Age Pension Work Bonus: How it works and case studies

Unfortunately, not everyone who meets these criteria will benefit from the Work Bonus. That’s because Centrelink applies an income and assets test to determine your rate of payment. The amount paid is the lower rate of the assets and income tests. Depending on your financial situation, your pension could be paid under either test.

The Work Bonus will only benefit those pensioners paid under the income test.

How does it work and what do the changes mean for me?

When you have assessable income (above the income-free area), Centrelink will reduce your rate of pension by 50 cents for every $1 of income (25 cents each per member of a couple).

Generally, the first $300 of work-related income earned each fortnight is not counted towards the income test. This provides a $150 fortnightly boost to your Age Pension if your rate of payment is affected under the income test. If you earn less than $300, you can build up your Work Bonus balance, which can be applied to future earnings.  

Under the recent measures, the disregarded amount is still $300 per fortnight. However, you start with a Work Bonus balance of $4,000, and you can build up your balance to a maximum amount of $11,800.  

For existing pensioners, on 1 January 2024, you will simply retain your existing Work Bonus balance. You would have been allocated the additional $4,000 credits either on 1 December 2022 or when you were granted your pension if your grant was after that date. The plan to reduce your balance back to a maximum $7,800 will no longer occur.  

For those who are waiting for the claim to be processed, or those about to apply, you will automatically be allocated $4000 credits in your Work Bonus balance from the date your pension starts.  

How can I get the Work Bonus?

When you earn income from work, Centrelink will automatically apply the Work Bonus. This includes employment, paid leave while still employed, directors’ fees and self-employment.

If you are self-employed, you need to let Centrelink know how much of your business income was earned from you actively working or, to use the actual phrase, from your personal exertion. This includes income from work you have performed such as bookkeeping or lawn mowing, but it doesn’t include things like managing your investment property or your share portfolio.  

You must keep Centrelink updated with your income to ensure that you are paid the correct amount. Many self-employed people are unaware they should provide Centrelink with their annual tax returns and financial statements each year – within 14 days of them being prepared.

Unsure if your self-employment work bonus assessment is correct? Here’s what to do.

Contact Centrelink or visit your local office and get them to check the business details screen. Contained within this screen is a section stating ‘% of income for Work Bonus’.  The percentage recorded should reflect the extent that your share of the profits has come from your own personal exertion. If all your share of the income earned is a result of your personal exertion, this should be 100%. If it is blank, then you are missing out on the Work Bonus incentive. 

Take your latest tax return and profit and loss statement to ensure that the figures are correct and the percentage of earnings is correctly applied. The figures above are only a guide and may not relate to your personal situation.

What if my income is lumpy?

The good news for those pensioners who work on an irregular basis (for example, exam supervisors, Santa at Christmas time) – your Work Bonus is not lost! The amount of unused Work Bonus accumulates in your Work Bonus balance.

For example: You don’t work for 10 consecutive fortnights.

10 fortnights x $300 per fortnight Work Bonus = $3,000 Work Bonus balance accumulation, plus the $4,000 starting balance, means you now have a Work Bonus balance of $7,000.

Should you then earn $3,000 the next fortnight, this would have no impact on your rate of payment AND you still have $4,000 in reserve.

What’s the catch?

The maximum Work Bonus balance that you can accumulate is $11,800. The balance is never reset so once you reach the maximum it will remain at this level until you start to earn income. Additionally, the amount of work bonus credited to you is only $300 per fortnight.

Once your extra bonus amount has been used, the only way to build it back up again is by earning less than $300 per fortnight. So, while during the first 12 months you could earn $450 per fortnight and none of it will count towards the income test, once the bonus $4,000 credits are depleted, you only have the fortnightly $300 work bonus amount available.  

The figures used in the examples below show how the Work Bonus can benefit your rate of pension.

Does investment income count?

No. The only income that can benefit from the Work Bonus incentive is eligible employment income. If investment income (such as rental income) or deemed income is your only source of income and is affecting your rate of payment, there will be no benefit to you from the Work Bonus.

Did you say lump sum bonus?

No, unfortunately not. The Work Bonus is not to be confused with the old Pension Bonus Scheme, which was closed back in 2014.

The old scheme rewarded eligible customers with a lump sum bonus for working past Age Pension age and deferring their Age Pension claim. The new Work Bonus scheme provides a higher ongoing fortnightly pension payment as opposed to a lump sum.

Case studies

Let’s look at some real-life examples of the Work Bonus.

1. The ‘sweet spot’: Maintain maximum rate of pension AND enjoy part-time work.

Jenny is a single pensioner who owns her home but has no financial assets. She enjoys working part time but doesn’t want her pension to be impacted.  

The usual Work Bonus allows her to earn $300 per fortnight, which is on top of the income-free area (see note below) of $204 per fortnight – a total of $504 per fortnight.

