What may have looked like another dry finance article in The Australian actually exposed a nifty trick for taking advantage of the Work Bonus and maximising your pension entitlements.
YourLifeChoices often receives questions about how much age pensioners can supplement their (let’s face it) meagre income with a bit of extra money through part-time work.
Many of them are unaware of how much they can earn each week before being penalised.
But the issue of how much you can earn on the Age Pension before having it reduced can still be confusing. Especially vexing is the difference between how earning money through self-employment or being an employee of a business will affect the Age Pension.
The Work Bonus was designed to encourage retirees to do a little extra work without being penalised. Around $6500 each year can be earned and not assessed under the income test, making it possible to make a bit of extra cash without losing any pension.
Australian singles over the age of 65 (soon to be 67) can receive a full Age Pension if they have a fortnightly income up to $168. Couples can earn up to $300 combined. With a Work Bonus, pensioners can earn up to $250 per fortnight* over these amounts, up to $6500 per year.
But, as Newcastle financial planner Chris Kourmpatsos told The Australian, “be careful though, not all types of employment income are counted under the Work Bonus incentive”.
“Centrelink defines employment income as paid work undertaken by the person as an employee in an employer/employee relationship,” said Mr Kourmpatsos.
“This includes but is not limited to salary, wages, leave payments, commissions, employment-related fringe benefits, bonus payments, supported wages and casual loading.”
If you receive money from self-employment, either as a sole trader or from a partnership, company or trust, you can’t apply for the Work Bonus.
However, Mr Kourmpatsos suggests a sneaky, but legal way around the Work Bonus rules.
“If you ran a small furniture repair business as a sole trader with an ABN for example, you would not be eligible to apply for the Work Bonus. However, if you converted that same business into a Pty Ltd company and paid yourself a wage as an employee of the new company, you could unlock the Work Bonus provisions.”
And although there are costs associated with setting up such a business, once it’s all sorted, you could snag an extra $3250 from the Age Pension each year.
“Centrelink assesses the assets and income tests concurrently and reduces the Age Pension by the test that results in the largest reduction,” said Mr Kourmpatsos.
This strategy only works when the income test is the main deciding factor for how much Age Pension you’ll receive. If you’re asset heavy, then this scheme will mean little to you.
Would a scheme such as this work for you? Do you have any other suggestions for supplementing retirement income?
* correction: changed to fortnight from month