Why Age Pensioners are losing out when they work more

For many Age Pensioners, picking up a few extra shifts or a part-time job in retirement seems like a smart way to boost income, stay active, and keep connected.

But new research shows the system is stacked against them — with many losing the bulk of their extra earnings once taxes are taken into account.

The report, commissioned by HESTA and conducted by Retirement Essentials, revealed that Age Pensioners can face effective marginal tax rates of 60 to 80 per cent, and in some extreme cases, even over 100 per cent.

It all comes down to the Income Test taper rate. Once you earn above the income-free threshold, your Age Pension is reduced by 50 cents for every extra dollar. Add in normal tax, and suddenly working doesn’t seem worth it.

The impact becomes clear when you look at real-life examples. A single Age Pensioner who increases their work income from $25,000 to $30,000 only pockets an extra $1,150. That $5,000 boost comes with a jaw-dropping 77 per cent effective tax rate.

For couples, the situation is similar. If one partner earns $30,000, the same 77 per cent rate applies. If both partners work and bring in $40,000 together, they face a 64 per cent rate.

HESTA CEO Debby Blakey said this set-up is leaving many retirees questioning whether it’s worth staying in the workforce at all.

“We recognise the retirement experience of each Australian is unique, and flexibility is important to support both financial and mental wellbeing. That’s why we’re concerned by the significant disincentives within the current system for older Australians who wish to remain active in the workforce,” Blakey said.

“For our members, who are largely in the health and community services sector (HACS), working in retirement has a multitude of benefits for them and the community. Part-time or casual work in retirement helps people retain a sense of purpose and fulfillment, while addressing critical workforce demands and boosting the broader economy.

“We continue to hear stories from members on the pension who would like to work more but are put off by the extreme effective marginal tax rates.

“By removing barriers, we can unlock greater opportunities for individuals in retirement, while delivering significant benefits to society as a whole.”

To ensure older Australians aren’t unfairly disadvantaged, HESTA is calling for the following changes:

• Ensuring retirees’ incentives to work are not diminished by indexing the Work Bonus payments thresholds to Average Weekly Ordinary Time Earnings (AWOTE).  The Work Bonus allows those at or over Age Pension age to earn income from part-time, shift, or casual work while retaining more of their pension.
• A review and simplification of the Age Pension Tax Offset rules, which are extremely complex and difficult to understand.

While calls for reform continue, Age Pensioners will see a small boost to their payments this week, with the September indexation set to take effect

From September 20, 2025, those receiving the full single rate of Age Pension, Disability Support Pension, or Carer Payment, their payments will rise by $29.70 per fortnight, while couples on the full pension will receive an extra $22.40 each.

For many, however, these increases will do little more than keep pace with rising costs — underscoring why super funds and advocacy groups like HESTA say broader reforms are needed to ensure older Australians are truly supported in retirement.

Read more:  Financial security on the Age Pension: What older Aussies can do now

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.