What you need to know about earning an income on the pension

A question I’m commonly asked is whether a person has to be fully retired before they can apply for the Age Pension.

The simple answer is that you don’t have to be retired to claim a pension, however, the income you earn can affect how much pension you receive.

The Age Pension isn’t work tested. This means Services Australia doesn’t look at whether you’re actively employed or running your own business when determining if you’re eligible for Age Pension.  What we do look at is your assessable income.

Read: Cost of living increases point to big pension increase

I’ll explain what assessable income means for people earning wages, and for those who are self-employed.

If you’re earning a wage, we simply take into account your gross wage when assessing your rate of payment. 

If you’re self-employed, your assessable income as a sole trader or business partner is your gross income minus the deductions we allow. Services Australia will assess all of your business income minus allowable deductions.

Read: Could key essentials outpace September pension boost

If you’re in a business partnership, we assess your share of the business income minus allowable deductions, however, we may not allow as many deductions from your business income as you can claim in your tax return.

As well as income from work, assessable income includes income you may receive from other sources. You can earn a certain amount from all these sources before your pension is affected. This is called the ‘income free area’, which increased to $180 a fortnight for single people, and $320 a fortnight combined for members of a couple, on 1 July. 

For each dollar you earn over that amount, your pension will reduce by 50 cents. You’ll lose eligibility entirely if your income reaches $54,220 per annum for singles and $83,002 per annum for couples. These income and assets cut-off points can change during the year with CPI.

Read: CPI figures point to big pension boost

As well as the income free area, the ‘Work Bonus’ helps you keep more of your Age Pension if you’re working.

The Work Bonus allows us to disregard the first $300 a fortnight that someone on the Age Pension earns from wages or self-employment before applying the income test. This means $300 of accrued Work Bonus is added to the income free area, but it only applies to income earned from active participation through work, not to other income such as rental income.

The other benefit of the Work Bonus is that if you don’t earn any income from active participation in a fortnight, the $300 is added to your Work Bonus balance until it reaches a maximum of $7800. If you return to work, your wages are offset against your Work Bonus balance first until that’s reduced to $0. Once your balance reaches $0, the wages can reduce your pension.

So, with the combination of the income free area and the Work Bonus, a person on the Age Pension can continue to earn income from wages or self-employment and still keep more of their pension payments.

That’s all for this month. See you in September.

Hank Jongen is general manager, Services Australia

Do you have a question for Hank? Email [email protected] Why not share your thoughts in the comments section below?

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