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Age Pension Work Bonus

Age Pension Work Bonus

Big change has arrived thumb

Age Pension rules are complicated, and Work Bonus is no different. It can be very beneficial for some pensioners and not apply to others, so hopefully today I will be able to simplify this Age Pension benefit for you. 

I will explain the following: 

  • What is the Work Bonus? 
  • How does it work?
  • Who is eligible for the Work Bonus? 
  • Examples how Work Bonus can work, and I promise you that couple of the examples will shock you, so keep on watching. 
  • Application for Work Bonus. 

We all want our retirement to be enjoyable, but to achieve the level of lifestyle you desire, you have to make sure that your income and your assets are able to support you for as long as possible. 

And sometimes it means a little bit of extra work pass the Age Pension age to either supplement the level of income earned or to earn extra money and save extra funds for later years.  

Whatever your reason is for working a bit longer, Age Pension Work Bonus rules can help you improve your financial situation quite dramatically, by working part-time while still enjoying your Age Pension benefit.  

What is the Work Bonus? 

In a nutshell, this is an incentive for pensioners to stay in the workforce and a portion of earned income from your gainful employment is excluded from the usual Income Test when calculating the Age Pension payment. So your very first step should be to understand how the Age Pension Income Test works.  

Under the Work Bonus rules, you can earn extra $300 per fortnight over and above the fortnightly limit of $180 per person, and still enjoy your Age Pension eligibility calculated for you under Income and Assets Tests.  

But there is a catch. That income has to come from what Centrelink calls: “Active Participation”, meaning that you actually have to do some kind of an afford to earn this income, therefore the income has to come from either employment or self-employment such as for example bookkeeping, school street-crossing, loan mowing or shop assistant. 

The bottom line is that by working part-time and applying Work Bonus, you have a potential of receiving additional pension payments of $7,800 for a couple and $3,900 for a single pensioner.  

And please remember that your passive income from your investments does not count and will not attract Work Bonus.  

And any work to manage or administer your financial investments or your investment properties owned by you personally, or members of your family or any legal structure you might have, such as trust or company is not regarded as an Active Participation, therefore not eligible for Work Bonus.  

How does Work Bonus work?  

The easiest way to understand it is imagining that each year you have in your Work Bonus bank a balance of $7,800 per person. Each fortnight you can use up to $300 of your balance without effecting the level of Age Pension. And I repeat, this is over and above the allowable $180pf per person earnings.  

If you earn $200pf, which is below the $300pf Work Bonus, your Age Pension will not reduce. 

If you earn $400pf, $300pf of it will be exempt based on the Work Bonus available to you, and the balance of $100pf will be counted under Income Test and will reduce your Age Pension by 50cents for every dollar above the income test free area.  

Just as a reminder, your income test free amounts are $180pf for singles and $320 for couples. This is the amount you can earn as your fortnightly income from any source, including deemed income from your bank account or your investments or your Account Based Pension that is subject to deeming rules. 

The huge benefit is that your Work Bonus bank balance is not time limited, and if either fully or partially unused in the financial year, it will carry forward to the following years, meaning that if in year 1 you only used $6,000 of your Bonus, then $1,800 will be available for future years. 

However, the bonus does not work as cash payment to you. The Pension Bonus Scheme was closed down in 2014.  Today’s Work Bonus works on the bases of an allowance of certain level of income you can earn in addition to the basic income test free amount just explained. 

Who is eligible for Work Bonus? 

To be eligible for the Work Bonus you actually have to be of Age Pension age and in receipt of payments such as Age Pension, Carer Payment or Disability Support Pension.  

I don’t really see the reason why one would stay on Disability Support Pension once reached the Age Pension age, as one can automatically swap to Age Pension which is so much more beneficial. 

If you receive your Service Pension or Income Support supplement from the DVA (Department of Veterans Affairs), you are also eligible for the Work Bonus.  

But not everyone will benefit from the Work Bonus, as it only helps those pensioners, whose Age Pension is affected under Income Test and not Assets Test. 

To make it clearer, let’s now go over some examples:  

1. Let’s meet Stan,  

Stan is an Age Pensioner, a homeowner, who doesn’t have much in the form of savings to supplement his full Age Pension payments. 

Stan decided to pick up a part-time employment in the local library. His fortnightly income is $400, but Stan is worried this extra income might impact the maximum rate of the Age Pension he’s been enjoying.  

But remember than the standard allowance is $180pf as an Income Test free amount. That leaves Stan with $220 fortnightly income above the limit as assessable income.  
But because it is a gainful work income, so the income that is earned in the form of “Active Participation” the full amount of $220pf income earned will be fully exempt and Stan continues to receive his full Age Pension.  

What’s more, because Stan is only using $220pf from his $300pf allowance, he will still have another $80pf to offset against any future work income.  

