Community and business leaders are calling for an overhaul of the Age Pension system to allow older Australians to return to work.
Older Australians eager to go back to work shouldn’t be prevented from doing so by a punitive Age Pension system, a leading seniors advocate argues.
National Seniors chief advocate Ian Henschke is urging both major political parties to take a policy to the upcoming federal election to make employment income exempt from the Age Pension income test for pensioners with limited savings.
“If the government exempted work income from the income test for those with limited savings it would boost their income and savings in retirement, and boost the productivity of the nation,” Mr Henschke told The Australian.
Under the current system, pensioners are able to earn up to $300 per fortnight without penalty under the Work Bonus scheme, plus a further $180 under the income test, for a total of $480 per fortnight. Anything earned above the extra $180 reduces pension payments by 50 cents for every dollar earned.
“If you earn more than $240 a week, you lose 50 cents in the dollar,” Mr Henschke says.
“That means a single pensioner can only earn $7800 a year before they start losing their pension.”
This effective 50 per cent tax rate makes it financially unreasonable for many pensioners to return to work.
“There are almost four million retirees, of which 2.6 million receive the pension,” Mr Henschke says.
“If just 5 per cent more chose to work, that would be an army of 130,000 additional workers.”
A report from the Organisation for Economic Cooperation and Development (OECD) found Australia ranks 18th out of 37 developed nations for workforce participation for over-65s with just 14.2 per cent in work.
Compare this with the more than 34.34 per cent of over-65s still working in South Korea, 25.48 per cent in Japan and 24.8 per cent in New Zealand.
Mr Henschke says Australia could learn a lot from our cousins across the ditch, where they do not lose any pension for receiving income from employment.
“In New Zealand, workforce participation among pensioners is a whopping 25 per cent. Here it is less than 3 per cent,” he says.
“Part of the reason for this disparity is that Kiwis don’t lose their pension when they work, they simply pay tax.”
Business groups have welcomed the push to get more older Australians back into work, saying it could help address labour shortages currently being faced across the country.
Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry, says “there is an army of older workers, ready and willing to return to the workplace. However, skilled aged pension recipients have very little incentive to re-enter the workplace.”
The pandemic has hurt the economy, leaving thousands of local employees in isolation. Border closures have meant the usually steady flow of international workers has been cut off, and there has been talk of a ‘great resignation’.
“In raising the Work Bonus threshold, pensioners would be allowed the opportunity to earn more, while businesses who are struggling to find staff would have access to workers, filling thousands of job vacancies,” Mr McKellar says.
Would you go back to work if the pension penalties were removed? Should the government reform the pension system? Let us know in the comments section below.
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