Older Australians hoping to boost their retirement income by working additional hours could actually end up with less money in their pocket, with new research revealing a quirk in the Age Pension system can effectively punish pensioners for earning more.
Research commissioned by industry super fund HESTA found a single pensioner earning $65,000 a year could take home $319 less annually than someone earning $60,000, once the loss of Age Pension payments and income tax are taken into account.
The modelling, conducted by SuperEd, highlights what HESTA says are significant financial disincentives facing older Australians who want to remain in the workforce.
Under the modelling, a person aged 67 or older with $200,000 in superannuation who earns $60,000 from employment would receive $5479 in Age Pension payments and finish with total after-tax income of $54,024.
Increase their employment income by $5000, however, and their Age Pension disappears entirely, leaving them with after-tax income of just $53,705.
That represents an effective marginal tax rate of more than 100 per cent on that additional $5000.
The research found part-pensioners could routinely face effective marginal tax rates of between 66 and 77 per cent as their employment income increases.
HESTA CEO Debby Blakey said the system risked discouraging older Australians who wanted to continue contributing to the workforce.
“More people choosing to work part-time or casually can be great for their wellbeing, great for their bank account, and great for the broader economy,” Ms Blakey said.
Confusion surrounding the rules may also be keeping some older Australians out of the workforce altogether.
The Age Pension remains the most common primary source of income for Australian retirees and supports about 2.7 million older Australians.
