The Australian age pension is not a universal pension scheme. By that, I mean it is not freely available to everybody.
To qualify for the government sponsored age pension eligible applicants are subject to meeting an assets test and an income test. These tests determine how much, if any, age pension is payable.
Both tests are applied with the one resulting in the lower rate of age pension being used. During retirement it is possible a person may move from being assessed under one test, to being assessed under the other.
Understanding the assets and income tests can be complex with a variety of measures being used for income arising from different sources. Some special rules also apply to the application of the assets test with the value of the family home being excluded, and other assets, including certain annuities and pensions, being concessionally assessed.
However, I will focus on the income test and a particular opportunity designed to encourage age pensioners to continue to maintain a connection with the work force.
In very simple terms, pensioners can receive a certain amount of income each fortnight without their age pension being affected. Currently, a single pensioner can receive income of $190 per fortnight and a couple can receive $336 per fortnight, between them.
Once income exceeds this threshold, the age pension payable reduces by 50 cents for each dollar of income above the threshold.
Back in September 2009, the government introduced the “work bonus”.
The work bonus provides an opportunity for age pensioners to receive income from employment and having that income more favourably assessed under the income test.
The work bonus is intended to encourage older workers to retain a connection with the workplace and allowing them to pass on a lifetime of skills to the following generation of workers, and to help address the skilled workforce shortages currently being experienced in Australia.
There are two components to the work bonus:
- The employment income concession
The first $300 per fortnight of income derived from employment or self-employment is excluded from the income test.
This means a single person could receive income of up to $490 per fortnight (with $300 coming from employment) before their age pension is affected.
Likewise, a couple could receive income of up to $936 per fortnight (with $300 each coming from employment).
- Work bonus income concession bank
Up to $300 per fortnight of income received from employment is “banked”. That is, it is set aside to be offset against employment income received throughout the year. The maximum that can accrue each year is $7,800 (i.e. $300 x 26).
As employment income is received, it is deducted from the “bank”, until exhausted.
The work bonus provides an opportunity for age pensioners to generate a modest amount of additional income from employment with only minimal if any adverse impact on their age pension.
By fully optimising the work bonus and maximum rate of age pension, a single person and a couple could receive income of:
| Single | Couple | |||
| Fortnightly | Yearly | Fortnightly | Yearly | |
| Age pension | $ 936.80 | $24,356.80 | $1412.40 | $36,722.40 |
| Pension supplement | $ 75.60 | $ 1,965.60 | $ 114.00 | $ 2,964.00 |
| Energy supplement | $ 14.10 | $ 366.60 | $ 21.20 | $ 551.20 |
| $1,026.50 | $26,689.00 | $1,547.60 | $40,237.60 | |
| Work bonus | $ 300.00 | $ 7,800.00 | $ 600.00 | $15,600.00 |
| $1,326.50 | $34,489.00 | $2,147.60 | $55,837.60 | |
The work bonus is applied to each individual member of the couple and is not combined. That is, one member of a couple cannot benefit by earning $600 per fortnight, and the other member, nothing.
The parliament has just been passed legislation that will see the work bonus increased by an additional $4,000, bringing the maximum allowable amount to $11,800 (up from $7,800).
However, this is a temporary measure that will apply until 31 December 2023.
With some careful planning, age pensioners do not need to be limited to receiving the age pension alone. If they are willing and able to undertake some part-time or seasonal work, either as an employee or in a self-employed capacity, there are opportunities to significantly increase income.
By Peter Kelly on 24 November 2022
