Let older Australians work and keep the full age pension say advocates

National Seniors Australia is calling for a simpler and more flexible retirement income system which would encourage Australians to be more self-sufficient in retirement.

Chief advocate Ian Henschke said the Australian system was complicated.

"There are too many perverse disincentives built into our retirement income system," he said. "We should be looking at Canada and New Zealand which both let pensioners work without penalising them by cutting their pension. Pensioners are simply taxed on their earnings instead of losing their pension after earning a certain amount."

National Seniors has suggested this reform as part of its submission to the Retirement Income Review.

The submission wants the Government to recognise that income from working is one of the pillars of the retirement income system, especially for those that have not accumulated adequate savings or superannuation.

Currently Australians of pension age can earn $300 per fortnight (gross earnings) from work without it affecting their pension payment. This is called the work bonus. Work-based earnings over this amount reduce the pension by 50 cents in the dollar. They may also be required to pay tax on earnings.

In New Zealand where there is a universal pension and no penalty for working while on the pension, more people continue to work past the official retirement age.

Workforce participation rates in 2018 for those aged 65 - 69 in New Zealand were 44 per cent compared to only 28.5 per cent in Australia.

Poverty rates for Australian retirees is also high compared to other Organisation for Economic Co-operation and Development (OECD) countries. Almost one-quarter of those aged over 65 in Australia are in poverty, compared with only 12.2 per cent in Canada, 10 per cent in New Zealand and 3 per cent in Denmark.

At present only 30 per cent of the Australian population over 65 is independent of government support. The remaining 70 per cent is comprised of 42 per cent on the full age pension and 28 per cent on a part age pension.

"Not everyone has the luxury of adequate savings in retirement and must continue to work to attain a comfortable income level," said Mr Henschke.

"That's why we need to ensure that people can continue to work without penalty and the only way to do this is by removing onerous means testing arrangements.

"Pension rules create sweet spots which discourage people from saving more out of fear of having their pension reduce or disappear," said Mr Henschke.