There’s a lot happening with the Age Pension at the moment.

In less than two weeks the scheduled March 20 increases to the base rate will be announced and implemented.

And on March 29 the Federal Government will hand down its FY 2022-2023 Budget. With an election scheduled for May, many commentators believe that there will be extra long-term changes to the Age Pension rules.

These commentators suggest that the rules concerning income should top the list of these changes.


Because relaxed income thresholds for Age Pension entitlement and retention could help address three national challenges in one stroke of the pen.

These challenges are severe labour shortages, a need for productivity gains, and retirement funding adequacy.

The Covid pandemic has had many lasting effects on our society and economy, but one of the more pressing challenges facing the government is the national labour shortage, with 73 per cent of Australian businesses expecting to have difficulty finding and retaining skilled labour in 2022. Australia’s international borders may have (largely) reopened, but it will take a long time to attract workers who can fill the current gaps.

Enter the need for older workers. However, the nearly 70% of over 66s on an Age Pension are currently penalised if they earn more than $240 a week (which includes the work bonus) as a single person ($12,480 per annum). From that point each additional dollar earned results in a loss of 50 cents of the Age Pension, until it is finally withdrawn.

So effectively, we are ‘locking up’ the skills, experience and expertise of nearly 4 million people by creating a disincentive for them to continue working.

The effect on national productivity is huge, with a report from Deloitte Consulting projecting an extra three percentage points on participation among workers aged 55 and over would result in a $33 billion boost to GDP – or around 1.6% of national income. A five percentage point lift in participation among this group would see around $48 billion in extra GDP – or 2.4% of national income.

It’s not just about work and capping Age Pension costs. It’s also about important individual benefits, in particular the health gains and a boosting of the ability of pensioners to lead a reasonable life on the Age Pension.

What a higher income threshold – specifically removing the salary or wage component of the income threshold – would do, is allow a higher contribution from thousands of older Australians, increasing their sense of self-worth and social connection significantly. Everyone benefits when people are allowed to contribute. And as a preventative health measure – reducing poverty, isolation and depression – this measure would deliver even more rewards. Trying to make ends meet on a full Age Pension continues to be a challenge. Recent Australian Council of Social Services (ACOSS) findings show that there is a major difference in living standards for those aged over 65. The poverty rate for older home-owners is (12%) but the risk of poverty is nearly one in two for older people who are renting (43%). Imagine how this might change if those on an Age Pension could suddenly earn more than $240 a week without the current penalty.

So is an increase in the income threshold likely?

The short answer is yes. It’s not as though the Australian Government would be conducting a risky experiment. An unlimited work scenario has already been tested in New Zealand and resulted in measurable boosts to the national economy.

And then there’s that ‘small’ matter of the Federal Election due to be held by 19 May this year.

With $5 Billion in unannounced funding decisions, giving Australia’s 3.9 million Age Pensioners an election eve sweetener makes a lot of political sense.

Watch this space. Retirement Essentials will continue to report on all aspects of the Age Pension and retirement income to keep you fully up to date.

What do you think?

Is a lifting – or removal – of  the current income threshold something you would like to see? If so, why?

We’d love to hear your thoughts.

And if you are unaware of how this threshold works in your particular situation, check out Retirement Essential’s Age Pension Eligibility Calculator to get the answers you need.


Check Your Entitlements

This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.