The Work Bonus was introduced on 20 September 2009 as part of the Government’s Secure and Sustainable Pension Reform package. New arrangements also apply to the assessment of employment income for pensioners over Age Pension age.
Subject to the passage of legislation, from 1 July 2011, a new more generous Work Bonus will be introduced.
Why provide a Work Bonus?
The Work Bonus provides an incentive for older Australians to enter or remain in the workforce by allowing working pensioners to keep more of their pension while they are working.
Who may be affected by the Work Bonus?
The Work Bonus applies to pensioners over Age Pension age who receive employment income, providing they are not being paid under transitional arrangements.1
The transitional arrangements were put in place to protect existing pensioners who were receiving a pension at 19 September 2009 and would have otherwise been immediately adversely affected as a result of the income test changes. The major change is the increase in the income test taper rate. The income test taper rate is the rate at which income in excess of the income test free area reduces the pension. This has increased from 40 cents in the dollar to 50 cents in the dollar.
What is employment income?
Employment income is income from remunerative work undertaken by the person as an employee in an employer/employee relationship. This includes but is not limited to: salary, wages, leave payments, commissions, employment related fringe benefits, bonus payments, supported wages, and casual loading.
Employment income does not include income from self employment or business income.
How the Work Bonus affects employment income
Currently, for pensioners entitled to the Work Bonus, only half of their first $500 of gross employment income per fortnight is counted in assessing their pension rate. This means that the maximum amount that can be disregarded is $250 a fortnight.
Once the employment income has received the 50 per cent discount, it is added to the rest of a person’s income and the normal allowable income test free area applies. Any employment income over $500 gross a fortnight and any other income will be counted under the income test.
The income test free area and taper rate is then applied.
For example, if a pensioner has gross employment income of $300 a fortnight, only $150 a fortnight would be counted as income. If they have gross employment income of $600 a fortnight, $250 + $100 would be counted as income. The income test free area and taper rate (50 cents for each dollar earned) will then apply as usual.
How does the Work Bonus affect the employment income of a partner?
A partner’s employment income will only attract the Work Bonus if they are over Age Pension age, and on a pension.
Under the current arrangements, for eligible people the Work Bonus reduces a partner’s assessable income. The income (including a partner’s income after the Work Bonus is taken into account) is combined, and halved in the normal way to calculate the rate of pension individuals are eligible for.
For example, Mrs Jones receives Age Pension while Mr Jones receives Disability Support Pension. He is under age pension age and so is not eligible for Work Bonus. Mrs Jones has employment income of $500 a fortnight and Mr Jones has employment income of $200 a fortnight. After the application of Work Bonus, only $250 a fortnight would be counted as income for Mrs Jones. This is combined with Mr Jones’ income of $200, giving a total assessable income of $450. Half of $450 is treated as assessable income for each.
How does the Work Bonus affect a partner who is not on a pension?
A partner’s employment income will only attract the Work Bonus if they are over Age Pension age, and on a pension.
What are the changes to fortnightly assessment of employment income?
From 20 September 2009, employment income for age pensioners and other pensioners over Age Pension age is assessed fortnightly. Under the new arrangements, which are consistent with arrangements that apply to working age income support payments, pensioners with variable employment income need to report this income on a fortnightly basis.
This also includes fortnights where there has been no employment income. Until a pensioner has reported, no pension payment can be made.
Why change to fortnightly assessment of employment income?
Fortnightly assessment of employment income is necessary for the Work Bonus to operate. It brings the assessment of employment income into line with pensions and benefits for those under Age Pension age. It also gives greater certainty to pensioners about how their employment income will be assessed. The rules before 20 September 2009 required an annual rate of employment income to be estimated. This potentially created uncertainty for pensioners who had variable income from fortnight to fortnight.
For example; Mrs Brown is a single pensioner who is called in to do relief shifts at the local childcare centre. Her employment income is different every week; some weeks she does not have any employment income. In the last six fortnights her employment income was fortnight 1 $500, fortnight 2 nil, fortnight 3 $1,000, fortnight 4 $500, fortnight 5 nil, fortnight 6 $1,400.
Mrs Brown has no other private income. Mrs Brown’s employment income each fortnight is subject to the Work Bonus, leaving the following amounts assessable: fortnight 1 - $250; fortnight 2 - nil; fortnight 3 - $750; fortnight 4 - $250; fortnight 5 - nil; fortnight 6 - $1,150; and then subject to the allowable income and taper rates.
In the fortnight where Mrs Brown does not have any employment income, she receives the maximum rate of pension payment. As Mrs Brown has variable employment income she has to report each fortnight before she is able to be paid her pension payment.
Application for the Work Bonus
A person does not need to apply for the Work Bonus but needs to keep Centrelink informed of their employment income. The Work Bonus can only be applied to employment income that has been reported. Pensioners can report over the phone (including Voice Recognition), in person at a Centrelink office or using the internet.
- The transitional arrangements were put in place to protect existing pensioners who were receiving a pension at 19 September 2009 and would have otherwise been immediately adversely affected as a result of the income test changes. The major change is the increase in the income test taper rate. The income test taper rate is the rate at which income in excess of the income test free area reduces the pension. This has increased from 40 cents in the dollar to 50 cents in the dollar.