2.1
This chapter examines the key views raised during the Senate Community Affairs Legislation Committee’s (committee) inquiry into the Social Services Legislation Amendment (Enhancing Pensioner and Veteran Workforce Participation) Bill 2022 (bill).
2.2
Most submitters and witnesses were supportive of the principle of providing pensioners with greater flexibility to engage in paid employment with minimal disruptions to pension payments and access to concession cards. In discussion of the bill, the following matters were raised:
the need for action to address workforce shortages;
the disincentives to work under the current pension system;
conditions relating to the suspension of payments and access to pensioner concession cards;
other benefits of increasing pensioner workforce participation; and
a suggested amendment to the bill.
2.3
This chapter provides a summary of the items listed above and concludes with the committee’s view and recommendation on the bill.
The need to address workforce shortages
2.4
According to the explanatory memorandum, the bill is designed to address the workforce shortages currently being experienced in Australia and ‘may assist to provide additional labour supply’.
2.5
The Department of the Treasury (Treasury) provided the committee with a snapshot of the labour market situation:
The labour shortages currently across the economy are quite severe and quite distinct … There are, of course, a number of businesses who are desperately looking to fill those vacancies. So there is a need to improve policies that ensure that there's a matching of available workers to those vacancies.
The nature of the shortages across the economy will differentiate across different locations and areas, but there are obviously some particular areas where particular businesses are struggling to fill those vacancies.
2.6
A number of inquiry participants also observed that many businesses across Australia are facing skills and worker shortages. They agreed that removing disincentives for pensioners to work could form part of a solution to reduce the workforce shortages.
2.7
For example, the Institute of Public Affairs (IPA) submitted that workforce shortages are being exacerbated by the current pension rules and described how Australia has a lower portion of people over the age of 65 working than in countries such as New Zealand, South Korea, and Japan. The IPA argued that if Australia were to match New Zealand’s labour force participation rate for this age group, by removing disincentives, there would be an additional 445 000 workers in the labour market.
2.8
Inquiry participants, particularly from the resources and agriculture sectors, highlighted that their sectors are facing acute workforce shortages. They stated that incentivising pensioners to work could lead to a reduction in skill and staff shortages in these sectors.
2.9
Hancock Prospecting Pty Ltd, an Australian mining and agricultural business, submitted that ‘its subsidiary companies and joint ventures are dealing with issues caused by acute worker and skill shortages’. It stated that incentivising pensioners and veterans to work would not only help relieve the pressure on businesses and supply, but also give pensioners and veterans the ability to work and improve their lives.
2.10
Representatives from Grain Producers Australia (GPA) noted that workforce shortages were being experienced across the country in the grain sector and that there is:
… a massive pool of very skilled people out there that have just … retired and that are willing to come back and help part time. They like job sharing and they don't like really long hours, but they are willing and able to contribute to our economy. If we look at the red tape and the complex superannuation laws and pension earning laws et cetera, it works as a great disincentive for them to actually do that.
2.11
The National Farmers Federation (NFF) also stated that reforms to the pension system could be particularly meaningful for the farming sector because:
(1) our workforce is already comparatively older than that of the economy at large, and (2) we have traditionally employed a large number of ‘grey nomads’, especially in harvest roles.
2.12
A number of witnesses raised the prospect of expanding the eligibility of the bill to include other groups on income support payments as a means of further addressing Australia’s labour shortages.
2.13
The IPA, for example, stated that ‘the bill is an important step in the right direction’ and that applying the principle that underpins the bill to other groups would be ‘a very fruitful area for further reform’.
2.14
The Antipoverty Centre argued that it was crucial that the benefits proposed in the bill were also expanded to include people on working-age income support payments to lift these groups out of poverty before their payment is reduced. It asserted that this would also be a more effective way to address labour shortages.
Incentivising pensioners to work
2.15
As outlined in Chapter 1, the purpose of the bill is to remove potential disincentives for certain pensioners from engaging in paid employment. Under the current system, pensioners can earn up to a specific income threshold before their pension payment and other benefits, such as access to concession cards, are affected. The explanatory memorandum to the bill indicated that these conditions may act as potential disincentives to workforce participation by pensioners.
