Demystifying The Recent Federal Budget Announcements for Pensioners
Announcements from the 2022-23 October Federal Budget
In October 2022, the first Budget of this Parliament and Labour’s first Federal Budget since 2013 was handed down by the Treasurer, Dr Jim Chalmers. As expected, there were few surprises as the Government aimed to keep to its pre-election promises on childcare, aged care and paid parental leave.
The Budget provided a range of announcements around superannuation and self-managed superannuation funds, personal taxation, families, aged care, and housing affordability. However, the Government’s 2022-23 Federal Budget also announced a variety of incentives to encourage workplace participation by pensioners.
We’re always thinking of ways in which we can help to demystify the pension rules for our clients to help them with their retirement planning. So, let’s get straight into what we’re looking at to help you make the most of the recent Federal Budget announcements for pensioners.
Encouraging Workplace Participation by Pensioners
If there was one priority that was made clear from the recent Budget, it was the fact that the Government wants to support older job seekers and help them to remain engaged in the labour market. The Government proposed to introduce the following measures to incentivise pensioners to engage in paid employment.
- Temporarily increasing the Work Bonus income bank
- Extending the qualification period for Pensioner Concession Cards
- Suspending, instead of cancelling, benefits, and entitlements for up to two years
These are welcome and much-needed measures that will help pensioners to remain engaged in the workforce, earning an income alongside their pension entitlements. We agree with the Government when they say that older Australians have a wealth of knowledge, experience, and skills and that we should encourage them to engage in paid employment. We often advise our retirement planning clients to remain in paid employment if they find their work enjoyable and meaningful. Not only can this provide a sense of contribution for retirees, but there are social and mental health benefits to remaining in the workforce too.
As these changes may impact our advice for clients preparing for their retirement, and for clients that have already retired, we’ll step through the key facts of each announcement separately.
Temporarily Increasing The Work Bonus Income Bank
If you receive a pension, the Work Bank helps to reduce the amount of your eligible income included in the income test. This helps Services Australia to work out your rate of payment.
You have $300 of Work Bonus available each fortnight, which can accrue up to the maximum amount. In the recent Budget, the Government announced that from 1 December 2022 to 31 December 2023, your maximum Work Bonus balance limit will increase from $7,800 to $11,800. This will reset to $7,800 on 1 January 2024. Under this measure, eligible pensioners and certain veterans’ entitlement recipients will have an extra $4,000 credited to their Work Bonus income concession bank balance.
This is great news for pensioners who are income tested, as they’ll be able to work and earn more by utilising the increased Work Bonus balance limit, without affecting their rate of payment.
To give you an idea of how the Work Bonus is applied, if you are working, Services Australia will apply your Work Bonus balance to offset your income. They’ll do this before they apply the income test to you.
If your income is less than $300 a fortnight, Services Australia will reduce your income to zero. If your income is more than $300 in a fortnight, Services Australia will use your Work Bonus to reduce your income by $300. They’ll then reduce the remaining income by any Work Bonus Balance you have and apply the income test to your remaining income.
Eligible individuals are those over Age Pension age who receive one of the following payments:
It’s important to note that the existing Work Bonus concession of $300 per fortnight will remain unchanged. It’s only the Work Bonus balance limit that has been increased.
Extending the Qualification Period for Pension Concession Cards
Prior to this Budget announcement, Age Pensioners would have their Pensioner Concession Card cancelled 12 weeks after their pension ceases to be payable due to their level of employment income. Disability Support Pension recipients had their Pensioner Concession Card cancelled 52 weeks after they lose eligibility for the pension due to their employment hours or ordinary income from employment.
This measure recently announced by the Government would extend the period that working pensioners, and their pension partners can remain qualified for a Pensioner Concession Card. Instead of the previous 12-week qualification period, the Budget announced an extended qualification period of up to two years after losing eligibility for the pension.
This provides much-needed relief for retirees who become ineligible for the pension due to their earned income, as they’ll be able to retain their Pensioner Concession Card, along with the associated cost of living benefits, for up to two years after their payment ceases.
This measure was due to commence on 1 January 2023, however, at the time of writing, this bill is before the Senate and has yet to receive royal assent. We’ll keep an eye on this and provide further updates as they become available.
Suspending, Instead of Cancelling, Benefits, and Entitlements for up to Two Years
At the Mid-Year Economic and Fiscal Outlook 2021-22, the Australian Government announced it was removing the barriers that Age Pensioners face if they wish to work, by making sure those who chose to re-enter the workforce or increase their work hours, can easily access payments again if needed.
The announcements made in the Budget made it clear that the Government is committed to making it easier for older Australians who want to work, to contribute to our national prosperity.
This measure would allow Age Pensioners and certain veterans’ entitlement recipients to have their payment suspended for up to two years, instead of cancelled, if their income, which includes some income from the recipient’s own employment, precluded payment. The suspension will also be made available to their partners, and partners of Disability Support Pension recipients.
For example, if at any time during the two-year period, the age pensioner’s income is at a level that enables them to return to the Age Pension, they will benefit from an abridged reapplication process. Age Pension recipients will only need to notify Services Australia and provide an update of their income and assets information to start receiving their pension again.
This will make it easier for working pensioners to resume the Age Pension by enabling pensioners and their partners to resume receiving pension more easily if it becomes payable again within two years.
This measure was also due to commence on 1 January 2023, however, at the time of writing, this bill is before the Senate and has yet to receive royal assent. We’ll keep an eye on this and provide further updates as they become available.
Canny Advisory + Your Pension Entitlements
Well, there you have it. The Government wants to incentivise pensioners to engage in paid employment and understanding these changes can help you to make the most of your retirement plans, especially if you’re eager to do some casual work on the side to earn an income.
There’s always a lot to unpack from Budget announcements, and rules around paid employment and pension entitlements can often change, affecting your retirement planning. If you need help understanding how these proposed changes affect your specific financial goals and objectives, please get in touch with one of our Financial Advisers at Canny Advisory so we can help you to navigate these changes and make the most of your money.