Work Bonus Balance increase leaves pensioners underwhelmed

Article published 12 January 2024

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Work Bonus Balance increase leaves pensioners underwhelmed

January 1 has come and gone. It’s a new year of Work Bonus for both pensioners and people receiving a Carer Payment who are over 67.  For some, this has come with disappointment.

Last year the Australian Government announced changes to the Work Bonus scheme that would permanently increase the Work Bonus ‘income bank’ balance to $11,800 and give new pensioners a $4,000 opening balance. Existing pensioners received a one-off $4,000 boost in 2022-23.

Unfortunately, the scheme can be difficult to understand and the news of a permanent increase to the Work Bonus income bank balance left many expecting a bit more than what they’ve gotten.

Namely, the income bank balance cap has been increased from $7,800 to $11,800 – but recipients can still only get $7,800 of Work Bonus in a year. If a person received a $4,000 boost previously, they won’t get another one.

Confused? You’re not alone. Let’s break it down.

What is the Work Bonus?

Under the current income test, most single pensioners who earn up to $204 per fortnight, or $360 for couples who receive a combined pension, do not lose any of their pension.

Above that limit, they lose 50 cents of their pension for every dollar earned.

If a person receives a pension and is still in the workforce, the Work Bonus means that they can earn up to $300 a fortnight (that is $7,800 per year) in wages before the income test applies.

Work Bonus ‘Income Bank’ Balance

This is where a second figure comes in. Any unused portion of the fortnightly $300 Work Bonus is added to the Work Bonus ‘income bank’ balance. Up to $7,800 a year ($300 x 26 fortnights) can be accrued.

If the full $300 is not used, any remaining amount is added to an ‘income bank’ balance. If $100 of Work Bonus is used in a fortnight, $200 would be added to the balance, and so on.

The ‘income bank’ balance rolls over until it is used, even across years, but only up to $11,800 can be accrued. After this it is still exempt from the income test, but any unused amount will not be added to the balance until you’re back under the threshold.

If more than $300 per fortnight is earned, the extra amount that is earned will not be assessed as income for pension purposes until the accrued Work Bonus balance runs out.

The Work Bonus does not apply to income from investments, it only applies to income earnt from wages. The ‘income bank’ balance cannot be used for anything except reducing assessable income in relation to a pension. It cannot be shared between a couple.

Work Bonus, including an accumulated balance, will be applied even if the income from wages would not be enough to affect someone’s pension.

So what has changed?

From 1 December 2022 to 31 December 2023, the maximum amount of Work Bonus that could be banked was increased from $7,800 to $11,800. This was to accommodate a $4,000 one-off boost that was applied to the Work Bonus ‘income bank’ balance of all pensioners during that period.

The plan was that the cap would return to $7,800 on 1 January 2024 – meaning that any accrued balance above that amount would be wiped. Use it or lose it.

It was announced in late 2023 that the increased Work Bonus income bank ceiling of $11,800 would become permanent.

As of 1 January, newly minted pensioners start with a Work Bonus balance of $4,000 instead of $0, which can be used immediately. Any unused Work Bonus will accumulate on top of that until the limit of $11,800 is reached.

Existing pensioners will retain their balance, including the $4,000 bonus that has already been received – if they haven’t already used it. There will be no new bonuses forthcoming.

The rules have also changed regarding losing your pension due to receiving a regular income. Previously, if someone earned enough to reduce their pension to $0 for 6 fortnights, their pension and related concessions were suspended. This has now been doubled to 12 fortnights, which is nearly 6 months.

What’s the problem?

Of course, for those who consistently use their entire Work Bonus, the balance cap is irrelevant. This change is helpful for pensioners who are re-entering the workforce temporarily, such as those doing seasonal work, but doesn’t add much value for those who work regular hours each week.

CPSA has been contacted by pensioners who are frustrated to realise that the so-called Work Bonus increase isn’t an increase at all, at least not in real terms. That extra $4,000 is once-in-a-lifetime.

For many, the primary concern is that this system is difficult to navigate. Many pensioners have told us that the onerous process of reporting income and tracking it all makes it too difficult to be worth the effort.

Work Bonus has been touted as a way to increase workforce participation for older people, but unfortunately it doesn’t seem to be much of an incentive for most.

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