2.16
Some inquiry participants noted that Australia has a relatively low workforce participation rate among older people compared with other similar countries. They highlighted that there are approximately 2.5 million recipients of the age pension and only around three per cent of this cohort (or 75 000 individuals) declare work related income.
2.17
The Department of Social Services (DSS) provided a breakdown of the percentage of age pensioners receiving employment income over time which demonstrated a decline over the past few years:
… in June 2019 it was 4.3 per cent of age pensioners working; in June 2020 it was 4.0 per cent; in June 2021 it was 3.3 per cent; and in June 2022 it was … 3.1 per cent.
2.18
The Chamber of Commerce and Industry Western Australia (CCIWA) submitted that there is demand among individuals aged over 65 to increase their working hours, stating:
ABS data shows there is currently significant latent demand for over 65s to work. In 2019, the average hours of additional work sought by people over 65 was 685,000 hours. The total number of hours has since swelled and now stands at 724,000 hours.
2.19
Several submitters and witnesses agreed that the current pension conditions could act as a disincentive to work.
2.20
For example, CCIWA argued that the current pension structure ‘provides only limited benefit for a pensioner considering a return to the workforce, as it allows them to work only one day per week (at minimum wage) before their pension is reduced’.
2.21
The NFF and IPA argued that the current pension arrangements mean that pensioners who work incur an effective marginal tax rate of between 50 per cent and 69 per cent, which acts as a disincentive for pensioners to choose to work. Mr Daniel Wild, Deputy Executive Director of the IPA, stated:
It cripples the willingness of people to enter work. Very few people are going to work when they're losing almost 70c in the dollar. From our perspective, our research has shown that that's the key issue.
2.22
Furthermore, National Seniors Australia and the National Council of Women Western Australia identified that income reporting requirements act as a disincentive for pensioners choosing whether to work and noted that this was not addressed by the bill. Mr Ian Henschke, Chief Advocate at National Seniors Australia, stated:
Aside from being concerned about losing their pensions, older Australians are equally frustrated by the bureaucracies that they face if they work. They need a simpler system and a fairer system that doesn't involve onerous Centrelink reporting. If you want to increase pensioner and veteran workforce participation, you need to make the rules simpler and reward, not punish, those who choose to work.
…
It's a heavy-handed, punitive system which is designed to reduce budget outlays by restricting access to the pension. Yet the unintended consequence of this system is that it discourages participation amongst those who need and want to work—and at a time when Australia desperately needs workers.
2.23
The committee received competing views as to whether the removal of these disincentives as proposed by the bill would result in a substantial increase in the workforce participation rates of pensioners.
2.24
The Chamber of Minerals and Energy of Western Australia welcomed the bill, calling it ‘a proactive measure to help mitigate risks and address training/supervisory demand during a time of unprecedented labour market tightening.’
2.25
The NFF expressed support for the bill and characterised it as a ‘step in the right direction’. It welcomed the proposed changes as a ‘clear improvement’ on the current arrangements but stated that the reforms did not go far enough.
2.26
The Victorian Chamber of Commerce and Industry stated that it agreed with the intent of the bill. However, it recommended that pensioners and veterans be able to work at least three days a week, or up to $600 of income per fortnight, whichever option allowed the worker the most hours.
2.27
Mr Adam Hawkins, Assistant Secretary of the Tax and Transfers Branch at the Treasury, informed the committee that financial incentives were not necessarily effective in increasing the workforce participation of older Australians who were not already in the workforce. He explained:
… what the Retirement Income Review found was that financial incentives weren't necessarily effective at encouraging older people back into work. But it may be more effective for those who are already in work and want to increase their hours, because they don't necessarily bear the same costs of having to find a job and those job search costs, or overcome attitudes towards being an older worker in the economy. The findings of the review were that it may not necessarily increase the overall level of participation in raw numbers, but it may increase the number of hours that older people may work.