If Jenny was to earn more than $300 per fortnight, initially she will be utilising the bonus $4,000 credited to her Work Bonus balance until it is depleted. If Jenny earned $654 per fortnight, for the first 27 fortnights her pension would be unaffected. In the 28^th fortnight, her bonus $4,000 would have been depleted. The amount of income over the income-free area plus the fortnightly $300 Work Bonus would now affect her pension. The additional $150 per fortnight would reduce her pension by $75.

Jenny can make this work for her in a number of ways. For example:

• Jenny usually earns $500 per fortnight. She decides to work additional hours over Christmas and Easter and works overtime for four fortnights in December and January. She earns an extra $500 per fortnight during this time. Her total wage for each of these four fortnights is $1,000. She has earned $2,000 extra, but her pension has not been affected as it has simply reduced her Work Bonus balance by $2,000. She goes back to her regular wages, but at Easter time she again earns an extra $500 that doesn’t affect her pension, it just reduces her Work Bonus balance. Next Christmas she can again take on extra shifts to earn up to the $1,500 she has left in her Work Bonus balance and still get her full pension.
• Jenny plans to continue working for another two years. She knows she can have income of up to $204 per fortnight under the Income Free Area, AND $300 per fortnight of earned income before affecting her pension. She works out that over the next two years she can also earn a further $75 per fortnight which will gradually deplete her bonus $4,000 credits. She therefore earns $579 per fortnight and keeps all her pension for two years, after which she finally stops working. She also knows that while she is not working, her Work Bonus balance will be building up again – at the rate of $300 per fortnight until it reaches a maximum of $11,800. If she goes back to work to help out in busy periods, she will be using any built up work bonus balance and so could still keep all her pension payments.   
• For a couple who are both pensioners the ‘sweet spot’ is $300 per fortnight each of Work Bonus plus a combined income-free area of $360 per fortnight. This means that each member of the pensioner couple could earn $480 per fortnight and still receive the maximum rate of pension ($826.70 per fortnight each). Like Jenny, they each have an additional $4,000 Work Bonus credits that can allow them to earn extra income. How much extra depends on how long they are earning the extra amount for.

2. The ‘large assets’ scenario: Earn even more without impacting your pension.

Jack is a single pensioner who owns his home and has $500,000 in assets. Due to his high level of assets, his rate of pension under the Age Pension assets test is reduced to $501.95 per fortnight.

Remember that Centrelink pays the LOWEST rate of pension calculated under the asset and income tests.

Due to Jack’s high level of assets (which significantly reduce his rate of pension), he can earn a considerable amount of income before switching across to an income-tested rate of pension.   

As Jack’s pension is already reduced to $501.95 per fortnight, he could have employment income of just under $1,700 per fortnight ($44,200 per year) before his rate of pension would be affected under the income test. He could also earn additional amounts utilising the bonus $4,000 credits, whether he decides to use a small amount each fortnight over a long period of time, or whether he decides to take a period of full-time work for a short period.  

For a homeowner couple with $800,000 of assets, their rates of pension would be $303.95 each per fortnight.

Under the work bonus rules, they could have ongoing wages of $1,525 each per fortnight and still not affect their rates of pension. If they were to earn more than this, it would initially affect their bonus $4,000 credits. Like the other examples, they can utilise these additional $4,000 credits by earning higher amounts over a short period or smaller amounts over a long period.  

3. The ‘high income’ scenario: Earn lots and still get a pension (and the Pensioner Concession Card)!

Julie is a single pensioner who is earning $2,000 per fortnight ($52,000 per year) in wages.

The cut-off limit for the income test is currently $2,397 per fortnight (not including the Work Bonus incentive).

Only $1,700 per fortnight of Julie’s wages will count towards the income test (after the Work Bonus has been applied) meaning that she will receive $271.50 per fortnight ($7,059 per year) in pension payments.

As Julie is allocated $4000 credits from the date she is granted Age Pension, for the first two fortnights her earned income will have no effect on her pension payment as she is using her Work Bonus balance. Note, she is still allocated $300 credits each fortnight, so on the third fortnight, most but not all of her income is counted. By the fourth fortnight, she has depleted the bonus $4,000 credits but will still benefit from the ongoing Work Bonus amount of $300 each fortnight.

She will also benefit from the Pensioner Concession Card discounts (which can be worth thousands).

For a couple who are both pensioners, the amount you could earn before you exceed the income test cut-off limit is $3,666.80 per fortnight combined ($95,336 per year). Provided you are both working and earning at least $300 per fortnight each, this is boosted by an extra $600 per fortnight ($300 x 2 Work Bonus incentives). Then you have the additional $4,000 credits each that allow even more income.

Seek professional advice

The Work Bonus provides an extremely generous incentive to top up a pensioner’s rate of payment. It is vitally important that you confirm with Centrelink that your assessment is correct. If not, you could be missing out on thousands of dollars in pension payments.

We suggest calling Centrelink’s Financial Information Service on 132300 to speak to an expert. This is a free, independent service that provides an amazing service to all Australians.

The Work Bonus is only one aspect of the social security maze. Everyone’s financial situation is different, so it’s important to seek personal financial advice to achieve your own goals and objectives.

The information contained in this article is general in nature.