Working retirees 'put off by extreme tax rates'

Older Australians who want to keep working are being punished by high tax rates, according to new research by health industry super fund HESTA.

Under the Work Bonus, eligible retirees can earn $300 per fortnight without reducing their pension, but tax rates of 60-80 percent can disincentivise retirees from being more active in the workforce.

They face far higher effective tax rates than Australians in the top income bracket, due to the income test taper rate.

Under this system, a part-pensioner's Age Pension benefit is reduced by 50 cents for every dollar earned above the income-free threshold.

HESTA CEO Debby Blakey said the research, undertaken by Retirement Essentials, highlighted the need to provide more flexibility for retirement-aged Australians who want to work.

More than 80,000 of HESTA's million-plus members are currently age-eligible for the pension, with over 30,000 of them remaining active in the workforce.

"We continue to hear stories from members on the Age Pension who would like to work more but are put off by the extreme effective marginal tax rates," Ms Blakey said.

"By removing barriers, we can unlock greater opportunities for individuals in retirement, while delivering significant benefits to society as a whole."

As at 20 September 2025, the maximum Age Pension a single person can receive annually is $30,646, while a couple can receive $46,202 (combined). The ASFA Retirement Standard shows that a single person would need $53,289 annually (or $75,319 as a couple) for a 'comfortable' retirement, leaving a shortfall of at least $22,000.

The research modelling shows how a single retiree who increases annual employment income from $25,000 to $30,000 could pay an effective tax rate of 77 percent on those extra earnings. As their employment income increases by $5,000, their take-home pay rises by just $1,150.

A couple where only one person goes back to work also reaches an effective marginal tax rate of 77 percent at $30,000 of employment income. Where both go back to work, they are hit with a 64 percent marginal tax rate when their joint work income reaches $40,000.

"To support a fairer system, HESTA is advocating for Work Bonus payments to be indexed to average weekly ordinary time earnings," Ms Blakey said.

"We're also calling for a review and simplification of the Age Pension Tax Offset rules, which are extremely complex and difficult to understand.

"This would ensure retirees' incentives to work are not diminished."

According to the Australian Bureau of Statistics, the number of people aged 65 and over in the workforce increased by 80,000 between 2023 and 2024. In the 20 years to 2021, the Australian Institute of Health and Welfare reports that the number of mature workers more than doubled.

This shows the significant contribution older Australians continue to make, not only in supporting the health and community services sector, but also in strengthening their own financial resilience and independence.

"We recognise the retirement experience of each Australian is unique, and flexibility is important to support both financial and mental wellbeing," Ms Blakey said.

"That's why we're concerned by the significant disincentives within the current system for older Australians who wish to remain active in the workforce.

"For our members, who are largely in the health and community services sector (HACS), working in retirement has a multitude of benefits for them and the community. Part-time or casual work in retirement helps people retain a sense of purpose and fulfilment, while addressing critical workforce demands and boosting the broader economy."

• HESTA is APHA's Diamond Sponsor.

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