- July 13, 2018
- Posted by: Ethica Private Wealth
- Category: Blog
Not everyone wants to give up work when they reach retirement age. Continuing to work can be a great way to stay social and active – not to mention earn a little extra, too. It’s no surprise, then, that some pensioners in Australia are choosing to stay in the workplace well into their 70s.
If you, too, are considering working through your retirement, you may be concerned about how this will affect your pensions and superannuation payments, as it can make things a little more complicated. Here are some things you should know about.
How it Can Affect Your Age Pension.
The Age Pension relies on an income test to assess whether pensioners are eligible to receive it, which takes into consideration the amount you’re earning per fortnight during your retirement. As a single person, you can currently earn up to $172 per fortnight without incurring a reduction in your age pension. For every dollar you earn over that amount, your pension will be reduced by 50 cents. For couples, the maximum you can earn without incurring this reduction is $304.
There are different figures involved for people in different circumstances, such as transitional rate pensioners and those with dependent children.
There are also ‘cut-off points’ at which your employment income reaches a value which stops you from being eligible to receive any Age Pension income at all. This cut-off point varies depending on individual circumstances, but as an example, a single person won’t receive the age pension if their income reaches $1,987.20 per fortnight. This cut-off point will also vary for those that receive the Work Bonus.
What is the Work Bonus?
Work Bonus is a system designed by the Australian government to reward pensioners in Australia for their continued determination to work. It reduces the amount of your income that is assessable in the Age Pension income test. The amount that you can earn per fortnight without your Age Pension being reduced is increased to $250.
It’s also an accumulative bonus in the sense that, for each fortnight that you don’t work, the full amount is added to your ‘Work Bonus Balance’. Any amount that you earn under $250 per fortnight is also added to this balance, which is capped at $6500.
On fortnights where you earn over $250, the bonus that you have accumulated can be used to reduce your employment income so that you still don’t have to incur Age Pension reductions.
Who Qualifies for the Work Bonus?
If you’re over the current Age Pension age and you don’t receive Parenting Payment (Single), you should be able to claim the Work Bonus. If you have a partner that is also working, you should both be able to claim your own Work Bonus.
The Work Bonus is calculated during your income test so there’s no need to apply for it, but you should notify Centrelink of any income changes.
The Work Bonus also only applies to certain employment income types. These are:
– Any wages you earn both outside and inside Australia
– Payments made to you for leave periods while you’re employed
– Director’s fees
The Work Bonus isn’t applicable to the following types of income:
– Payments made to you for leave periods after your employment has ended
– Income from self-employed work
– Your superannuation income
– Sole trader or business partnership incomes.
Can I Still Access my Super if I Continue To Work?
When it comes to accessing your superannuation fund, things get a little more complicated. Whether or not you’ll be able to receive your super may depend on which of the three categories below you fall into:
– If you’re aged over 65, you should be free to continue to work and still access your super in most circumstances. If you also want to make voluntary contributions towards your super fund past age 65, you’ll need to satisfy a ‘work test’.
– If you’re under 65 but over your super’s current preservation age, and you’re not yet ready to give up work, you may be able to receive part of your funds by claiming the ‘Transition-To-Retirement Pension’.
– If you’re under 65 and the preservation age for your super, you may have to make a retirement declaration in order to access your super benefits. This means ceasing employment.
There are, however, different circumstances which may affect this, such as whether or not you have unrestricted super benefits.
You might also want to consider how claiming your super can affect your eligibility to receive the Age Pension, as super payments are calculated as an income in the Age Pension income test.
A financial planner or retirement planning specialist should be able to help you to consider all of the above and craft an effective retirement plan.
Sounds Complicated – Do I Need To Work in My Retirement Years?
Although some people opt for a working retirement, many don’t. Many people live comfortably off their Age Pension, superannuation funds, or private pension savings and don’t feel that they want or need to continue to work.
Many people find that living on the Age Pension alone can be a challenge. This highlights how important it is to plan for the future and ensure that you have enough income available that you never feel that you have to go back to work.
If you’d prefer to relax away from the workplace during your retirement, a good retirement savings plan can help you. Even if you’ve left it later than you feel you should have to start planning for your retirement, there are actionable steps you can begin to take today to boost your contributions.
A good place to start is to book your free consultation with Ethica’s team of expert financial planners who can help you to set your retirement goals and outline a plan to achieve them.