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5.6.1 Overview of the Pension Bonus Scheme

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Last amended: 22 April 2014

What is the pension bonus?

The pension bonus is a once only, tax-free lump sum payable to a person who, on reaching pension age voluntarily defers retirement for at least one year. A person can accrue a maximum of 5 qualifying bonus periods, that is equivalent to 5 years. The bonus is calculated using a multiple of the annual rate of basic pension paid at the time of actual pension grant.    

Closure of the scheme

The pension bonus scheme closed to people who have not reached pension age or qualifying age before 20 September 2009.  People who were eligible before that date, but had not yet applied were able to register for the scheme until 1 July 2014. The scheme closed to new registrations from 1 July 2014. Existing members can remain in the scheme while they continue to meet the work requirements to accrue a pension bonus.  The work bonus was introduced as an alternative to encourage workforce participation.

Rationale of the scheme

The pension bonus scheme provides incentive for older Australians to remain in the workforce and defer receipt of income support pension. The incentive is a non-taxable “one off” lump sum amount payable if all eligibility criteria and rules are satisfied. There are two pension bonus schemes:

The DVA scheme

The DVA scheme is accessible to people of pension [glossary:or:] qualifying age who are eligible to receive:

By registering for the pension bonus scheme prior to 1 July 2014 and deferring pension for at least one full year, a bonus may be paid by DVA when a pension is granted. To be eligible for the bonus all requirements of the scheme must be met.

Deferring age pension through DVA

A disability pensioner or their partner who would qualify for social security age pension and who has  registered for the pension bonus scheme prior to 1 July 2014, may choose to defer their age pension and participate in the pension bonus scheme through DVA. The rules under social security law would apply. In certain circumstances a war widow/widower may be eligible for a bonus under the DVA scheme on the basis of having deferred the age pension at Centrelink.    

Centrelink scheme

The Centrelink scheme is accessible to people of age pension age who are eligible to receive the age pension. Having deferred age pension for a minimum of a year, a bonus may be paid to the person when the age pension is granted.

Objectives of the scheme

The objectives of both schemes are identical. That is, to:

  • increase labour market participation of people of pension age,
  • increase the level of individual savings for retirement, and
  • restrain growth in pension outlays.

These objectives will be met by offering a bonus to people willing to defer their pension by maintaining an attachment to the workforce through gainful employment and who have registered for the pension bonus scheme prior to 1 July 2014.

Key components of the DVA scheme

The key components of the scheme are as follows:

[glossary::]


Currently, the pension age for a veteran is 60 years of age (VEA 5QA).

The pension age for a non-veteran is determined by the table below:

Date of birth (both dates inclusive)

Age Pension age

1 July 1952 to 31 December 1953

65 years and 6 months

1 January 1954 to 30 June 1955

66 years

1 July 1955 to 31 December 1956

66 years and 6 months

On or after 1 January 1957

67 years

 

The pension bonus scheme closed to new entrants on 20 September 2009. Existing members can continue in the scheme under the rules that existed prior to 20 September 2009. The pension bonus scheme provided an incentive for older Australians to remain in the workforce and defer receipt of income support pension. The incentive was a bonus, payable if all eligibility criteria and rules were satisfied.

The pension bonus was a once-only, tax-free lump sum payable to a person who, on reaching their special date of eligibility, voluntarily deferred retirement for at least one year and registered as a member of the scheme. The pension bonus was claimed at the same time as claiming pension and is calculated using the annual rate of basic pension payable at grant, multiplied by the bonus periods accrued.

Income support pension is:

 

 

The Department of Veterans' Affairs.

Centrelink is a Government service delivery agency responsible for delivering a range of Commonwealth Government services (including social security pensions and allowances) to the Australian community through a network of more than 400 Centrelink offices.

Qualifying age is defined in section 5Q(1) of the VEA and is equivalent to the pension age for a veteran which is described in section 5QA VEA as:

  •       60 years for a male,
  •       for females subject to age equalisation (refer to the table in section 5QA VEA).

A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.

ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.

 

 

An age pension is a means tested income support payment paid by Centrelink  or DVA on behalf of the Department of Families, Housing, Community Services and Indigenous Affairs. The majority of age pensions are paid through Centrelink. However, eligible veterans  who have an accepted disability or receive a disability pension from DVA, but do not have qualifying service, may be paid their age pension by DVA. Their partner may also receive their age pension from DVA, if eligible.

 

 

The social security law includes:

  • the Social Security (Administration) Act 1999; and
  • the Social Security Act 1991;and
  • the Social Security (International Agreements) Act 1999.

Age Pension Age refers to pension age as defined under the Social Security Act 1991, that is, pension age for people other than veterans.

 

 

Means carer payment under the Social Security Act 1991.

Special date of eligibility is defined in section 45TB VEA and relates to the pension bonus scheme. A person's special date of eligibility for:

  • age service pension is the first day on which a person becomes eligible for an age service pension,
  • partner service pension is the first day occurring on or after the person reaches pension age and is eligible for a partner service pension,
  • income support supplement is the day the person
    • reaches [glossary:qualifying age:DEF/Qualifying Age], or
    • becomes eligible for income support supplement if this is after the person has reached qualifying age.

If a person is registered under DVA and Centrelink schemes and therefore has 2 or more special dates of eligibility, only the first date is to be counted.

 

 

Income support pension is:

 

 

A person passes the work test for a full year period if they or their partner work at least 960 hours (640 hours to be worked in Australia) during that full year period. Partners cannot work the hours between them.

Gainful work is defined as work for financial gain or reward as an employee, self-employed person or otherwise. Irregular, infrequent and minor absences are to be treated as gainful work.

Management of family financial investments or domestic duties in relation to a person's place of residence does not count as gainful work.

The Commission has discretion to treat an activity as gainful work.

 

 

A lodgment period is the period within which a claim for a pension bonus can be made. Different formulae apply depending on whether the person's last bonus period is a full year period, or a part-year period. There are exemptions to these formulae if the:

  • person is an exempt partnered person at the end of the person's last bonus period,
  • person's membership of the scheme becomes non-accruing immediately after the end of the person's last bonus period, or
  • person is a post 70/75 member of the scheme and has a post 70/75 work period.

For a full definition see subsection 45UL of the VEA.