By Michael Hallinan
The Work Bank Bonus cap has been temporarily increased by $4,000. This increase applies from and including 1 December 2022 and will end on and including 31 December 2023.
Why has it been increased?
The Government wishes to encourage age pensioners to participate in the workforce (or even to increase their current level of participation). Under the incomes test for the pension, there is a significant disincentive to participate in the workforce once you receive the age pension. Any employment (or employment-like earnings) will be taken into account and may reduce (or even eliminate) your entitlement to the age pension.
Currently the severity of the incomes test is mitigated by the “income free area” which is currently set at $190 per fortnight (single rate) and at $336 per fortnight (couples rate).
For single pensioners, this means that the first $190 of income per fortnight (actual income from non-financial assets, employment income and deemed income from financial assets) is disregarded when applying the incomes means test. The pension entitlement is reduced by reference to the amount of income which is in excess of the $190 per fortnight.
For couple pensioners, the first $336 of their income per fortnight is disregarded when applying the incomes means test. The pension entitlement is reduced to the amount of income which is in excess of the $336 per fortnight.
Work Bonus Scheme
What is the Work Bonus? If an individual has personal exertion income (such as from employment or acting as a consultant or agent) this is “work income” and the first $300 per fortnight of such income is disregarded when applying the incomes means test. Consequently, the pension entitlement will only be reduced by the work income to the extent the work income has exhausted the $300 per fortnight limit.
Any amount of the work bonus which is unused in respect of fortnightly period is carried forward to the next fortnightly period. So, if only $120 of the $300 work amount is used in respect of a fortnight period, the unused portion – in this case $180 – is carried forward to the next fortnight period so that the available work balance is now $480. This process of carrying forward the unused amount is referred to as “banking” the work bonus. However, once the banked work bonus reaches $7,800 no further accrual can occur.
Finally, the banking of the unused portion ceases on each 1 July and the initial bank balance is reset to zero (effectively meaning that the then current bank balance is lost) and the process starts afresh with the first instalment period in the new financial year.
But what about an example? Well, consider Emily who has re-entered the workforce at age 67.
Before entering the workforce, her ordinary income on a fortnightly basis was $360, consisting of $320 of deemed income (from financial assets, in this case her account-based pension) and $40 other income. Applying the “income free area” will result in only $170 affecting her age pension entitlement. Consequently her age pension will be reduced by $85 (as the taper rate is 50 cents per $1 of excess income over the income free area).
After re-entering the workforce, Emily’s fortnightly income now includes $500 of employment income and her employment period commenced on 1 December 2022. Consequently her total income is $860 per fortnight.
Without the Work Bank Bonus, her fortnightly income is $860. This would reduce her pension amount by $335 per fortnight. The net effect is that Emily has increased her income by $500 by working at the cost of reducing her age pension by $250: she is only $250 per fortnight better off.
With the Work Bank Bonus (assuming it is first used in respect of the fortnight beginning 1 December 2022) her total income for that fortnight would be $860 (original $360 plus $500 employment income). The work bonus for this fortnight is $300.
Michael Hallinan
Executive Consultant – Self Managed Superannuation
SUPERCentral
