The work bonus enables you to earn extra for longer

Financial adviser Nicole reports that how much you can earn is one of the major concerns in her consultations with Retirement Essentials members. The rules are confusing and they are about to change again. But in a good way.

The highly anticipated $4000 increase to the Age Pension Work Bonus has been now passed Parliament. The higher Work Bonus of $11,800 (it is was $7800) was promised in the wake of the Jobs and Skills summit in September this year. This increase applies for the financial year up to June 30 2023 (i.e. July 1 2022 – June 30 2023).

In a recent statement, Minister for Social Services Amanda Rishworth noted the importance of work for those on the Age Pension.

“We’ve listened and we’re now seeking to extend the measure for 12 months to ensure people have time to use it. Our measure provides certainty – pensioners know exactly what they are getting upfront and how much they can earn.”

It is also believed that the extra six months will allow time for the efficacy of the program to be assessed

How does this bonus work?

There are two main rules guiding work income limits and the Age Pension.

First there is the pension income test free limits (from 1 July 2022) of:

  • Singles $190 a fortnight
  • Couples combined $336 a fortnight

The second allowance is the Work Bonus which offers an added ‘credit’, often referred to as an income bank. Currently (i.e. on the $7800 limit) those entitled to the Age Pension are able to accrue any part of this $300 per fortnight Work Bonus and hold it as a credit. This credit currently ends when the accrued income reaches $7800. This amount then offsets any future income that would be assessable otherwise on the income test. There is no time limit on this amount. If it is not used, it can be carried forward for years. This can be particularly useful for those on an Age Pension who take on projects or are part of the ‘gig’ economy and so have infrequent bursts of income. Every Age Pension recipient automatically receives/accrues the work bonus however for couples, if you or your partner are under Age Pension age, you, or they as the case may be, cannot utilise the work bonus.

It is also worth noting that the work bonus only applies to employment income.

Alice and Paul

Here’s a case study of how the work bonus currently works for a couple

Alice and Paul are a couple who both receive the Age Pension. Alice has work income of $700 a fortnight and Paul earns $220 a fortnight as a handyman. They have no other income.

Under the Work Bonus, the first $300 of an individual’s income from work is not assessed. Only $400 a fortnight is assessed as income for Alice and nothing is assessed as income for Paul. Under the pension income test, pension is reduced by 50c for every $1 of income over the income test free area. Alice and Paul’s combined assessed income of $400 a fortnight is $64 higher than the income test free area ($336 a fortnight for a couple) and their combined pensions are reduced by $32 a fortnight ($16 a fortnight each).

If either Alice or Paul were under Age Pension age, they would not be eligible for the Work Bonus, and their income from work would be assessed.

With the change in the Work Bonus imminent, the above case study would change. Whilst the fortnightly credit of $300 per individual remains the same, until December 31 2023 they have an extra credit of $4000 each to cover higher earns. This amount will easily cover the $64 excess income and so they will have no reduction in their combined pension during this period.

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