Outcome: Stan continues to receive his full Age Pension of $25,678 plus an extra earned income of $10,400, therefore the total income amounts to $36,078. 

2. Margaret & Tom

They are of Age Pension age, homeowners with very little personal assets to derive an income. They both want to continue working part time to supplement income and to save some money for later years.  

Margaret works 2 days a week as an office assistant with income of $600pf and Tom continues running his own business as an electrician earing $900pf.   

They both meet the “Active participation” rule and are eligible for the Work Bonus.

Their total combined income is $1,500pf. therefore $39,000pa.  As a couple, their Income Test free area is $320pf, which is $8,320pa. Additionally, each can earn $300pf as a work bonus, which is $7,800pa each.  

Therefore, before their Age Pension is affected, the total allowance to earn inclusive the full Work Bonus for both is $23,920

Therefore in this example their income of $39,000 is $15,800 above the limit. As we know, under the Income Test rules, Age Pension reduces by 0.50c for each dollar above the limit, hence their Age Pension will be reduced by $7,540 combined.

Outcome: Combined work income $39,000 plus combined annual Age Pension of $31,169, therefore the total income is $70,169 per annum.  

That’s a really good outcome, don’t you think?  

And now, couple of, if not shocking, most certainly very surprising outcomes, of good planning in combination with the Work Bonus. 

3. Here is Sue

Sue’s situation is  a bit more complicated. She is a single pensioner receiving only a part Age Pension that is being reduced under Assets Test. If you need a refresher about how Assets Test works, here is another video: “Age Pension asset Test – the truth revealed“.

Sue has $520,000 of the following assets: $10,000 – home contents, $10,000 – car, $50,000 – cash in bank account and $450,000 – allocated pension account, receiving an annual payment of $22,500. 

Therefore, Sue’s Age Pension is reduced under the Assets Test down to $239.10 – annual $6,217. 

If we look at Sue’s eligibility under Income Test, after applying deeming rules to her financial assets, her deemed earned income is $10,178. If you are unsure how deeming works, see: Age Pension Deeming Rates – unfair rules“.  

As we know, a single pensioner can earn $180pf with not impact on Age Pension, which is an Income Test free area of $4,680. Therefore under Income Test, Sue earns $5,498 more than the limit.  

As Age Pension reduced by 0.50c for every dollar earned above that Income test free area, Sue’s Age Pension would reduce by $2,749pa. 

So under the Income Test the reduction is $2,749, while under the Assets Test the reduction is $19,461. And remember that Centrelink will always pay you the level of Age Pension based on the test that gives the lowest outcome. 

That difference allows Sue to earn extra $33,424 per annum, this is exactly the point at which both tests are reducing the level of Age Pension equally. 

Outcome: work income if she wants to of $33,424 + Allocated income pension $22,500 + part Age Pension $6,217 = $62,141

And this is the outcome with no planning to maximise Age Pension.  

4. Elizabeth and Peter

They are part pensioners and non- homeowners, renting a beautiful apartment near the beach, they moved here because of the kids and grandkids, but they didn’t want to lock any of their money in the property, but rather have a nice lifestyle.  

Their kids are well off, so Elizabeth and Peter don’t feel stressed about the necessity to leave the inheritance behind. They helped their kids along the way, and now is the time for their lifestyle and enjoyment in retirement. 

They have SMSF of $800,000 that pays them an annual income of $40,000. They both work part-time in their professions, Elizabeth works 2 days a week in an accountancy firm earning income of $36,000 and Peter continues working part-time in his business as a lawyer with income of $36,000. 

Outcome: Therefore their total combined income is $112,000 and they are still eligible for part Age Pension of $6,339pa, plus a full rental assistance of $3,572.40pa. 

Here is a very smart example of great planning, good saving and continuing a part-time employment when you can. Elizabeth and Peter have an overall income of $121,911pa with part Age Pension as well as all the benefits of the HealthCare Card.  

As you can see through those examples, you can actually have a significant level of income and still benefit from Age Pension if you know the rules and you know how to apply them to your particular situation. The Work Bonus provides an extremally generous incentive to continue working if you wish and to top-up your rate of payment. 

Application for the Work Bonus

Pensioners do not need to apply for the Work Bonus. If you are a pensioner with income from work, as described before and you comply with all the rules, you must advice Centrelink of your income earned. The Work Bonus will be applied to your income that has been reported, which you can do via telephone, in person at the Centrelink office of via MyGov portal, that unfortunately can be temperamental. 

I honestly believe that the Work Bonus, if applied correctly with the value of your assets, can bring an enormous benefit to your overall income.  Obviously your assets need to be set up to your highest advantage and to maximise your Age Pension entitlement as well as your overall retirement income and assets.  

“Retirement is a Journey not a Destination, so be well prepared for the Ride” 

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement

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