Older workers hit by tax, tests, and stereotyping – our solution
Our push to Let Pensioners Work is gaining traction with super funds, media, employers, and HR specialists!
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, 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).
Employment income should be exempt from the income test for all pensioners. But first we should trial the idea in the care economy (aged, disability, childcare) to prove once and for all the benefits it would make to improve outcomes for older people and the economy.
In a recent SMH article, HESTA chief executive Debby Blakey confirmed current Age Pension rules are a significant disincentive for workforce participation among pensioners, many of whom are eager to work at least part-time and as Australia continues to face staff shortages in critical areas such as health.
“Retirement is changing, but the system hasn’t aligned well with that,” she said. “Many of our retirees are keen to work, not just for financial reasons, but for connection or their mental well-being. Part-time or casual work in retirement helps people retain a sense of purpose and fulfilment, while addressing critical workforce demand and boosting the broader economy.”
Join our LPW campaign here to show your support.
Let Pensioners Work
NSA commissioned Deloitte to conduct modelling into the costs and benefits of exempting work income from the test.
It found that the cost to government would be neutral if 8.3% of pensioners worked or worked more under a full exemption of work income from the Age Pension Income Test.
Allowing pensioners to work and keep their pension will help retain older workers in critical sectors, such as aged care and agriculture. Help us make it happen.
We need to retain older workers throughout the economy, but especially in the care sector, to meet desperate workforce shortages.
This will give older people greater income and retain more people in the workforce to address high job vacancies.
Learn more about our campaign here – and help us bring about positive change for older Australians and the nation by becoming a member of NSA.
It’s not just tax and pension rules that stop older workers making a contribution. The stereotyping and ageist attitudes of employers and recruiters are a major barrier to tapping into the opportunities and advantages that older workers offer.
In a sign that NSA’s priorities are gaining attention, the national broadcaster recently aired a 30-minute program devoted to the benefits and opportunities available to businesses in supporting “longevity workers”.
ABC Radio National’s This Working Life brought together experts from the recruitment and business sectors, who all agreed that redesigning work as we know it is necessary to retain mature-age workers, and is needed to solve Australia’s ageing population and productivity challenges.
It’s a no-brainer solution that, sadly, did not get an airing at the recent productivity roundtable in Canberra.
The radio program began with a frank admission that HR recruiters have a built-in bias against hiring older workers.
The contributing experts argued that a major shift in corporate and government thinking is necessary, as well as paradigm shifting planning for “longevity work” across the career cycle, which can help eliminate bias and ageism well before workers hit retirement age.
Daniela Andrei, Associate Professor in the School of Management and Marketing at Curtin University, was a prominent voice in the discussion.
Her message to business was that people are living longer, and their working life capabilities are growing, so their contribution to the economy is needed to pay for the standard of living we want.
However, older people are having trouble getting employed.
“We are losing a lot of talent,” she said. “As people walk out the door to retirement, so does their experience and expertise.”
Dr Andrei urged businesses to plan to keep the workers they have, welcome older workers, enhance their productivity by making changes to work systems, and encourage training and skills development that build “longevity work”.
“Age is not a decline or something bad, but interventions are needed to keep all workers working and productive,” she said.
Research says workers’ motivations change with age. Earlier motivation such as career building and getting ahead can transition to a desire for meaningfulness in work and making a difference.
“Older workers do experience some declines, physical and in quickness in processing, but the gains include emotional stability, experience and expertise, and judgement, which are qualities that compensate for any decline,” she said.
Other speakers said today’s children and grandchildren will expect a much more age-friendly, positive, and flexible work environment and employers should prepare for that now by introducing systems that build productivity as well as workers’ satisfaction and longevity.
Some speakers said research shows employers are often the major problem to imagining the future and bringing about necessary change.
They, too, need re-training.
Case studies
Dr Andrei noted that, following a development program for a Perth local government leadership team, their knowledge and knowledge of ageing increased, negative stereotypes of ageing decreased, and their behaviours of support for ageing workers improved. Customer satisfaction also increased.
In another example, a Western Australian age care provider, which has an older workforce with high level of physical and emotional demands, worked with staff and managers to find solutions to worker concerns. Small changes to processes, shifts, handovers, and rosters produced a happier workforce.
Chris Eaton is HR boss at dairy products company, Chobani, which has been actively recruiting and keeping workforce aged 21-71, with many who are 60-plus.
“We make a lot of yoghurt,” he said. “So, there’s a lot of shift work but we regularly talk to the workers about how that can fit in with their requirements and we have come up with solutions.”
Chobani has also embedded wellbeing programs and has set up wellness centre, with regular visits by allied health professionals. Grandparenting leave has also been introduced.
“We reviewed what our workers needed and brought in three days of grandparents leave, so they can be part of when a grandchild comes into the world.”
Training and development are also key to building productive longevity. There’s one full day a month of training and professional development, which keeps workers up to date.
You can listen to the This Working Life episode here.
