10.1.9.40 Calculating proportional income under agreements
Proportional income
Australia may take into account only a proportion of any contributory pension from an agreement country when calculating the rate of pension payable to a person who is living overseas and being paid under an agreement. The proportion is obtained by applying the person's period of AWLR over a denominator of 25 years (300 months).
Example: For a person with 10 years Australian working life residence the income-tested pension would be calculated by taking into account 120/300ths of the agreement country's contributory benefit.
The general method for working out the proportional pension rate under an agreement is standard and is shown in the 7 steps below. Each agreement needs to be checked for minor variations.
| Step | Action |
|---|---|
| 1 |
Work out which amounts of overseas pension are to be disregarded because they are exempt payments. The remaining pension from the agreement country, including the partner's pension from the agreement country, is the assessable income. |
| 2 |
Work out the proportion of the assessable income to take into account using the following formula. Y = (Q x FP)/300 Y represents the proportionalised assessable income to be taken into account under the Australian income test. Q represents the number of whole months plus one of AWLR (not exceeding 300). FP represents the assessable income from Step 1. |
| 3 |
Work out the possible pension rate under the normal pension income test using the proportionalised assessable income from Step 2. |
| 4 |
Work out the possible pension rate under the normal assets test. |
| 5 |
Compare the results from Steps 3 and 4 and choose the lower possible pension rate. If the rates are the same, choose the income tested rate. |
| 6 |
If the person's rate is greater than zero, add the additional child amount or amounts (that are applicable in accordance with SS(IntAgree)Act section 14A). Act reference: SS(IntAgree)Act section 14A Additional child amounts |
| 7 |
Using the rate calculated from Step 6, calculate the proportional pension rate using the following formula. A = (PxQ)/420 A represents the proportional pension rate. Q represents the number of whole months plus one of AWLR (not exceeding 420 months). P represents the total possible pension rate. Note: This rate is subject to the ceiling rate of Australian pension paid overseas. The ceiling rate is calculated by first calculating the rate that would have been paid if the pensioner was residing in Australia and qualified for payment without the assistance of an agreement. This rate is not proportionalised. Compare this rate to the proportionalised agreement rate calculated above. The lower of the 2 rates is the rate payable and is referred to as the limited agreement rate. |
2009 Pension Reform transitional provisions
As part of reforms to pensions from 20 September 2009, a person's pension may be paid under transitional arrangements where this provides a higher rate of payment.
Further information on the transitional arrangements is at 5.1.8.40.
Act reference: SSAct Schedule 1A Savings and transitional provisions
Policy reference: SS Guide 5.1.8.40 Pension reform - transitional arrangements
Work bonus
From 20 September 2009 a work bonus applies to pensioners of age pension age (except PPS).
The work bonus allows for a certain amount of income from employment and/or self-employment from gainful work that is earned, derived or received in an instalment period by a pensioner who is of age pension age (except PPS) to be disregarded for the purposes of the pension income test. From 1 July 2019, the work bonus was expanded to include income from self-employment from gainful work, as well as employment income. Prior to 1 July 2019, only employment income was eligible for the work bonus.
From 7 December 2020, changes were made to the assessment of employment income for social security purposes. As part of these changes, the work bonus is now determined based on when a recipient is taken to have been paid employment income as opposed to when it is earned. This change only applies to income from employment. Income from gainful work from self-employment continues to be assessed when first earned, derived or received.