Increasing the Work Bonus
2.28
GPA welcomed the doubling of the Work Bonus as a positive step; however, it stressed that more needed to be done in the policy space to create a lasting difference and sustainable workforce.
2.29
Whilst broadly supportive of the proposals in the bill, National Seniors Australia and the National Council of Women Western Australia raised concerns that the measures may have limited impact on incentivising pensioners to work. Both cited DSS data which showed that there was no increase in workforce participations rates after a previous increase to the Work Bonus.
2.30
DSS informed the committee that the Work Bonus had been increased in 2019 from $250 to $300 a fortnight. However, it advised that this incremental increase did not lead to an increased number of people reporting earnings, and that the number of pensioners reporting income from employment is in long-term decline.
2.31
DSS also observed that the Government’s recent announcement of a one-off, time-limited boost to the Work Bonus income bank had not been trialled before, and as such the proposed measure:
…gives us a good opportunity to assess the effectiveness of that as a particular added incentive for aged pensioners to engage in employment.
2.32
In relation to increase to the Work Bonus as proposed by the bill, a brief from DSS to the Minister for Social Services pointed to the ‘high cost’ of the increase. The brief stated:
The department does not support increasing the Work Bonus from $300 to $600 per fortnight. This would increase Age Pension expenditure and place additional pressure on the Budget.
2.33
The brief further emphasised that there is no evidence to suggest increasing the Work Bonus would incentivise retirees back into the workforce.
2.34
In regard to alternative options, the brief stated:
Raising awareness of the current incentives, including the Work Bonus, and addressing misconceptions about the impact of employment income on a person's pension, is likely to be more effective in driving increased workforce participation among age pensioners than increasing the Work Bonus.
Suspension of payments and access to pensioner concession cards
2.35
The committee received differing views on the impact of the proposed amendments relating to the suspension of payments and access to pensioner concession cards. Nonetheless, the evidence indicated broad support for these amendments. The first amendment would allow pensioners to have their payments suspended for up to two years, instead of cancelled, which occurs if a pensioner earns an employment income above the maximum threshold. The second amendment proposes to extend the time pensioners can access their concession card while working, for up to two years after their payment ceases.
2.36
National Seniors Australia submitted that it was supportive of these changes, particularly as access to concession cards ‘rewards pensioners who work’. However, it noted these changes would ‘likely have marginal impact on workforce participation’ and these ‘alone will [not] greatly induce pensioners to take up work’.
2.37
The DSS noted that there would be a ‘small cohort’ of pensioners who would find these amendments beneficial.
2.38
Anglicare Australia also supported the amendments and asserted:
The provisions will encourage people to take employment opportunities without fear their payments will be cancelled, and they will have to go through the onerous application system once again.
Other benefits of increasing pensioner workforce participation
2.39
In addition to addressing labour shortages, the committee received evidence about the other potential benefits of enabling pensioners to increase their participation in the workforce. These benefits related to retaining the experience and knowledge of older Australians and veterans, increasing the productive capacity of business, and improvements to individual wellbeing.
2.40
For example, the Victorian Chamber of Commerce and Industry stated:
If experienced workers are no longer disadvantaged to leave the workforce due to impacts on their payments, the broader workforce benefits from increased knowledge sharing, the opportunity to learn from each other, and increase productivity and skills development.
2.41
Similarly, Hancock Prospecting Pty Ltd submitted that the proposed increase to the Work Bonus scheme ‘will be good for businesses who can fill vacancies, increase their productive capacity, and make use of the experience and knowledge of older workers who might otherwise stop working’.
2.42
Similarly, the IPA commented on the capacity for veterans and pensioners to make a positive contribution to the economy:
… the first thing is their skills. They have decades of experience and decades of wisdom that they have built up over the years. They can make a very big contribution through those channels. We also know that there are a significant number of pensioners who live in regional Australia and that there are opportunities for them to alleviate some of the specific shortages across our regions.
2.43
Mr Brendon Radford, Manager of Policy and Advocacy at National Seniors Australia, stated ‘there are employers out there who appreciate older workers and are wanting older workers because of the skills and experience and knowledge that they have’.
