A recent enquiry was received by me asking the following:

I am soon to reach Age Pension age.  I intend to keep working for a few more years.

Should I apply for the Pension Bonus Scheme?

The Pension Bonus Scheme was introduced 1^st July 1998.  It was introduced as an encouragement for those of age pension age to continue working and put off claiming the age pension for a period of at least 1 year.  If you do so and you are eligible to claim the age pension at a later date, you will receive a lump sum benefit for not claiming the pension.

How much is this lump sum benefit?

The amount of bonus you get depends on:

·  the amount of basic Age Pension you are entitled to when you eventually claim

·  the length of time you have been an accruing member of the Pension Bonus Scheme, and

·  whether you were single or partnered during the time you deferred your Age Pension.

You must be an accruing member for at least one year to be paid a bonus. A maximum of five years accruing membership can be taken into account when working out your bonus. Work after 75 years of age cannot be included.

If you are entitled to a part-rate Age Pension, you may be entitled to a part-rate bonus. For example, if you receive 75 per cent of the basic rate of Age Pension when you retire, your bonus will be 75 per cent of the amounts in the following table.

Maximum amounts of bonus payable (accurate as at April 2008) where the maximum rate of Age Pension is granted

The relationship between the initial pension rate and the amount of bonus means; members will generally benefit by claiming their pension and bonus after employment income ceases.

The bonus you get is a multiple of 9.4 per cent of your basic Age Pension rate for each accruing bonus period.

Example of how the Pension Bonus is calculated

Glen registered for the Pension Bonus Scheme on 3 March 2003 at 65 years of age. He was self-employed and worked an average of 35 hours a week until he retired on 2 March 2008, accruing five full bonus years.

Glen is single and has never given away any income or assets. He claimed Age Pension and the Pension Bonus on 1 April 2008 within 13 weeks of his retirement.

Glen has other income and assets. After the income and assets tests are applied, he receives 56 per cent of the maximum rate of basic Age Pension or $7,961.40 (after rounding). His bonus is calculated as follows - 56% of the full 5 year bonus lump sum for a single person of $33,409.50.

This gives Glen a total bonus of $18 709.30 (after rounding).

For some, you may be better off claiming the Age pension immediately rather than deferring in order t receive the pension bonus at a later date.  Particularly, if the pension payments you would receive if you claimed the pension immediately are greater than the pension bonus you would receive at the time you intend to claim it then you may well be better off claiming the pension immediately.

This decision would depend on a range of issues including your current level of income and assets, the amount of income you need in retirement, taxation, superannuation and health and lifestyle issues.