Retirement Reversed: Back to Work in Australia

As the cost of living climbs, more Australian retirees are considering rejoining the workforce. This guide will help you navigate the financial nuances of pensions and superannuation when returning to work.

Employers are desperate for workers and cost of living pressures are making it tough to live on a pension . That’s a perfect mix of conditions to send some retirees back to the workforce . But it’s smart to get good advice before you take the leap.

With unemployment rates at historic lows and employers facing a shortage of skilled workers, an increasing number of retirees are choosing to re-enter the workforce. According to recent data from the Australian Bureau of Statistics (ABS), approximately 45,000 more individuals aged over 65 are actively working compared with a year ago.i

Financial Considerations for Returning to Work

Some retirees may have been forced to return to work to financially support themselves. National Seniors research found 16 per cent of age pensioners re-entered the workforce after initially retiring , while another 20 per cent said they would consider returning to work.ii Declining superannuation returns combined with rising inflation and cost of living pressures may be some of the reasons why retirees could soon be returning to work.

If you receive an Aged Pension and are planning to return to work, you will need to let Centrelink know you are receiving additional income within 14 days. The extra income may mean that your pension is reduced if it exceeds Centrelink’s income threshold. It’s essential for retirees to be aware of these thresholds and how their earnings may affect their pension to plan their finances effectively . Understanding the financial landscape, including the latest tax brackets and investment implications, is crucial for retirees considering a return to work.

Eligible age pensioners should also consider the Work Bonus incentive. This incentive encourages age pensioners to return to work with no or less impact on their age pension. Under the Work Bonus, the first $300 of fortnightly income from work is not assessed as income under the pension income test. Any unused amount of the Work Bonus will accumulate in a Work Bonus income bank, up to a maximum amount. The amount accumulated in the income bank can be used to offset future income from work that would otherwise be assessable under the pension income test.

Superannuation Adjustments for Working Retirees

Returning to work after retirement can have implications for your superannuation, particularly if you’re receiving a pension from your super fund. You can continue taking your pension from super, but you will still have to meet the minimum pension requirements.

So, even though you may not need that pension income, you have to withdraw at least the minimum, which depends on your age and your super balance. This minimum pension rate is set by the government. Failing to meet these requirements can have tax implications and may affect your pension’s tax-free status.

You can convert your super pension phase back into the accumulation phase if you wish to stop taking the minimum pension. This shift can be beneficial for those looking to grow their super while managing their tax liabilities . However, be aware of the tax differences. In the accumulation phase, any income and gains are taxed at 15 per cent , whereas they are tax-free in the pension phase.

Tax Considerations for Retirees with Investments

If you have personal investments outside super and have been receiving a pension, your lower income may mean that you are not paying tax on any gains from them. But extra income from a job may mean you move up a tax bracket , and any investment income and capital gains will then be assessed at the higher rate.

Returning to work after retirement can have far-reaching implications on your finances, particularly with regard to your Aged Pension and superannuation. Seeking professional financial advice is recommended to navigate these complex changes effectively . If you’re pondering this significant decision, feel free to get in touch; we’d love to help. We offer a free half-hour consultation aimed at understanding if we can assist you in your financial journey .

i Retirees in demand as employers continue to face tight labour market – ABC News

ii A working retirement – choosing to return to work – National Seniors Australia

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.