Pensioners allowed to earn extra $4,000
Labor government is coming out with another incentive for older Australians. The recommendation to include an additional $4,000 income credit to your Income Bank, therefore allowing more pensioners to earn more and keep more of earned money.
So what exactly am I talking about?
Well…. first we are discussing changes to the Work Bonus that Labor wants to introduce to allow pensioners to work more and earn more before this income effects Age Pension.
Then I will answer some of the questions I received about work Bonus and how much you can earn.
And at the end, I will also introduce other proposed updates that the government has in mind for pensioner, so please read to the end not to miss any of those important updates.
So how the government wants to improve your ability to earn more?
The answer is by adding an extra allowance of $4,000 to your Work Bonus bank.
I am not going to be explaining basics of the Work Bonus today as I have already created article that fully explains how Age Pension Work Bonus works: , please read it if you are unsure about the Work Bonus, how it works, who is eligible plus I have included number of examples how it applies in different situations.
And now, Labor Government is extending your Work Bonus allowance by further $4,000 of income credit.
So why the government is graciously allowing pensioners to earn more? Why all of the sudden you get to keep more money before it affects your Age Pension?
Well, the government has a bigger problem to fix, which is lack of workforce in Australia. Our unemployment rate is that low, that employers find it impossible to find new staff.
Therefore, now the government came up with the idea, that a great deal of workforce has retired.
But the government needs to find an incentive for pensioners to actually see the benefit of working extra. After all, why would you make an effort to get up in the morning and go to work, if in return your Age Pension would be reduced or cut out altogether?
Therefore, increasing the Work Bonus might just do the trick and incentivise enough that some pensioner will decide to participate and take advantage of the higher Work Bonus balance.
So that was the background of the Work Bonus increase, and now let’s look into details.
How can pensioners earn that extra $4,000?
Your temporary Work Bonus bank will be increased by $4,000, from the current level of $7,800 up to $11,800 before your pension is reduced.
Unfortunately, this is still in the approval stage, as it has not been legislated, but is expected to commence from December 2022.
This proposal is for 2022/23 financial year only, so you will only have until 30 June 2023 to fully utilise this benefit. If it does not get extended to future years, then we know that the reason to introduce it is just to fix the oversupply of jobs, and not really assistance for pensioners at all, so I do hope Labor government will insist on the higher Work Bonus allowance being a permanent increase.
Now to some questions I received:
1. Is my income earned from an investment property included as eligible for Work Bonus?
No, income earned from your investment property, super or pension, shares or any other form of investments is a passive income. Work Bonus only applies to the income earned from active participation, meaning you actually have to do some work in order to earn it, therefore it includes:
– income earned via wages
– self-employment which involves active participation
– director’s fees
– leave, where you remain the employee of the same employer
Just a quick reminder how much you can earn:
You can earn up to $180pf that will have no impact on your Age Pension no matter where the income comes from. If you earn more than $180pf from your investments as a “passive income” then your Age Pension is being reduced under the Income Test.
Please see my article how the Income Test works if you are unsure.
If however you earn more than $180pf and that portion of income comes from “active participation” this is where work Bonus kicks in and lets you earn more, up to $300pf more without reducing your Age Pension, based on current rules.
2. Is my partners income included?
No, you cannot share your Work bonus with your partner. You have your Work bonus balance and your partner his/her own if eligible.
So let’s look at some simple examples:
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- Tom and Sue are married, both retired of Age Pension age, and both receive part Age Pension. In this situation they both have their own Work Bonus limit to utilise, and they both can work and earn extra income.
- David and Margaret are also married, but only David is of Age Pension age, while Margaret still has 3 years before she is eligible. In this situation, the full income that Margaret earns will be counted under the Income Test, but David can still work part-time and utilise his Work Bonus. David cannot share his Work Bonus with his wife.
- Peter and Anne are married, both retired and both of Age Pension age, and want to utilise their Work Bonus to the max. They both can earn extra $7,800 (soon to be $11,800 for 2022). Peter found a part-time work that pays $15,000 and Anne found her part-time work that only pays $3,000. Although Anne will not utilise her full Work Bonus allowance, she cannot share the unused portion with Peter. Each pensioner has the same Work bonus allowance limit.
3. Is this income taxable?
I am not sure if you are aware, but Age Pension is actually a taxable income. I find it a bit ironic for the government income to be treated as taxable, but here we are. Fortunately most retirees receive their incomes from different forms of the retirement income streams, therefore the Age Pension payment is in most cases below the tax-free threshold, so no need to perform any tax returns, but if your retirement income comes from your investment property, or share or managed funds’ portfolios or any other type of investment that is directly on your name, or other entities, then you will be required to perform your annual tax returns and your Age Pension payments will be included in the tax assessment. Hence, I think this is not the most effective way of setting up your savings for retirement. If this is you, please contact me to find out if you are able to make changes to your savings to ensure you are no longer required to do tax return in the future.
Going back to the question, yes, earned income is also taxable. Therefore, the bonus itself is not, as the bonus is only your allowance, but the income earned will most certainly be included as your taxable income earned for the particular financial year.
4. How much can I earn being on part Age Pension?
I receive this question very, very often, and I am unable to answer. The reason for this is because to know how much you can actually earn before any additional earnings start reducing your Age Pension, really depends if the reduction of Age Pension payment is under the Income or Assets Test. The very first task is to find out which one is the dominant test. Only then you would be able to calculate any further allowance of income earned.
I hope between today’s explanation and the original article about the Work Bonus, you can now better understand your extra income options. If still not sure, just book a meeting with me to check your current situation and how much you can earn extra, before your Age Pension gets reduced or removed altogether.
And now for some extra information that the government is planning to introduce:
1. If due to your employment income you loose your Age Pension eligibility, government wants to introduce a two year period during which you will not have to reapply, meaning if during that period of two years you become eligible again, you won’t need to complete the full application, but rather advice Centrelink of change of your circumstances, and if eligible, your Age Pension will be reinstated. Currently that period is only 12 weeks, which is ridiculous, considering that Centrelink cannot manage the current workload in a timely fashion. Therefore, this change would be most certainly welcomed and appreciated by pensioners as well as businesses that support their clients, such as our firm.
2. Another proposed, and very beneficial change is extending the Pensioner Concession Card up to 2 years after having lost Age Pension entitlement. Considering how many retirees give up on work just to hold on to the Pensioner Concession Card, this is a game changer. If as a Pensioner, you have a choice of a good employment, you could forgo your Age Pension payments for a period of 2 years, while still holding on to your Pensioner Concession Card. This is a great way to stay in workforce for extra 2 years, boost your retirement savings while still having all the Pensioner discounts. To understand all the benefits of a Pensioner Concession Card, I already have 3 articles on my website for you to read and learn: Pensioner Concession Card, Benefits per State, and Centrelink Concession Cards for your retirement.
If you find this area confusing (and who doesn’t) and you wish to confirm any information, or get clarity on any issue, or calculations or actual advice, just book that meeting with me. You will be surprised how much clarity and hour of conversation can bring.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
