You’ve worked hard all your life, paid taxes, and planned carefully for retirement.
Yet the system designed to support you may punish you for wanting to keep working past 67.
For some older Australians, earning an extra dollar can mean losing more than half of it—or even paying to work.
It sounds like a dystopian tale from a twisted tax fairy story, but the reality is stark: older Australians receiving the Age Pension are often subject to effective marginal tax rates of 60 to 80 per cent, and in extreme cases, these rates can exceed 100 per cent.
That means for every extra dollar earned through work, pensioners might keep only 20 cents—or actually lose money.
In this article
How the Numbers Stack Up
In 2025, a single Age Pensioner receives $1,178.70 per fortnight, which adds up to roughly $30,600 annually including supplements.
Couples receive more, but the calculations quickly become complicated.
Pensioners can earn up to $218 per fortnight (around $5,668 annually) and still retain the full pension.
On top of this, the Work Bonus scheme allows pensioners to earn up to $300 per fortnight ($7,800 annually) without affecting their pension.
Understanding the Work Bonus
Any unused portion of the $300 fortnightly Work Bonus accumulates into a 'Work Bank' up to a maximum of $11,800.
New pensioners automatically receive $4,000 in their Work Bank when they start their Age Pension.
This means a first-year pensioner could potentially earn about $17,000 without reducing their full pension—but only if no previous Work Bonus has been used.
The Pension Trap in Action
The system is straightforward but harsh.
Once income surpasses the threshold, the Age Pension reduces by 50 cents for every extra dollar earned.
This taper rate is only the beginning.
Pensioners also pay income tax on their earnings and pension, and may lose eligibility for concessions and offsets as income rises.
'Age pensioners are hit with far higher effective rates due to the Income Test taper rate.'
Take Margaret, a 68-year-old retired nurse from Brisbane.
She receives the full Age Pension and is offered casual shifts at a local medical practice.
Her pension is $30,600 annually, and her job pays $20,000 a year after her Work Bonus is used.
Expected total income would be $50,600, but in reality, she keeps only around $38,000—meaning she retains just $7,400 of her $20,000 wages.
That is an effective tax rate of 63 per cent on additional earnings, a shock for someone who has contributed to the system all her life.
When Working Actually Costs You Money
Did you know?
Did you know? About 63 per cent of Australians over 67 receive either the full Age Pension (39 per cent) or a partial pension (24 per cent), meaning this issue affects nearly two-thirds of older Australians who may wish to work.
The situation becomes even more severe for those just above the asset test threshold.
A small partial pension combined with work income can push total taxable income into a bracket where pensioners lose more than they gain.
HESTA research shows extreme cases where effective marginal tax rates surpass 100 per cent.
Real-World Impact
Behind the statistics are real Australians making hard choices about retirement.
More than 30,000 HESTA members who are pension-eligible remain active in the workforce, often in essential sectors like healthcare, where skilled professionals are urgently needed.
These individuals are not trying to game the system.
They want to contribute, stay engaged, and supplement their retirement income.
Instead, they are penalised financially.
Example Scenario
- The Healthcare Worker A retired nurse working two days a week earns about $8 per hour after taper and tax, instead of her $35 wage.
- The Tradesperson A retired electrician called for emergency repairs discovers that too much work reduces total annual income.
- The Teacher A retired educator doing casual relief teaching faces administrative hurdles and financial penalties that make working hardly worthwhile.
The Broader Cost to Australia
This system is not just unfair to retirees—it is economically damaging.
Australia faces critical skills shortages in healthcare, education, and trades, yet older workers are financially discouraged from staying in the workforce.
Around 70 per cent of HESTA members work in health and community services, Australia’s second-largest industry, which struggles with rising demand due to an ageing and growing population.
The irony is stark: the nation needs more healthcare workers to care for an ageing population, yet the tax system actively discourages experienced professionals from contributing.
Strategies for Pensioners
While the system is punishing, pensioners can take steps to mitigate losses.
Understand Your Thresholds: Centrelink’s online estimators can help identify break-even points where working more may actually reduce total income.
