When it comes to people who’ve uncoupled form their careers, two classes of retirees remain in the system. The third of retirees who have self-provided and those reliant on the government pension.
A self-funded retiree receives their superannuation tax free and income tax is only paid beyond the $18,200 threshold at marginal rates. For a pensioner, new measures introduced in this week’s budget allow them to earn $11,800 (up from $7,800) before losing fifty cents in the dollar of their pension for every dollar earned. That equates to the highest marginal income tax rate.
When it comes to people who’ve uncoupled form their careers, two classes of retirees remain in the system. The third of retirees who have self-provided and those reliant on the government pension.
A self-funded retiree receives their superannuation tax free and income tax is only paid beyond the $18,200 threshold at marginal rates. For a pensioner, new measures introduced in the recent federal budget allow them to earn $11,800 (up from $7,800) before losing fifty cents in the dollar of their pension for every dollar earned. That equates to the highest marginal income tax rate.
At a guess, self-funded retirees are more likely to own their own homes than those receiving a full pension. A single person pension of $26,689 or couples’ pension of $40,239 will quickly be exhausted in today’s rental markets. These are the people, where able to do so, who would benefit most by at least raising the allowable income to the minimum tax threshold.
“Don’t get me wrong,” says Michael Hargreaves, the founder of workerstohire.com.au. “Australia is very generous to its pensioners. The current pension rates equate to earning interest at an achievable 3.6 percent on around $741,361.00 and $1,117,750.00 in the bank for singles and couples respectively.” These calculations ignore any income tax payable.
The government’s prime concern for not raising the non-taxable incomes by pensioners is cost-negative rather than revenue-positive in times of full employment. It is conceivable that the jobs that older people don’t take up will go unfilled as younger workers seek higher paying jobs for which they have been educated.
Where the government is likely to recoup the loss of paying pensioners who work is multi-fold. Firstly, they will be adding to Australia’s productive capacity and likely generate taxable income for their employers. Second, working pensioners are likely to spend their incomes and generate additional gst revenues. Third, the ability to work is likely to reduce demand for mental and physical health services paid for by government.
In essence, allowing pensioners to earn $11,800 per year, based on doing so for 48 weeks, is just short of $246,00 per week. It equates to around one day’s work per week based on the Australian average pay rate of $35.00.
The increase in allowable tax free earnings for pensioners will certainly help to offset recent increased cost of living expenses. “It would certainly be a better deal for employers, who are likely to invest in retraining mature workers, if pensioners could work more hours tax free,’ said the founder of Workers to Hire.