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.
If you want to talk to someone about your retirement plans you can book an initial consultation here.
Also this week
I’m still not sure when the extra $4000 will start to kick in. Government websites are still saying that the maximum is $7800. If I take on extra hours of work now (I’m already earning at the fortnightly limit) I’m assuming my pension will be reduced, and I won’t get a refund once the legislation is passed?
Hi Rose, it’s definitely been a bit of a wait to see this benefit come through! The most recent information we have is that the increase in the work bonus balance will apply from 1 December 2022, and you have up until 31 December 2023 to use it. This has only recently been confirmed which is why you haven’t seen it earlier. Hopefully you will start seeing a change in the coming weeks. https://www.servicesaustralia.gov.au/work-bonus
Hi,
Just to clarify. My wife receives half the couple age pension. She is 69 and I am 64. I am retired at present. From your work bonus advice and the couples combined $336 pfn – I could work and earn up to the $336 without my wife’s half pension being affected.?? And if I started work say in January half way through the tax year I could earn 2 x the $336 for the say six months up until 30th June??
Hi Kerry. The work bonus only applies if you are already receiving the Age Pension. As you are under Age Pension age it won’t apply to you or your employment income.
Pensioners who need to work to supplement their income should not be penalised at all. Allowing pensioners to work will help them keep up with the cost of living and help with crippling labour shortages.
Pensioners earning additional income would pay additional income tax, off setting additional pension costs.
In New Zealand, pensioners are not penalised for earning additional income.
The age pension income test punishes older Australians who need work.
I am entitled to the extra work bonus but my centrelink pension per fortnight has not increased accordingly. Do we have to wait until June 2023 to receive a lump sum
When this legislation is eventually passed, hopefully this year, will it be back dated to 1 July 2022 as originally promised as the start date? If it was, would those who lost income in the last few months be refunded?
I agree with Rozzie’s’ statements above. Many of us are engaged in a fine balancing act.
I am 72, have bone cancer, but work 15.2hrs a fortnight to help make ends meet. However, with the current rate of inflation it is an uphill battle. My husband is 74, has had open heart surgery, a stroke, diabetes and COPD but just finished working 2 days a fortnight to keep up with maintenance with of the home. It would be humane if at our ages and health challenges we were not penalized for working to make the ends meet.