Older Australians who want to earn extra money are being penalised by inflexible Age Pension rules, according to industry super fund HESTA.
SuperEd research, commissioned by HESTA, shows that a single pensioner who earns $65,000 a year would take home $319 less annually than a single pensioner who earned $60,000.
This is due to a combination of Age Pension loss and tax on earnings.
“The income test taper rate is the main driver, with the Age Pension reducing by 50 cents for every dollar earned above the income-free threshold – a rate higher than any income tax bracket in the country,” HESTA said in a statement.
“Combined with standard income tax and the phase-out of tax concessions at certain income levels, this can create extreme effective marginal tax rates.”
HESTA said part-pensioners routinely faced effective marginal tax rates of 66 percent to 77 percent on their employment income.
“Compounding the issue, the research suggests many older Australians don’t attempt extra work because they believe – incorrectly – that any paid work will strip them entirely of their Age Pension,” it said.
“Others avoid applying for the Age Pension altogether, deterred by the perceived administrative burden.”
HESTA called for the removal of employment income from the Income Test for those who had already been ruled eligible for the Age Pension.
HESTA CEO Debby Blakey said retirement-age Australians who wanted to work more should be encouraged to do so.
“Retirement is not one-size-fits-all and we hear from members who want to work more but who have done the maths and worked out it simply isn’t worth it,” she said.
“For many HESTA members, the Age Pension will work alongside their super savings to fund a comfortable retirement, so these system barriers and high effective tax rates can have a negative impact on quality of life at retirement age.
“We need a simpler system – one Australians can understand, one where it’s easy to apply for the Age Pension, and one that gives people the flexibility to work and retire on their own terms without being financially penalised.”
Ms Blakey said older Australians being disincentivised to work more represented a missed productivity opportunity for the nation.
Recent KPMG research showed that boosting the workforce participation rate among 55–64-year-olds from 69 percent to 77 percent could add $29 billion to Australia’s GDP per year.
