Age Pension

The key issues to consider about working past 65

Mar 16, 2017

Financial planners say some people benefit psychologically from transitioning to retirement.

More than half of all Baby Boomers expect to work past 65 and just under 10 percent think they’ll never be able to afford to retire.

Those are the discouraging findings of a recent Industry SuperFunds survey, which go on: 8 percent of the same 5.5 million-strong generation anticipate working full-time in ‘retirement’ and most of the respondents that expect to work in some capacity will need to use the money for everyday expenses.

But how realistic are these intentions?

The lowdown on the rules

Australia has no compulsory retirement age in most employment sectors, although the Age Pension is not currently available to people under 65, and that minimum age will rise to 65.5 in July.

But working could cut your pension entitlement. The Age Pension is tapered by 50 cents for every dollar earned over $164 a fortnight by single people, or $292 combined for couples.

There is leeway to earn money in addition to these caps under the government’s Work Bonus scheme, which allows workers over pension age to earn up to $250 each a fortnight without impacting their pension entitlement.

This $250 non-assessable allowance can effectively be ‘banked’ up to a total of $6,500 so a pensioner can either regularly work part-time for a smaller fortnightly sum or work full-time to earn more over a shorter period without losing or reducing their pension.

Matthew Torney, a certified financial planner (CFP) and partner at Muirfield Financial Services explains how it works.

“The first $250 you earn as an employee each fortnight doesn’t impact your Age Pension entitlement,” he says. “For every fortnight when you don’t earn income, you accumulate the allowed $250. This is added to your ‘Work Bonus’ income bank and this balance can accumulate up to $6,500 and can then be used to offset income in fortnights where you earn more than $250.”

That’s a plus point for seasonal workers because they don’t find their pension suddenly slashed when receiving a higher income for just a few months, he points out.

The government also offers a Restart Wage Subsidy of $10,000 over six months if they hire a worker aged over 50 who’s been on income support for at least six months. Your employer can apply for this.

Some super-important considerations

If you have super saved – and even if it’s not yet moved into a pension phase fund – the issue of income and the Age Pension can become more complicated.

Kim Betts, a CFP and senior advisor at Cooper Wealth Management explains that once you become eligible for the pension, money in your super becomes assessable by Centrelink, which will count the ‘deemed income’ that that money would provide when calculating your pension entitlements. Earning a wage in addition could push you over the earnings caps and reduce your pension.

If that’s the case, Betts advises considering moving your fund into the name of a younger spouse or partner.

“Once piece of advice can be that if they have a partner or spouse that has not yet reached Age Pension age, then they may wish to consider moving the funds into their name,” she says.

Francois Leonardo Petitto, another CFP who’s a senior financial planner at Assure Financial, says people tend to focus on Centrelink’s income tests, but should also look at the new asset test.

From January the amount of assets other than the family home that you can hold while still receiving a part-pension was dramatically reduced, which means thinking about ways to gradually reduce your super assets while still bringing in a work income is important, he says.

“There may be benefit in considering the use of lifetime annuities to ensure that combined ongoing income is concessionally assessed, as well as it being an effective asset reduction strategy,” Petitto notes.

Whether you require an employment income for everyday items or to top up your savings is also a key consideration, says Torney.

If you want to ensure you have a healthier super balance for when you fully retire from the workforce, earning a supplementary income to top up your existing super is a tax-friendly move, he explains.

“Superannuation contributions tax of only 15 percent may be lower than your marginal tax rate,” Torney notes, which means that you’re effectively paying less tax on your earnings than you otherwise might have.

Not everyone dreams of retirement

Working beyond 65 can have other benefits.

CFP Troy Theobold, a director at Robin Financial Services, says the psychological impact of suddenly leaving the workforce can be a big one for some people, who might benefit from transitioning to retirement more slowly.

“The loss of purpose and feeling of anxiety when retiring shouldn’t be underestimated,” he reckons.

Having some employment income still coming in can be a freeing experience for some of his clients, he says.

“Some clients like to continue to work and aim to spend 100 percent of this income on holidays and bucket list items,” Theobold explains. “I find clients are more likely to spend on these items while they have an income coming in.”

Torney agrees that some people enjoy the social environment of the workplace, and benefit from a transition period so they can work out how they want to structure their post-work life.

“Getting a taste of retirement, while retaining some employment income, can help people adjust, prepare for, and be better equipped to enjoy their eventual retirement,” he reckons.