Returning to work after retirement
With employers facing ongoing challenges and the rising cost of living straining pensions, many retirees are re-entering the workforce. As more Aussies plan to work longer, the days of a clear-cut transition into retirement are fading… Gone are the days when retirement was marked by a farewell lunch, a gold watch, and a clean break from work. Now, transitioning from retirement back into employment is more common, but it’s crucial to get the right advice before taking the leap. Here’s what you need to know.
Employers continue to face a shortage of skilled workers, and many retirees are choosing to re-enter the workforce. According to data from the Australian Bureau of Statistics (ABS), approximately 45,000 more individuals aged over 65 are actively working compared with previous years.i
The past 20 years have seen a doubling in the workforce participation rate of Australians aged 65 and older. The participation rate for men has almost doubled (from 10% to 19%) and nearly quadrupled among women (from 3% to 11%).
New research from the super industry body, ASFA, shows just how fluid the notion of “retirement” has become. The study found 32% of Australians aged 65 to 69 are employed. Around 10% of them have no intention of retiring, while 20% aren’t sure if they will retire. .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. Another key driver behind the broader trend of seniors wanting to work for longer is the social connection and stimulation that work provides, with around 25% of those aged 65 and over saying they plan to keep working to stay socially engaged.
Things to consider
Returning to work after retirement raises several important financial and logistical considerations for retirees including the effect on the Aged Pension and superannuation.
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.
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.
Effect on superannuation
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. 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.
Don’t forget that if you retain your pension account, then you will have to open a new super accumulation account to receive employer contributions because you cannot make contributions into a super pension account.
Other 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 concerning your Aged Pension and superannuation. It’s vital to carefully seek appropriate advice to ensure a smooth transition back into the workforce, allowing you to make informed decisions that align with your financial goals and overall well-being.
If you would like to discuss your options, give us a call.
i Retirees in demand as employers continue to face tight labour market – ABC News
ii Super trap alert: Working in retirement