If you’re an older Australian who wants to keep working after reaching retirement age, the government has made it a bit easier for you. They’ve increased the amount you can earn each year from work before it affects your pension by A$4000. This change was made to encourage pensioners to stay in the workforce.
However, the rules for older workers are very different in New Zealand. If Australia adopted New Zealand’s approach, it could have an extra 500,000 willing workers, many of whom would be paying tax.
In Australia, only 15.1% of people aged 65 and older are in paid work. In contrast, in New Zealand, the number is 26%. New Zealand even aims to increase this number to 33.1%, the same percentage as in Iceland.
So, what is New Zealand doing differently? Unlike Australia, New Zealand does not penalize pensioners who work. In Australia, pensioners who earn more than $227 per week from work lose half of every extra dollar they earn in a cut to their pension. This means they lose a total of 69% of what they earn over the limit where their tax rate is 19%, and 82.5% on the portion of earnings taxed at 32.5%.
In New Zealand, pensioners face no such penalty. They simply pay income tax. The pension, known as superannuation, is paid to everyone of pension age, regardless of income or assets.
If Australia adopted this approach, it could fill many job vacancies in fields such as teaching and healthcare. However, this would cost the government more, as more Australians of pension age would be on the pension. But, the cost could be offset if Australia abolished the special tax concession for seniors and pensioners.
In fact, calculations suggest that beyond a certain point, the change would actually boost federal coffers, as the extra income tax revenue outweighed the cost of the extra pensions. This would not only happen because more senior Australians were employed, but also because more senior Australians were employed legitimately.
Currently, it’s hard to know how many senior Australians are working and being paid in cash, which they store rather than bank to avoid affecting their pension. But, it’s clear that New Zealand is making it easier for retirees to work legitimately, rather than stay at home or accept cash in hand.