Millions of retirees rely on pension payments to help pay for their living expenses. However, many retirees also have assets, and the value of these can affect their pension amount.
The government has introduced an incentive to encourage pensioners to work a bit more, called the Work Bonus. This temporary ‘income bank top up’ will increase the amount a pensioner can earn each fortnight before it impacts their pension.
What is the Work Bonus?
The Work Bonus is a one-off, temporary measure that increases the amount of fortnightly income a pensioner can earn without it affecting their rate of payment. Under the Work Bonus, the first $300 of a pensioner’s fortnightly income from work is not assessed and only the remainder is considered when working out their pension.
Any unused part of the fortnightly $300 is accrued in a ‘Work Bonus income bank’ up to a maximum of $7,800. This balance offsets future employment income that would otherwise be assessable under the pension income test.
The Work Bonus only applies to eligible employment income. It does not apply to investment income or deemed income such as directors’ fees. It also does not apply to lump sum bonuses, which are taxed at a different rate. This is because they are viewed as supplemental wages by the IRS and therefore subject to different federal withholding rules. Tax Tip: When thinking about whether you should accept a work bonus, consider what your living expenses are like.
How does the Work Bonus work?
The Work Bonus allows pensioners to earn up to $300 a fortnight without it impacting their rate of pension. Any unused income is accumulated in an ‘income bank’ up to a maximum of $7,800.
The unused portion of the income bank is carried over and doesn’t have to be used in the same year. This means that in future years, you could potentially earn more without it affecting your pension than would be the case under the old system.
In addition to this, pensioners can also earn up to $161 a fortnight from personal exertion, which doesn’t count as assessable income and does not affect their rates of pension. This is in addition to any earnings from deemed income such as rental or investment income. On 2 September 2022, the Government announced that pensioners will be able to earn up to an additional $4,000 in the 2022-23 financial year before it impacts their rate of pension. This will increase the maximum Work Bonus balance from $7,800 to $11,800.
How much can I earn before it affects my Pension 2022?
The amount you can earn without affecting your Pension 2022 depends on how many years of service you have. If you have five or more years of service, you are a “vested” member and can continue to work until your full retirement age (FRA), which is 66 and 4 months for people born in 1956 and gradually rising to 67 for those born in 2022 and later.
The income and assets test can also impact the amount you can earn, depending on how high your assessable assets are. If your net world income is higher than a threshold (currently $81,761 for 2022), you may have to repay part or all of your Old Age Security (OAS) pension.
Recent legislation has suspended the earnings limit on post-retirement earnings for retirees in public positions covered by the same retirement system from which they retired until June 30, 2023. However, RSSL Sections 211 and 212 still govern restrictions on working after retirement.
What happens if I earn more than the Work Bonus?
As long as you keep your income below a certain level, it won’t affect your pension. That level is currently $190 a fortnight for single pensioners and $336 a fortnight for couples. Any unused $300 fortnightly Work Bonus will accumulate in an ‘income bank’ up to a maximum balance of $7,800.
For example, Bob claims the single Age pension and works as a school crossing supervisor earning $400 a fortnight. Under the Work Bonus rules, his first $200 of earnings is excluded from the income test and only $100 is assessed for the pension.
He decides to work extra hours over Christmas and Easter. He earns an additional $500 each fortnight that doesn’t affect his pension but does reduce his Work Bonus balance. The next time he works, his new fortnightly earnings will be affected by the amount he has in his income bank. This is to prevent him from accumulating too much of a balance over time.