Age-based pension payments

7.111 There are two age-based pension payments: the Age Pension and the Veterans’ Age Service Pension.^[178] This section considers the treatment of employment income in means testing for these payments. The ALRC recommends that the Work Bonus amount—an amount of employment income that is disregarded in calculating the rate of payment for Age Pension and Veterans’ Age Service Pension—be indexed in order to maintain its value as a workforce incentive.

7.112 The qualifying age for Age Service Pension is not scheduled to increase in line with forthcoming changes that will increase Age Pension age to 67. The Tax Review proposed that the current five-year difference between qualifying age for Age Pension and Age Service Pension be retained with any increase to Age Pension age.^[179]

Age Pension and employment income

7.113 As well as its place in the social security system, the Age Pension forms one pillar of Australia’s three-pillar retirement income system, alongside compulsory saving through the superannuation guarantee and voluntary superannuation saving.^[180] The Age Pension acts as a ‘safety net’ payment—ensuring that people over Age Pension age have access to an income that provides a reasonable minimum standard of living.^[181]

7.114 A high proportion—68.3%—of persons over Age Pension age were in receipt of the Age Pension at March 2012.^[182] Of these, 40.9% were in receipt of the full rate of Age Pension.^[183]

7.115 There is no requirement for Age Pension recipients to engage in paid work as a condition of receiving payment. However, a number of elements in the design of the Age Pension allow continued workforce participation after reaching Age Pension age. These include the design of the means test and Work Bonus.^[184]

7.116 If a person continues to work after reaching Age Pension age, employment income will be assessed as part of the income test in determining eligibility to receive the Age Pension. Each dollar of assessable income over the free area amount reduces the level of payment by 50 cents in the dollar.^[185] At March 2012, 3.9% of Age Pension recipients had earnings from employment.^[186]

Work Bonus

7.117 Work Bonus reduces the amount of employment income that is assessable in the Age Pension income test in an instalment period. Work Bonus allows a person to earn up to $250 per fortnight, without it being assessed as income under the pension income test.^[187] Any unused amount of the fortnightly $250 Work Bonus accumulates in an ‘Employment Income Concession Bank’, up to a maximum amount of $6,500.^[188] Credit in this income bank can then be carried forward and be used to offset employment income that would otherwise be assessable under the pension income test.^[189] Work Bonus is also available to Veterans’ Age Service Pension recipients.^[190]

7.118 DEEWR, DHS and FaHCSIA reported that early indicators show that Work Bonus is having a positive impact on workforce participation and on the amount of employment income earned by Age Pension recipients:

Since the new Work Bonus was introduced, the number of pensioners of Age Pension age with employment income in the previous 12 months grew by around 15.25 per cent from 118,000 (July 2011) to over 136,000 (July 2012). During that same period the average gross employment income of pensioners with employment income grew by more than 5 per cent from $16,694 to $17,498.^[191]

7.119 In the Discussion Paper, the ALRC proposed indexing the Work Bonus amount.^[192] Most stakeholders supported this proposal.^[193] As the Pension Review noted, the indexing of pensions is critical to maintaining the standard of living of pension recipients.^[194] The ALRC considers that it is similarly important to index the Work Bonus amount to maintain over time the incentive for Age Pension recipients to maintain an attachment to the workforce.^[195] The ALRC therefore recommends that the Work Bonus amount be automatically indexed.

Pensioner Education Supplement

7.120 Pensioner Education Supplement (PES) is a payment available to most pension recipients (and certain other income support recipients) undertaking qualifying study.^[196] There is no maximum age limit for PES.^[197] However, it is not available to Age Pension recipients or to persons in receipt of the Veterans’ Age Service Pension under the Veterans’ Entitlements Act 1986 (Cth).^[198]

7.121 In the Discussion Paper, the ALRC proposed that PES be extended to Age Pension and Veterans’ Age Service Pension recipients. There was some support for such an extension.^[199] For example, NWRN submitted that the current restriction on eligibility is ‘discriminatory and unfair’ and ‘out of step with other Government policies which support participation through life-long learning’.^[200]

7.122 Undertaking study after Age Pension or Veterans’ Age Service Pension Age may allow a person to gain or update employment-related skills.^[201] It may also have other benefits. It may promote social inclusion and social connectedness, as well as better health.^[202]

7.123 However, the payment of a supplement to engage in study is at least one step removed from workforce participation, in that there is no necessary connection between its receipt and subsequent engagement in paid work. The ALRC has concluded that there is an insufficiently direct link between payment of PES and workforce participation to justify a recommendation to extend PES to Age Pension and Veterans’ Age Service Pension recipients in the context of this Inquiry.

7.124 However, access to education, training and skills development is an important broader issue that affects mature age persons’ ability to participate in the workforce. The ALRC has recognised this in recommending that skills, education and training be a priority area in a National Mature Age Workforce Participation Plan.^[203]