Changes to Work Bonus rules

Gemma Dale explains how the new Work Bonus rules that took effect on 1 July this year will benefit eligible pensioners.

The old rules

Gemma Dale explains how the new Work Bonus rules that took effect on 1 July this year will benefit eligible pensioners.

Before 1 July 2011, when a pensioner was entitled to the Work Bonus, only 50 per cent of the first $500 of their fortnightly gross employment income was counted in assessing their pension entitlement.

This meant that Centrelink would disregard up to $250 in employment income per fortnight when applying the income test. 

However, the rules caused angst amongst some working pensioners. This was particularly the case for those who earned lower wages or did seasonal work, as case studies 1 and 2 illustrate.

Case study 1

A pensioner who earned $500 per fortnight from employment in 2010-11 would have received a concession benefit of $250 per fortnight, while a pensioner who earned $250 would have only received a benefit of $125 per fortnight.

Case study 2

In 2010-11, a pensioner who earned $500 per fortnight from employment for a whole year would have received a total concession benefit of $6,500 (ie, $250 x 26).

Conversely, a pensioner who earned the same total income of $13,000 over four fortnights would have only received a total benefit of $1,000. This was because they would have received the maximum benefit of $250 for each of the four fortnights they worked and no benefit in the remaining 22 fortnights.

The new rules

To address these anomalies and provide greater flexibility for eligible pensioners, two key changes were made that took effect on 1 July this year.

Eligible pensioners will be credited with a Work Bonus of $250 per fortnight regardless of how much (or little) they earn from employment or their work patterns.

If the pensioner doesn’t earn $250 in a fortnight:

• No employment income is assessed;
• The unused Work Bonus is credited to an ‘income bank’ up to a maximum of $6,500 (which will take up to 26 fortnights to accumulate);
• The accumulated credits can be used to offset future assessable employment income exceeding $250 per fortnight; and
• The opening balance for eligible pensioners will be nil before the start of the period containing 1 July 2011.

The implications

Pensioners with regular employment income

If a pensioner earns more than $250 per fortnight from employment, only the income exceeding this threshold will be assessed under the income test (see case study 3).

Case study 3

In 2010-11, a pensioner with employment income of $400 per fortnight would have received a Work Bonus concession of $200 and $200 would have been assessed. From 1 July, the standard bonus of $250 will mean only $150 is included in the income test. 

If the pensioner earns less than $250 per fortnight from employment, all the earnings will be disregarded and whatever remains of the $250 benefit will accrue in the income bank for future use (see case study 4).

Case study 4

In 2010-11, a pensioner with employment income of $200 per fortnight would have received a Work Bonus concession of $100 and $100 would have been assessed. From 1 July, no employment income will be assessed and $50 will be credited to the income bank.

Pensioners doing seasonal work

From 1 July 2011, pensioners doing seasonal work will benefit from the flat $250 per fortnight Work Bonus in every fortnight, not just those in which they work (see case study 5).

Case study 5

In case study 2, a pensioner who earned $13,000 in four fortnights in 2010-11 would have received a total Work Bonus concession of $1,000. However, in 2011-12, they will receive a bonus of $250 per fortnight for the 22 fortnights they don’t work. This amount will accrue in their income bank and reduce their assessable income in the fortnights they do work. In these fortnights they will also benefit from the flat $250 concession.

Pensioners not working

Pensioners who don’t work in a given fortnight will benefit from the Work Bonus for the first time. They will be able to accrue the $250 per fortnight concession in their income bank (up to a maximum of $6,500) and use this money to reduce any future employment income.

Pensioners with fluctuating incomes

Some pensioners will have fluctuating employment incomes and periods where they don’t work at all. Case study 6 outlines the implications this could have for the income test and income bank.

Case study 6

In the first fortnight of 2011-12, if a pensioner earns $100 from employment, no wages will be included in the income test and $150 will accrue in their income bank.

In the second fortnight, if they earn $350, $100 will be deducted from their income bank after allowing for the standard credit of $250. As a result, no employment income will be assessed and the income bank will be reduced to $50. 

In the third fortnight, if they earn $400, after allowing for the standard credit of $250 and the $50 left in their income bank, $100 of employment income will be assessed.

Finally, in the fourth fortnight, if they earn no employment income, the standard credit of $250 will be added to their income bank to use in the fifth or subsequent fortnight.

Transitional rate pensioners

If a pensioner is on the transitional rate that came into effect on 19 September 2009, a ‘notional’ concession balance will be maintained so that when the pensioner eventually moves to the new rate, they will have the same balance as if they had always been on the new rate.