Unlocking retirement income
We’re lowering the minimum balance required to start an income stream so more members can benefit from tax-free income and investment earnings.
work
New research commissioned by HESTA reveals Australians receiving the Age Pension can be subject to staggering effective marginal tax rates. See how this could impact you.
Under the Work Bonus, eligible retirees can earn $300 per fortnight without reducing their pension.
But tax rates of 60 to 80% can disincentivise retirees from being more active in the workforce.
According to the Australian Bureau of Statistics, the number of people aged 65 and over in the workforce increased by 80,000 between 2023 and 2024. In the 20 years to 2021, the Australian Institute of Health and Welfare reports that the number of mature workers more than doubled.
The reasons for returning to work after retirement are many and varied, including social interaction, a sense of purpose, and most critically, cost-of-living pressures.
At 20 September 2025, the maximum Age Pension a single person can receive annually is $30,646, while a couple can receive $46,202 (combined). The ASFA Retirement Standard shows that a single person would need $53,289 annually (or $75,319 as a couple) for a "comfortable" retirement, leaving a shortfall of at least $22,000.
But retirees trying to make up that shortfall can be hit with far higher effective tax rates than Australians in the top income bracket, due to the income test taper rate.
Under this system, a part-pensioner’s Age Pension benefit is reduced by 50 cents for every dollar earned above the income-free threshold.
HESTA CEO Debby Blakey said the research, undertaken by Retirement Essentials, highlighted the need to provide more flexibility for retirement-aged Australians who want to work.
“We continue to hear stories from members on the Age Pension who would like to work more but are put off by the extreme effective marginal tax rates,” Debby said.
“By removing barriers, we can unlock greater opportunities for individuals in retirement, while delivering significant benefits to society as a whole.”
More than 80,000 HESTA members are currently age-eligible for the pension, with over 30,000 of these members remaining active in the workforce. This demonstrates the significant contribution older Australians continue to make, not only in supporting the health and community services sector, but also in strengthening their own financial resilience and independence.
The modelling shows how a single retiree who increases annual employment income from $25,000 to $30,000 could pay an effective tax rate of 77% on that extra income. As their employment income increases by $5,000, their take-home income rises by just $1,150.
For couples, where only one person goes back to work, the couple also reaches an effective marginal tax rate of 77% at $30,000 of employment income. Where both go back to work, they’re hit with a 64% marginal tax rate when their joint work income reaches $40,000.
To support a fairer system, HESTA is advocating for Work Bonus payments to be indexed to average weekly ordinary time earnings. We’re also calling for a review and simplification of the Age Pension Tax Offset rules, which are extremely complex and difficult to understand.
This would ensure retirees’ incentives to work are not diminished.
Single person example: impact of work income on take home income for 67+ year old with $300,000 in super1
| Employment income | Age Pension | Total takehome income (including Age Pension and taking into account tax) | How much of the additonal income is retained? | Effective average tax rate | Effective marginal tax rate |
| $10,000 | $28,875 | $37,604 | 77.3% | 22.7% | 13% |
| $15,000 | $26,375 | $39,266 | 62.6% | 37.4% | 67% |
| $20,000 | $23,875 | $40,844 | 54.8% | 45.2% | 68% |
| $25,000 | $21,375 | $42,111 | 48.9% | 51.1% | 75% |
| $30,000 | $18,875 | $43,262 | 44.6% | 55.4% | 77% |
| $35,000 | $16,375 | $44,376 | 41.1% | 58.6% | 78% |
| $40,000 | $13,875 | $46,039 | 40.4% | 59.6% | 67% |
| $45,000 | $11,375 | $47,701 | 39.6% | 60.4% | 67% |
| $50,000 | $8,875 | $49,364 | 39.0% | 61.0% | 67% |
| $55,000 | $6,375 | $51,026 | 38.5% | 61.5% | 67% |
| $60,000 | $0 | $50,112 | 33.7% | 66.3% | 118% |
| $65,000 | $0 | $53,437 | 36.3% | 63.7% | 34% |
| $70,000 | $0 | $56,812 | 38.5% | 61.5% | 33% |
| $75,000 | $0 | $60,212 | 40.5% | 59.5% | 32% |
1 Average effective tax rate: compares the change in total (take home) income relative to all employment income. The difference in the change in total (take home) income and the total employment income divided by the total employment is the average effective tax rate. This calculation takes into account the loss of Age Pension benefits a person would get if they didn’t work and includes the impact of any taxes paid due to the work and Age Pension income.
Marginal effective tax rate: compares the change in total (take home) income for the last $5,000 of additional employment income to the ($5000) increase in employment income. The difference in the change in the total (take home) income and the total employment income is the effect of “tax.” Divide that difference by $5000 to get the effective marginal tax rate. This calculation takes into account the loss of Age Pension benefits a person would get if they didn’t work and includes the impact of any taxes paid due to the work and Age Pension income.
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