What is the 'work bonus' and how does it affect my pension?

In Plain English

The "work bonus" is a way the government encourages eligible pensioners to work without losing too much of their pension. If you're of qualifying age and receive a service pension, income support supplement, or social security pension, the work bonus can reduce the amount of your income from employment or gainful work that counts towards your pension assessment.

Here's how it works:

1. Income Concession: For each eligible period (either a "pension period" under the Veterans' Entitlements Act 1986 or an "instalment period" under the Social Security Act 1991), the first $300 of your "work bonus income" doesn't count towards your pension assessment.
2. Unused Concession Balance: If you earn less than $300 in a period, the difference is added to an "unused concession balance," which can accumulate up to a maximum of $6,500. This balance can then be used in future periods to further reduce your assessable income.
3. How it Reduces Your Income: If your "work bonus income" is more than $300 in a period, it's first reduced by the $300 income concession. If you have an "unused concession balance," that balance can be used to reduce your "work bonus income" even further, potentially to zero.

In short: The work bonus helps you keep more of your pension while you work by reducing the amount of your work income that counts against your pension eligibility.

Detailed Explanation

The work bonus is legislated under both the Veterans' Entitlements Act 1986 and the Social Security Act 1991, with similar provisions applying to service pensions/income support supplements and social security pensions, respectively.

Eligibility:

• To be eligible for the work bonus, a person must:
  • Have their rate of service pension or income support supplement calculated using the Rate Calculator (under the Veterans' Entitlements Act 1986) or their rate of social security pension calculated using Pension Rate Calculator A (under the Social Security Act 1991).
  • Have reached qualifying age (defined in section 5Q of the Veterans' Entitlements Act 1986).
  • Have reached pension age (defined in subsections 23(5A), (5B), (5C) and (5D) of the Social Security Act 1991).

Key Components:

• Work Bonus Income: This is the sum of a person's employment income and gainful work income for a given period (defined in subsection 46AA(4BA) of the Veterans' Entitlements Act 1986 and subsection 1073AA(4BA) of the Social Security Act 1991).
  • "Employment income" is defined in section 46AB of the Veterans' Entitlements Act 1986 and section 8 of the Social Security Act 1991.
  • "Gainful work" is defined as work for financial gain or reward (other than as an employee) involving personal exertion (section 46ABA of the Veterans' Entitlements Act 1986 and section 1073AAA of the Social Security Act 1991). Certain activities, such as managing family financial investments or real property, and domestic duties, are specifically excluded from the definition of "gainful work".
• Income Concession Amount: This is a set amount ($300) that reduces a person's work bonus income for each pension or instalment period (subsection 46AA(4C) of the Veterans' Entitlements Act 1986 and subsection 1073AA(4C) of the Social Security Act 1991). If the instalment period is less than 14 days, the income concession amount is calculated proportionally.
• Unused Concession Balance: This is an accumulated amount that can further reduce a person's work bonus income.
  • The initial balance is zero (subsection 46AC(1) of the Veterans' Entitlements Act 1986).
  • If a person's work bonus income is less than the income concession amount, the difference is added to the unused concession balance (subsection 46AA(4A) of the Veterans' Entitlements Act 1986 and subsection 1073AA(4A) of the Social Security Act 1991).
  • If a person has no work bonus income for a period, the full income concession amount is added to the unused concession balance (subsection 46AA(4B) of the Veterans' Entitlements Act 1986 and subsection 1073AA(4B) of the Social Security Act 1991).
  • The maximum unused concession balance is $6,500 (subsection 46AC(2) of the Veterans' Entitlements Act 1986).

How it Works:

1. Initial Reduction: A person's work bonus income for a period is initially reduced by the income concession amount ($300).
2. Unused Concession Balance Reduction: If the person has an unused concession balance, it can be used to further reduce the remaining work bonus income, potentially to zero.
3. Impact on Pension: The reduced work bonus income (after applying the income concession and any unused concession balance) is then used in Module E of the Rate Calculator to determine the person's rate of service pension, income support supplement, or social security pension.

Example (Social Security Act 1991):

Bill earns $1,300 of work bonus income in an instalment period of 14 days. His rate of social security pension for that period is greater than nil.

1. Income Concession: Bill's work bonus income is reduced by $300, leaving $1,000.
2. Unused Concession Balance: Assume Bill's unused concession balance is $800. This is used to further reduce his work bonus income by $800, leaving $200.
3. Final Assessable Income: The $200 is the amount of work bonus income that will be assessed when calculating Bill's pension rate. Bill's unused concession balance is now zero.