HESTA report - tax/income test hit on pensioners
Commissioned by industry super fund HESTA, the report shows working aged pensioners earning $55,000 actually take home more money than those earning $60,000, due to the staged reduction in aged pension payments.
The report shows aged pensioners - assumed to have about $300,000 in their super - keep less than a third of the income they earn between the $15,000 and $20,000 mark.
A single pensioner pays an effective marginal tax rate of 78% when increasing their employment income from $30,000 to $35,000. That is because their additional income is taxed, but also reduces their Age Pension from $18,875 to $16,375, meaning they effectively take home just $1,100 of the extra $5,000 in employment income they've earned.
For a pensioner whose income rises from $55,000 to $60,000, their effective marginal tax rate is 118%. That is, they end up with less take-home pay, largely because of the sudden drop-off in the Age Pension from $6,375 to $0.
For a couple where only one partner works, the effective tax rate can be as high as 122% if their employment income rises from $85,000 to $90,000.
National Seniors Australia (NSA) has long campaigned for government and business to value older workers and remove the financial barriers to them continuing to work or return to the workforce.
The national economy is on the brink of a major shift as the number of workers retiring or transitioning to retirement will out-number those entering the workforce.
So, it makes little sense to continue societal, government, and employer resistance to recruiting and retaining older workers - which, surprisingly, is even impacting younger workers aged in their late 40s.
Tax rules are a major barrier to retirees working more
A report for super fund HESTA by financial consulting firm Retirement Essentials, quoted in the Sydney Morning Herald (SMH), shows Australians on the Age Pension are often hit with effective marginal tax rates of between 60% and 80%, and in some cases as high as 118% - far beyond the tax rate of those in the highest income bracket.
An effective marginal tax rate is the share of an extra dollar of income lost to either income tax or a drop in government transfer payments, such as the age pension.
Traditionally, aged care has been a care sector reliant on a mainly female and poorly paid workforce. Many care workers are now moving into retirement and subject to Age Pension rules and income restrictions.
At a time when the sector is grappling with extreme skills shortages, numerous government reforms and customer demands, these older, experienced workers, are exiting the workforce.
Now's the time for innovative thinking that breaks the cycle of ageism-based stereotyping and punitive government regulation.
NSA's Let Pensioners Work policy is simple: allow older people to work in sectors like aged care, where mature workers are needed without impacting their pension.
It is innovative policy that NSA continues to bring to the discussion.
Current Age Pension rules penalise pensioners for earning more income than prescribed under the Income Test. For each dollar earned over an arbitrary limit, the pension payment is cut by 50c.
For many pensioners and those transitioning to a pension, this means pensioners have no incentive to work more.
Aged care workers and providers were the first to alert us to the problem - that older workers, mostly women on lower salaries and with low savings, would decline offers to work more hours - despite wanting to - because of the impact on their pension.
That means we are turning our backs on a valuable and experienced workforce when there are 55,200 job vacancies across the health care and social assistance sector (one of the highest of any sector of the economy, according to the latest ABS data ).
