Want to earn more and keep your Age Pension?

Many people continue, or even start, working once they’ve reached Age Pension age. This may be for social reasons, personal fulfilment or to maintain their standard of living. With the higher cost of living at the moment, even more pensioners are taking up work. 

But what does this mean if you’re receiving the Age Pension? The government’s Work Bonus means you can earn a little more without it affecting your pension. The permanent increase to the Work Bonus means you may be able to continue this longer if you choose.

Consider this example, of Margaret, to show what this could mean for you.

Introducing Margaret

Margaret has just reached her Age Pension age of 67 and owns a home with her husband (who has also just reached Age Pension age) and they have $440,000 in joint financial assets including super.

Like many others, Margaret was looking to do more in her retirement years. She missed the company of colleagues and doing something purposeful.

Through a friend, Margaret was offered an opportunity for some paid work for a charity that she was passionate about.

Margaret asked her friend about her work opportunity. Her well-meaning friend mentioned that even a small increase in Margaret’s income would reduce her Age Pension. Regretfully, Margaret turned down the opportunity as she hated losing some Age Pension. However, Margaret didn’t understand the full situation.

What is the Work Bonus?

The Work Bonus is a scheme offered by the government that increases what a person of Age Pension age can earn from work before it affects their pension amount. It’s essentially an offset for assessable employment income in the Age Pension income test. Assessable income is the amount of income you earn that is assessed under the income test which helps determine how much Age Pension you receive.  

In simple terms, it means eligible pensioners can keep more of their Age Pension while working.

The government provides the Work Bonus as an incentive to keep pensioners, and their valuable skills, in the workforce.

How much is the Work Bonus for pensioners?

The Work Bonus is $300 per fortnight for eligible pensioners. This means the first $300 earned in a fortnight won’t affect how much Age Pension you receive.

If you earn less than $300 in a particular fortnight, the unused bonus amount is accrued as a Work Bonus balance that you can apply to future income. This means, when you earn over $300 in a fortnight, the Work Bonus offsets the first $300 of your earnings and then any Work Bonus balance you have can be used to reduce your remaining employment income. So, your income will have less of an effect on your pension amount.

If the Work Bonus applied to you before, then you may be aware the limit that could accrue in a person’s Work Bonus balance was previously $7,800.

Margaret was offered work that would pay $800 per fortnight (or $20,800 per year). Margaret went to see a financial adviser. After considering her full financial situation, her adviser determined that her and her husband’s combined Age Pension under the previous Work Bonus rules would have reduced by almost $5,768 per year. On the one hand, Margaret was pleasantly surprised she could still receive some Age Pension while working – but it cost her more than a quarter of her new income. She was eager to understand what the new rules mean for her pension.

What are the changes to the Work Bonus?

Prior to 1 December 2022, a new Age Pension applicant started with a Work Bonus balance of zero. Any unused Work Bonus each fortnight would accrue in their Work Bonus balance up to a maximum of $7,800.

From 1 December 2022, pensioners received a one off $4,000 boost to their Work Bonus balance, while the maximum balance that could be accrued increased to $11,800. These temporary changes were due to cease on 31 December 2023, and amounts in a pensioner’s Work Bonus balance over $7,800 would be forfeited.

However, this temporary increase will be permanent from 1 January 2024. This means those already on a pension will keep their Work Bonus balance which is subject to a maximum of $11,800. New pensions will have a starting Work Bonus balance of $4,000. So, you don’t have to build up a balance but have an amount you can start using straight away.

Margaret’s adviser explained how the new Work Bonus balance boost of $4,000 meant she could earn $800 per fortnight from working and her Age Pension would not be reduced until her Work Bonus balance is used which would take around eight fortnights. Margaret and her husband receive an extra $1,774 in Age Pension during this time due to the $4,000 boost. Margaret also learned that she could encourage her husband to get out there too as he could also earn up to $800 per fortnight for eight fortnights without their Age Pension being reduced during that time. 

Margaret and her husband are now doing a mix of paid and unpaid work for the charity. They are loving being able to give back and afford a few more luxuries – not to mention a new social network.

They may need to reassess when their Work Bonus balances are used up, as any employment income from that point over $300 per fortnight each is likely to start affecting how much Age Pension they receive.

Does the Work Bonus balance reset each year?

The Work Bonus balance doesn’t reset. It carries forward without a time limit. However, you can’t grow your balance over the $11,800 cap.

Who is eligible for the Work Bonus?

To receive the Work Bonus you need to be:

• of Age Pension age or over, and

• receiving the Age Pension, Carer Payment, Disability Support Pension, or an eligible payment from the Department of Veterans’ Affairs.

The Work Bonus applies to reduce income earned from employment, as well as self employment income from doing gainful work (which is work that requires some effort).

Importantly, the Work Bonus applies automatically if you’re eligible. So, you don’t have to do anything to benefit from it.

Keep up to date on what you might be entitled to. Rules change often and you may find that you can receive additional benefits. You can check out your Age Pension eligibility using free Age Pension eligibility tools or you can speak to your financial adviser.

Source: CFS