How can you earn extra in retirement?
Even we were surprised at the strong response to our update on the new work bonus rules. It seems that there is no shortage of pent-up demand for retirees to work more to earn extra in retirement. But despite the announcement of the increased work bonus threshold, the rules remain as clear as mud to most of our members.
Linda summed up the feelings of many in her heartfelt comment:
‘The rules around how much you can work are absurdly stressful for older people. We largely ‘retired’ just a few months ago at the ages of 74 and 71. As migrants who came over 20 years ago, it has taken my husband and I years to get to a point where we feel we can retire without going bankrupt.
I have taken on some contract work but feel highly stressed about the implications for our government Age Pension. Will we be penalised? Will we be asked to pay back money. Meanwhile our own pension fund has plummeted due to economic conditions. But the government does not automatically adjust for that fall.’
To help ease the stress and uncertainty, today we are sharing a detailed summary of the current rules, the planned changes and some Q&A on specific retirement income scenarios to help you earn extra in retirement.
First, however, here are some of your thoughts on the new work bonus:
‘If the Government and the business sector want to encourage pensioners to consider and participate in addressing some of the worker shortages, they need to be more serious about the additional amount they can earn. $4000 extra won’t achieve that.’
‘How will allowing us to earn more cost the government anything?
If we were allowed to earn as much as we liked – and still pay income tax – then there wouldn’t be a shortage of workers, and the government would get the extra tax income. It seems to me that it would benefit the government, as they would be able to free up the Centrelink people who currently look after us.
What a joke – $11,800 equates to approximately two x five-hours shifts a week at the minimum wage rate ($21.38). How many jobs are out there or employers who want an employee on their books for that little return? This is not encouragement.
‘This (pension) increase won’t really help much; an extra $20 a week; an extra $4000 a year allowed if you want to work a little! The people at the recent Jobs Summit should have taken a trip to the supermarket and looked at the rises in cost of food. Not to mention the 22 cents per litre that will be added to a litre of fuel later this month and electricity and gas price increases.’
‘So interested pensioners need to find a job that that they will then need to leave at the end of the financial year when the incentive ceases to apply.
How can an employer rely on an individual for medium term support knowing that their commitment is restricted by political inadequacy?
This long awaited initiative is a fiasco in all respects .’
The current rules
The current income test threshold for work income is $180 per fortnight ($4680 per year) for singles and $320 (combined) per fortnight for couples ($8320 per year).
Those who receive an Age Pension (i.e. after you have been assessed and confirmed to be entitled to receive a pension) then benefit from the additional work ‘bonus’.
This is currently $7800 per year. (There are conditions attached, and these are detailed here).
At the conclusion of the Jobs and Skills summit on September 1-2 2022, the Treasurer, Jim Chalmers, announced that the work bonus would be increased by $4000 to $11,800 for the current financial year (July 1 2022 – June 30 2023).
This bonus applies to income earned from working. It has no relationship to income deemed on your assets.
The legislation to confirm the adoption of this policy has yet to pass both houses of Parliament. The legislation has been delayed as Parliament was suspended for two weeks due to the death of Her Majesty, Queen Elizabeth II.
It is expected the bills will be presented and pass shortly after both houses resume, later this month.
The following Q&A is representative of the many questions we have received from members who are concerned about these changes. Some answers were easy, but we, too, are awaiting clarification on others. If you have concerns about losing your Age Pension by taking on extra work, it makes sense to wait for the final legislation to pass and then review the effect extra work may have on your entitlements before committing to earning extra income.
Your questions about the new rules
Rose is wondering about the start date
Q. When will Centrelink start to apply the new higher earnings limit? If I start at once to work extra hours which take me over $7,800 per annum, but stay within the $11,800 per annum limit, will Centrelink reduce my fortnightly pension amount by 50 cents for every dollar I earn over $300, or will it stay the same?
A. We are still waiting on details of the start date for the additional work bonus. We will let readers know as soon as we find out more.
Ronald has a query on his Defined Benefit Pension
Q. Will the extra income allowance come into play for pensioners who have a Defined Benefit Pension?
A. These allowances affect employment income and how it is treated for the Age Pension income test.
Kenneth wants to know what he is obliged to report
Q. I fully retired at the end of June 2022 and am now claiming the full single Age Pension. My old work place would have me back tomorrow due to staff shortages . Now I could go back and do at least five hours per week to help out. This would be well below the amount that I could earn and not affect my full pension. Do I still have to advise Centrelink that I am doing the above hours?
A. If there is any change in your work income for any reason you are obliged to update Centrelink. This can be done through the MyGov website.
Kerry asks about tax treatment
A. Are the total new earnings of $11,800 pre-tax or after tax?
Q. The amount is pre-tax earnings (gross), not after-tax (net). as after-tax might be manipulated by other factors.
John wonders how long new bonus will last
Q. Does the new $11,800 work bonus level only apply for this financial year or is it ongoing?
A. We are still waiting on the full details on how this will work however at this stage it looks like it will be a one off for this financial year.
As noted above, the new work bonus of $11,800 is yet to be legislated. We will advise of the update to this amount as soon as it takes effect, so watch your emails to ensure you are totally up to date. The new pension rates and thresholds are in effect though and our, so whilst our Age Pension Entitlements Calculator has them all. Whilst it is totally up to date with all the September 2022 indexation changes, the work bonus is currently applied at the rate of $7,800. We will advise of the update to this amount as soon as it takes effect, so watch your emails to ensure you are totally up to date.
In the meantime, if you have any concerns that cannot wait for the legislation and would like to speak with an adviser to better understand how all rules apply to you, we encourage you to make an appointment for a consultation.