Maximising entitlements under the Pension Bonus Scheme

Under the PBS, which has now been in operation since 1998, a ‘bonus’ in the form of a one-off tax free lump sum payment may be available to individuals who choose to defer claiming Centrelink age pension or Veteran’s Affairs service pension.

The bonus may accrue over a minimum period of 12 months and up to a maximum of five years. The bonus is not payable to individuals who have claimed any income support payments (with the exception of carer payment) after reaching pension age.

Eligibility

Individuals:

* must qualify for the age or service pension when the claim for the bonus is lodged;

* must register as members of the scheme with Centrelink (or the Department of Veterans’ Affairs (DVA) if a DVA client). If registration is within 13 weeks of attaining pension age, accrual of the bonus will commence from age or service pension age. If registration is outside of 13 weeks of attaining pension age, accrual of the bonus will generally not begin until the time of registration;

* must accrue the bonus for at least 12 months but no more than five years;

* must continue to be gainfully employed for at least 960 hours per year;

* must keep a written record of employment, including employer’s name(s), type of work and dates/hours worked. Records must be maintained for the whole accrual period;

* cannot accrue the bonus past age 75 years for Centrelink age pensioners or age 70 years for DVA service pensioners; and

* must lodge a claim for the bonus and age/service pension at the time the member wants to receive (and qualifies for) the bonus and pension payments.

Working out the amount of thebonus

The amount of bonus that is payable is based on the amount of basic pension entitlement at the time the age or service pension is eventually claimed and the length of time over which the bonus is accrued (subject to a maximum of five years).

Late bonus claims

The bonus must be claimed, together with the age/service pension, within 13 weeks of ceasing to satisfy the work test. Where a claim is made outside this period, the claim is deemed late and the amount may be reduced.

Where a bonus claim is made after 13 weeks of ceasing to satisfy the work test, and the accrual period is less than five years, the bonus accrual period will be reduced down to the nearest whole year. Bonus claims made more than 13 weeks after the end of the fifth year will not generally be payable.

Circumstances where the bonuscannot be accrued (non-accruingmembers)

A person may not accrue the bonus in the following circumstances:

* a compensation preclusion period applies;

* a carer payment is received. While a member of the PBS is not eligible to accrue the bonus while he/she is receiving carer payment, this does not prevent the person from accruing the bonus for other qualifying periods;

* a person has been assessed as having a “deprived asset” under the deprivation provisions (for more details, refer to gifting rules);

* if a member of the scheme depends on their partner’s work to meet the work test, he/she cannot accrue bonus periods until such time as their working partner qualifies for the age pension and becomes a member of the scheme;

* if a person participates in a Community Development Employment Project;

* if a person is in prison;

* if a person is in psychiatric confinement because they have been charged with committing an offence;

* if a person takes a continuous period of sick leave of at least four weeks, up to a maximum of 26 weeks duration; or

* if a person does not meet the work test requirements during the 13 weeks following the death of their partner.

Gifting rules

For gifts made prior to July 1, 2002, a disposal preclusion period applies when a PBS member or their partner gifts more than $10,000 of assets in a year or in any of the preceding five years. The preclusion period is five years starting from the date of the gift. The bonus cannot accrue during this preclusion period.

For gifts made on or after this date, a disposal preclusion period applies when a PBS member or their partner gifts more than $10,000 in a financial year or gifts more than $30,000 in a rolling five-year period. The preclusion period is five years starting from the date the gift exceeds the allowable limit.

Tips and strategies

1. Register within specified time

Clients who fail to register within the specified time should contact Centrelink/ DVA immediately to discuss their circumstances, preferably with a financial information service officer.

Centrelink/DVA may exercise its discretion to backdate a claim under certain circumstances.

2.Claim within the timeframe

Clients must lodge bonus claims within 13 weeks of ceasing to satisfy the work test to accrue the bonus. Failure may result in a reduction in the amount payable, or at worst, no bonus payment at all.

3. Claim the CommonwealthSeniors Health Card during theaccrual period

Members of the PBS may apply for the Commonwealth Seniors Health Card (CSHC), provided that their income is below the CSHC income limits which are $50,000 per annum for a single person, $80,000 per annum for a couple, and $50,000 per annum each for a couple separated by illness. For each dependent child add $639.60 per annum.

4. Use pension maximising strategies prior to claiming the bonus

By maximising the amount of pension payable at grant date, the amount of bonus payable is also maximised. Therefore, it is important to consider the value of various pension maximising strategies prior to claiming the bonus, such as gifting, funeral bonds, allocated income streams and asset-test exempt income streams.

5. Compare amount of bonuswith the value of pension andfringe benefits forgone

Where the decision to continue gainful employment beyond pension age is made purely on the possibility of the bonus being available, remember the bonus might be less than the amount of pension and fringe benefits forgone.

So when making such a decision, the value of the forgone pension and fringe benefits should be compared to the amount of bonus that is likely to be payable.

George Avramides is technicalmanager, income support,INGTechnical Services .