Working more can leave retirees worse off, HESTA says

Some older Australians could actually end up with less money in their pocket by working more, according to new research that is renewing calls for changes to the Age Pension income test.

Research commissioned by industry super fund HESTA found some pensioners face such steep reductions in their Age Pension alongside income tax that taking on extra work can leave them financially worse off.

One example modelled by researchers showed a single Age Pension recipient earning $65,000 a year would take home $319 less over the course of a year than someone earning $60,000 because of the combined effect of tax and reductions to their pension.

The report also found some part-pensioners effectively lose between 66 and 77 cents of every extra dollar they earn through a combination of the Age Pension income test and income tax, creating a much higher effective marginal tax rate than many high-income Australians face.

HESTA chief executive Debby Blakey said the findings highlighted a system that can discourage older Australians from staying in the workforce.

“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.

The research also suggests confusion is playing a significant role.

Many older Australians mistakenly believe earning any employment income will automatically cost them their Age Pension, while others avoid applying altogether because they see the system as too complicated to navigate.

HESTA is calling on the Federal Government to remove employment income from the Age Pension income test for people who have already qualified for the pension, arguing it would encourage more retirees to remain in the workforce while improving retirement incomes.

The issue affects a large section of the community. The Age Pension remains the primary source of income for many retirees and supports around 2.7 million older Australians. HESTA says keeping more experienced Australians in the workforce could also deliver broader economic benefits, pointing to research suggesting higher workforce participation among people aged 55 to 64 could add billions of dollars to the Australian economy each year.

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