortgage risks as well.

Offsets on investment properties or in joint names

The core principle above does not change just because the loan is for an investment property: the balance is cash you can access, and it is assessable. What does change is the debt side. An investment property is an assessable asset, so a loan secured against it can be deducted from its value, as the Services Australia rule on secured debt describes. Whether an offset linked to that loan nets against anything is a detail to confirm with Services Australia, because we have not found official guidance that states it. Do not assume it works as it does with a bank balance.

For joint accounts, the assets test for couples looks at combined assets, so the question is mostly about the total rather than whose name is on the account. Rental income from the property also feeds the income test. Our article on how rental income affects your Age Pension runs three scenarios.

Offsets on investment properties or in joint names

For anything that depends on how your specific loan and accounts are structured, ask Services Australia directly, or see a financial adviser who holds an Australian financial services licence.

Perspective

Most of the offset questions we see come from people who have already done the sensible thing under one set of rules and then find a second set applies. The offset is a banking tool. The Age Pension assets test is a different system with a different view of the same dollars.

That is why we built AeroWealth to hold the loan, the offset, super, ETFs and property in one plan, under Australian rules. When you can see two versions of your future side by side, one where the cash stays in the offset and one where it goes into the loan, the trade-off stops being a feeling and becomes a pair of numbers.

We would rather you stress-test the decision before you act. Change the return assumption, move the retirement age, shift the lump sum, and watch what happens to projected income and net worth. A choice that holds up across several assumptions is one you can make with confidence.

Aerowealth Team

Model your own offset decision

The free plan lets you start building your plan. Pro, at $7 per month, adds expanded scenario planning, advanced mortgage features and a higher AI assistant quota, so you can compare offset and pay-down strategies side by side and see the effect on retirement income and net worth. See the AeroWealth plans to pick the one that fits.

Aerowealth

If you are earlier in the journey and still working out when you could qualify, our guide on Age Pension eligibility at 67 is a good place to begin.

A short checklist before you act

  1. Get your current offset balance and your loan balance from your latest statement.
  2. List every other assessable asset: other bank accounts, shares, ETFs, investment property, and any super in accumulation phase if relevant to your age and situation.
  3. Look up the current free area and cut-off for your household type on Services Australia.
  4. Work out the payment under both the assets test and the income test, since the lower one applies.
  5. Compare the interest an offset saves against any package fee.
  6. Confirm the offset link is active on your loan.
  7. Run the options side by side before moving a lump sum.

FAQ

Yes. DVA treats money in home loan offset accounts as a financial asset for deeming, and the balance is counted in the assets test. Because the same balance is deemed to earn income, it also feeds the income test.

Does my mortgage reduce the offset balance for the assets test?

No. Debt is deducted only from the asset it is secured against, and your principal home is exempt. The offset balance is assessed in full, whatever you owe on the house.

Is redraw treated the same as an offset?

Not according to commentary published by InvestSMART, which says redraw facilities are not counted as assets while offset balances are. That source dates from 2016, so confirm the current treatment with Services Australia and your lender before relying on it.

Where do I find the current assets test limits?

Services Australia publishes them on its Age Pension assets test page. The limits are reviewed in March, July and September each year, so check the page on the day you make a decision.

Sources

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