Plan Your Work Bank: The Work Bonus accumulates to $11,800, with $4,000 granted upfront for new pensioners.
Timing work strategically maximises benefits.
Consider Timing: Adjusting work hours across different periods may optimise annual income.
Seek Professional Advice: The interplay of pensions, tax, and earnings is complex; financial advisers familiar with Age Pension rules can help navigate the system.
Assets Test: A Surprising Twist
Australia’s Age Pension relies on both an income test and an assets test, paying whichever yields a lower pension.
Sometimes, having more assets means the assets test, not the income test, applies—allowing pensioners more freedom to work without reducing their pension.
In this paradox, wealthier retirees may enjoy more flexibility to supplement income through work.
A System That Demands Reform
The message is clear: once Australians reach 67 and receive the Age Pension, their skills and contributions are unwelcome.
HESTA CEO Debby Blakey says the research highlights the need for more flexibility for retirement-age Australians.
Other countries have introduced measures encouraging older workers without penalising them, such as reducing taper rates, increasing Work Bonuses, or creating provisions for essential workers.
Australia, however, has created a system where working can be financially punishing.
Understanding Your Position in the Age Pension Work Trap
- Check if your total income (including pension) would be higher by working less
- Use your Work Bonus strategically—it can accumulate up to $11,800
- Consider whether you’re assessed under the income or assets test—it affects your options
- Get professional advice before making major work decisions
What This Means For You
Older Australians often face effective marginal tax rates of 60-80 per cent, and in extreme cases, these rates can even surpass 100 per cent.
This means that for every extra dollar earned, a significant portion can be lost to the pension taper and income tax, leaving retirees with far less than they expect.
The Age Pension reduces by 50 cents for every dollar earned above income thresholds, which compounds with regular income tax, creating a system where working more can sometimes feel financially punishing.
Fortunately, the Work Bonus can help offset some of these losses, accumulating up to $11,800 over time, with new pensioners receiving $4,000 upfront, but careful planning is essential.
Pensioners must strategically manage their work and consider professional advice to avoid unexpected financial penalties and maximise total income.
For older Australians who want to stay active and supplement their retirement income, understanding these rules is crucial—without careful planning, you could be working hard but keeping only a fraction of your earnings.
If the complexities of pension taper rates and work income have left you wondering how to keep more of what you earn, there’s a practical guide that dives deeper into this issue.
It explores real-life examples of how additional income interacts with taxes and pension entitlements, showing strategies to navigate the system effectively.
Following these insights can help you plan work and income decisions with confidence, avoiding unexpected financial penalties.
Read more: Tax-Time Traps and Triumphs: How Age Pensioners Navigate the Tax Maze in Retirement
Which Australians are hit by the highest effective marginal tax rates? — Reports that older Australians receiving the Age Pension often face effective marginal tax rates of 60 to 80 per cent, with extreme cases exceeding 100 per cent.
https://newshub.medianet.com.au/202...-highest-effective-marginal-tax-rates/118252/
Age Pension Calculator | Noel Whittaker — Provides calculations for Age Pension eligibility and payments, including that a single pensioner can earn $218 per fortnight and still receive the full pension.
https://www.noelwhittaker.com.au/calculators/age-pension-calculator/
Pension Changes 2025/26 Age Pension Australia » Industry Super — Explains the Work Bonus scheme, allowing pensioners to earn up to $300 per fortnight without affecting their pension.
https://www.industrysuper.com/retirement-info/pension-changes
Age Pension rates (September 2025 to March 2026) — Details that around 63 per cent of Australians over 67 receive either the full Age Pension or a partial pension.
https://www.superguide.com.au/in-retirement/age-pension-rates
Which Australians are hit by the highest effective marginal tax rates? — Notes that over 30,000 HESTA members remain active in the workforce while age-eligible for the pension and highlights workforce distribution in health and community services.
https://newshub.medianet.com.au/202...-highest-effective-marginal-tax-rates/118252/
What’s your experience with the Age Pension work rules? Have you been caught in this financial trap, or found ways to work around it?
Share your story in the comments—your insight may help others navigate this complicated system.
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