Hire Pensioners, Not Migrants, to Solve Labour Shortages
High Tax Rates Discourage Retired Australians from Working
A recent report by Retirement Essentials, commissioned by the industry super fund HESTA, reveals that Australians receiving the age pension face effective marginal tax rates between 60% and 80%. This creates a significant barrier for retirees wishing to continue working.
Pensioners Are Penalised for Working
The report indicates that a single pensioner earning around $30,000 per year will see their effective marginal tax rate soar to 78% if their income increases to $35,000. For those earning between $55,000 and $60,000, the tax rate can spike to 118%. Couples with only one working partner may encounter even harsher penalties, reaching 122% when their combined income rises from $85,000 to $90,000.
Debby Blakey, CEO of HESTA, highlights that such high tax rates discourage retirees from joining the workforce, despite many wanting to work part-time. She states, “Retirement is changing, but the system hasn’t aligned well with that.” Many retirees look for jobs not only for financial gain but also for social interaction and overall mental health. “Part-time work helps people retain a sense of purpose while meeting critical workforce needs,” Blakey affirms.
Comparative Participation Rates
In contrast, New Zealand boasts a senior labour force participation rate of 25%, compared to just 14% in Australia. Only about 3% of aged pension recipients in Australia are employed. A key difference is New Zealand’s non-means-tested pension system, allowing seniors to retain their pension while working and only paying taxes on extra income.
Other countries, like the Netherlands and Denmark, show higher participation rates among seniors thanks to their universal basic pensions or defined benefit programs. Research from National Seniors Australia notes that many pensioners would work more if they weren’t penalised for exceeding specific income thresholds. The report suggests that exempting earnings from the Age Pension income test could potentially help around two million pensioners and fill 400,000 jobs in Australia amid ongoing labour shortages.
Potential Solutions
Implementing a universal pension could simplify the current system by eliminating complex means tests and tax implications. This change could encourage more retirees to enter the labour market, helping to meet economic demands without solely relying on migration.
Modifications to pension rules in Australia could alleviate financial penalties for retirees wishing to continue working. Such reforms might not only stimulate the economy but also address critical labour shortages more effectively and humanely than increased immigration.
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