Under Australian national law, Social Security benefits are paid in flat rate amounts that are reduced if a beneficiary's income or assets exceed specified levels. For example, if an old-age pensioner who lives in Australia has income that exceeds the income-test limit, his or her pension would be calculated by subtracting a portion (40 percent under current law) of the excess income from the maximum flat-rate amount.
The benefit of a person living outside Australia is subject to further reduction unless he or she has at least 300 months (25 years) of Australian working life residence (AWLR), i.e., residence in Australia between age 16 and normal retirement age. For a person with less than 300 months, the maximum flat-rate amount is first reduced for any excess income or assets as described above. The remaining benefit amount is then prorated by multiplying it by the beneficiary's AWLR and dividing the result by 300.
The Agreement will not affect the proportional reduction that applies to people outside Australia who have less than 300 months of Australian working life residence. However, for people subject to this reduction, Article 10.1 will improve the way U.S. Social Security benefits are treated under the Australian income test. Under Article 10.1, when Australia pays a reduced benefit in proportion to a person's AWLR, the amount of that person's U.S. benefit that is taken into account under the income test will now be reduced by a similar proportion. For example, a person with 150 months of AWLR will have only one-half (i.e., 150/300) of his or her U.S. benefit taken into account.