Older Australians can lose money by working more, new HESTA research reveals
HESTA
4 August 2026
Older Australians can be penalised financially under the Age Pension eligibility rules for taking on extra work, with the issue amplified by confusion about the system, new HESTA research shows.
Many older Australians work while receiving the Age Pension. The SuperEd research, commissioned by the $105 billion industry super fund, suggests a single pensioner[i] who earns $65,000 a year would take home $319 less annually than a single pensioner who earned $60,000, due to the loss of the Age Pension and tax on earnings.
It’s a stark illustration of a broader problem: part-pensioners routinely face effective marginal tax rates of 66% to 77% on their employment income, rates far higher than what applies to those earning above $190,000.
Compounding the issue, the research suggests many older Australians don’t attempt extra work because they believe – incorrectly – that any paid work will strip them entirely of their Age Pension. Others avoid applying for the Age Pension altogether, deterred by the perceived administrative burden.
To improve the system, HESTA is calling to remove employment income from the Income Test for those who have already been determined to be eligible for the Age Pension.
HESTA CEO Debby Blakey said retirement-age Australians who want to work more should be encouraged to do so given the boost to the economy as well as potential financial, mental and physical wellbeing benefits.
“More people choosing to work part-time or casually can be great for their wellbeing, great for their bank account, and great for the broader economy,” Ms Blakey said.
"Retirement is not one-size-fits-all and we hear from members who want to work more but who have done the maths and worked out it simply isn't worth it.”
The income test taper rate is the main driver, with the Age Pension reducing by 50 cents for every dollar earned above the income-free threshold – a rate higher than any income tax bracket in the country. Combined with standard income tax and the phase-out of tax concessions at certain income levels, this can create extreme effective marginal tax rates.
Ms Blakey said simplifying the system and cutting through the confusion was essential to helping members achieve better retirement outcomes.
“For many HESTA members, the Age Pension will work alongside their super savings to fund a comfortable retirement, so these system barriers and high effective tax rates can have a negative impact on quality of life at retirement age,” Ms Blakey said.
“We need a simpler system – one Australians can understand, one where it’s easy to apply for the Age Pension, and one that gives people the flexibility to work and retire on their own terms without being financially penalised.”
The Age Pension remains the most common primary income source for retirees,[ii] supporting 2.7 million older Australians.[iii]
A recent HESTA survey of more than 400 members found the most useful information they need to retire well is understanding how the Age Pension works alongside their super. They ranked this as more important than other options such as financial advice to improve their retirement outcomes, or understanding how much money is needed for a comfortable retirement.
Ms Blakey said older Australians being disincentivised to work more represents a missed productivity opportunity for the nation, with recent KPMG research showing that boosting the workforce participation rate among 55-64 year olds from 69% to 77% could add $29 billion to Australia’s GDP per year.[iv]
"These disincentives to work aren't just unfair to senior Australians, they represent a missed opportunity for the whole economy given the real productivity and economic benefits of keeping experienced older workers engaged," she said.
Impact of work income on take-home pay for a 67+ year old with $200k in super[i]
|
Employment income |
Age Pension |
Total income (incl. pension, after tax) |
Additional income retained |
Effective average tax rate[v] |
Effective marginal tax rate[vi] |
|
0 |
31,223 |
31,223 |
n/a |
n/a |
n/a |
|
5,000 |
31,223 |
36,223 |
100.0% |
0.0% |
0.0% |
|
10,000 |
30,479 |
39,364 |
81.4% |
18.6% |
37.2% |
|
15,000 |
27,979 |
41,051 |
65.5% |
34.5% |
66.3% |
|
20,000 |
25,479 |
42,562 |
56.7% |
43.3% |
69.8% |
|
25,000 |
22,979 |
43,712 |
50.0% |
50.0% |
77.0% |
|
30,000 |
20,479 |
44,862 |
45.5% |
54.5% |
77.0% |
|
35,000 |
17,979 |
46,012 |
42.3% |
57.7% |
77.0% |
|
40,000 |
15,479 |
47,374 |
40.4% |
59.6% |
72.8% |
|
45,000 |
12,979 |
49,036 |
39.6% |
60.4% |
66.8% |
|
50,000 |
10,479 |
50,699 |
39.0% |
61.0% |
66.7% |
|
55,000 |
7,979 |
52,361 |
38.4% |
61.6% |
66.8% |
|
60,000 |
5,479 |
54,024 |
38.0% |
62.0% |
66.7% |
|
65,000 |
0 |
53,705 |
34.6% |
65.4% |
106.4% |
|
70,000 |
0 |
57,080 |
36.9% |
63.1% |
32.5% |
|
75,000 |
0 |
60,480 |
39.0% |
61.0% |
32.0% |
Ends.
[i] Assumes a $200k super balance for Age Pension deemed income purposes and the one-time work bonus starting credit of $4,000 has already been received.
[ii] Australian Bureau of Statistics, Retirement and Retirement Intentions, Australia, 2024-25 financial year.
[iii] Australian Institute of Health and Welfare, Income support for older Australians, 16 October 2025 (at 28 Mar 2025).
[v] Compares the change in total (take-home) income relative to all employment income. The difference between the change in total (take-home) income and total employment income, divided by total employment income, is the average effective tax rate. This calculation takes into account the loss of Age Pension benefits a person would receive if they didn’t work, and includes the impact of any taxes paid as a result of work and Age Pension income.
[vi] Compares the change in total (take-home) income for the last $5,000 of additional employment income to that $5,000 increase in employment income. The difference between the change in total (take-home) income and the $5,000 increase in employment income is the effect of “tax.” Dividing that difference by $5,000 gives the effective marginal tax rate. This calculation takes into account the loss of Age Pension benefits a person would receive if they didn’t work, and includes the impact of any taxes paid as a result of work and Age Pension income.
About HESTA
HESTA is one of the largest superannuation funds dedicated to Australia’s health and community services sector. An industry fund that's run only to benefit members, HESTA now has more than one million members (around 80% of whom are women) and currently manages approximately $105 billion* in assets invested around the world.
*Information is current as at the date of issue.
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HESTA CEO Debby Blakey
