Australia’s population is ageing and 2030 is a significant tipping point. In that year:
- Every baby boomer will be aged over 65;
- Gen X starts to turn 65; and
- The oldest Millennials start to turn 50.
The Australian Treasury's 2023 Intergenerational Report highlights some of the significant implications of an ageing population on our nation's future prosperity and one of the key considerations is the need for strategic policy responses to address the challenges posed by an ageing population, amongst which, the report suggests encouraging workforce participation, by implementing policies that encourage older Australians to remain in the workforce longer.
To address this policy, potentially one of the most under-represented groups in the workforce are those already receiving the aged pension.
The aged pension in Australia is currently $1,144 per fortnight for a single person and $1,725, combined for a couple, and unsurprisingly, Australian Seniors reports that their research shows that the pension only covers around three-quarters of monthly expenses. Given that the pension isn’t enough money for people to live on, it’s a little surprising that of the 2.6 million Australian’s who receive the aged pension, only 3.9% or just over 100,000, generate additional employment earnings.
Australia is currently experiencing significant skills shortages across a number of sectors and according to Jobs and Skills Australia's 2024 Occupation Shortage List, 33% of the 916 occupations they assess are in dire straits nationwide.
The most obvious solution to both reducing the skills shortages and at the same time boosting income for retired people would therefore seem to be encouraging more retirees to supplement their pension with part-time or casual work. At face value, this proposal would:
1. Leverage experience and expertise
Many retired individuals have decades of experience and specialised knowledge and if they return to the workforce in a part-time or casual capacity, they can not only use those skills, but mentor younger employees to transfer those skills between generations.
2. Fill seasonal and part-time roles
Retirees often prefer flexible work arrangements. This makes them ideal for seasonal or part-time roles, which are often hard to fill, including community-based roles, like for example, school crossing supervisors.
3. Boost the workforce
By re-engaging retired workers, Australia can mitigate the economic impacts of an ageing population, alleviating pressure on younger generations while increasing productivity.
However, many retirees see little value in returning to part-time work due to the draconian regulations limiting the amount they can earn before impacting their aged pension. An individual is only allowed to earn up to $190 per fortnight before their aged pension is reduced by $0.50 for every dollar over the income threshold.
To offset this, the federal government introduced the Work Bonus which was designed to encourage older Australians to remain in or re-enter the workforce without reducing their Age Pension benefits. The scheme allows eligible Age Pension recipients to earn additional income from work while keeping a larger portion of their pension, provided they are 65 or older and actively working or self-employed.
Under the Work Bonus, the first $300 per fortnight of income earned from work or self-employment is exempt from the pension income test, which allows an individual to earn up to $490 per fortnight or $12,740 per annum before their pension payment is reduced.
This income level seems low, especially when the cost to the wider economy of both the ageing population and the skills shortages are considered, and even more so in that this ‘penalty’ free amount is $5,460 per year less than every regular taxpayer’s tax free threshold.
In effect, Australians on the aged pension, who earn an additional $18,200 per year are effectively ‘taxed’ at 15 cents on the dollar through the reduction in their aged pension even though every other Australian taxpayer receives that $18,200 free of income tax.
If we want more retired people to fill role and skills gaps, why do we effectively charge them a higher rate of income tax than every other taxpayer?
Raising the Work Bonus to $510 per fortnight would add $21.3 million in disposable income to the Australian economy every 2 weeks, assuming all 101,400 working pensioners are involved (based on the earlier estimate of 3.9% of 2.6 million recipients), or over $500 million per annum. The cost to the taxpayer in offset reductions to the aged pension payment would effectively be around $10 million per fortnight, a significant net gain.
Over and above the net economic gains and the inherent equality in the proposal, increasing the Work Bonus for retired Australians has several potential benefits that align with economic, social, and individual goals, namely:
1. Encouraging workforce participation
With an ageing population and ongoing labour shortages, encouraging retirees to remain in or re-join the workforce would help fill gaps, especially in sectors that value experience. Retired individuals who continue to work also continue to contribute to the economy as they spend their increased disposable income.
2. Improving financial security for retirees
Many retirees face financial challenges due to inadequate superannuation savings or increasing living costs. A higher Work Bonus would help. Rising housing, healthcare, and utility costs disproportionately affect retirees, and additional earnings would help alleviate these burdens.
3. Promoting active ageing
Continued engagement in the workforce can have positive effects on mental and physical health, reducing isolation and giving retirees a sense of purpose. Work provides opportunities for social interaction, which is vital for mental health and combating loneliness amongst older Australians.
4. Reducing pension reliance
By allowing retirees to earn more without penalty, the government can reduce its long-term expenditure on pensions, as some individuals may rely less on government support.
5. Aligning with increasing life expectancy
Australians are living longer and healthier lives, and most retirees are capable of working past the traditional retirement age. A higher Work Bonus reflects this demographic shift and empowers retirees to continue to contribute based on their capabilities and capacity.
6. Encouraging intergenerational equity
Encouraging retirees to remain in the workforce helps balance the financial pressures on younger generations, who otherwise, bear the brunt of supporting the pension system through income tax, as well as the increased need for both aged care and healthcare.
Overall, increasing the Work Bonus would provide significant benefits by encouraging older Australians to remain in or re-enter the workforce, helping to address labour shortages and boost productivity. The extra income, which would effectively match the current tax-free threshold without impacting Age Pension eligibility tests, would stimulate consumer spending, benefiting local businesses and driving economic growth. With more retirees contributing their valuable experience to industries like healthcare and education, the increase could also alleviate pressures on the economy while supporting financial security for older Australians.
Ultimately, raising the Work Bonus supports both individuals and the broader economy, making it a win-win policy proposal.
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