2.44
National Seniors Australia also noted that some industries (such as aged-care, disability care and childcare) were very interested in employing older Australians due to their life experience in care-giving and grandparenting, and the empathy and understanding that comes with that experience.
2.45
Several witnesses and submitters argued that increased workforce participation could also improve the individual wellbeing of pensioners and veterans and reduce social isolation.
2.46
Anglicare Australia submitted that ‘[a]s well as much needed income, work can give people purpose, reduce social isolation, and foster connection to community’.
2.47
Similarly, the IPA added that allowing pensioners and veterans to work more ‘is a critical source of dignity, esteem and social connection’.
2.48
The National Council of Women Western Australia agreed, stating:
Loneliness for older Australians especially long periods of loneliness or social isolation can have a negative impact on an older person's physical and emotional health and well being. Working if pensioners and veterans so choose without a penalty to their pension could make a difference to their emotional health and well being. There is also no doubt that older Australians being socially interactive and working longer delays mental and physical decline which dramatically affects costs of aged care and the health care system.
Suggested amendment to the bill
2.49
The Department of Veterans’ Affairs (DVA) submitted that the proposed amendments to the Veterans’ Entitlements Act 1986 as contained in the bill would have a positive impact on veterans and their partners, but also suggested an amendment to Schedule 1 and Schedule 2 of the bill.
… the provisions contained within Schedule 1 and Schedule 2 of the Bill require the working pensioner and their pensioner partner to cease qualification or payability “at the same time” and “because of the occurrence of the same event or change of circumstances”, in order for the pensioner partner to benefit from these provisions.
2.51
DVA pointed out that in practice, however:
… it may not always be the case that both members of a couple lose payability or qualification at exactly the same time, particularly where a social security pensioner is partnered with a client of DVA. This is because they may have different reporting requirements, notification periods and/or payment dates, or the date of effect provisions may provide for differences.
2.52
DVA, therefore, argued that the bill would need to be amended to correct this ‘anomaly’ to ensure that the pensioner partner would receive the same benefits as the working partner.
Committee view
2.53
The committee recognises the challenges facing Australia in relation to labour shortages. The committee agrees that one potential solution is to incentivise pensioners to increase their workforce participation.
2.54
The committee notes the evidence from submitters around the broader barriers for pensioners who wish to work, including the challenges presented by ageism in the labour market. It recognises that financial incentives, such as those proposed in the bill, may not be enough in isolation. Employers may also need to make workplaces friendlier and more responsive to the needs of older Australians in order to encourage this cohort to increase their workforce participation.
2.55
The committee acknowledges the calls from inquiry participants for policies that address labour shortages and remove barriers for pensioners who wish to participate more fully in the workforce.
2.56
The evidence received by the committee demonstrated broad support for the principle of providing pensioners with greater flexibility to engage in paid employment with minimal disruptions to their pension payments. The committee recognises that inquiry participants are supportive of allowing pensioners to have their payments suspended for up to two years, instead of being cancelled.
2.57
Additionally, the committee appreciates that inquiry participants are supportive of the proposal to extend the time pensioners can access their concession card while working.
2.58
The committee is aware that the Government has recently announced its intention to introduce legislation to give a one-off boost to the Work Bonus income bank to support pensioners who want to join the workforce or increase their hours.
2.59
The committee is mindful of statements from DSS that there is no evidence that increasing the Work Bonus from $300 to $600 per fortnight, as proposed in the bill, would incentivise aged pensioners back into the workforce.
2.60
The committee also highlights the evidence from DSS indicating that the Government’s proposal to increase the Work Bonus income bank will, given its time-limited nature, likely function as a fast-acting incentive to address the acute challenges currently arising from the tight labour market.
2.61
Additionally, the committee notes the evidence from the Treasury and DSS suggesting that the Government’s proposal will, as a short-term, innovative measure, provide useful data to measure the effectiveness of the incentive, particularly given that an increase to the Work Bonus income bank has never been trialled before.
2.62
The committee is also aware that DSS has stated that other initiatives, such as raising awareness of the current incentives and addressing misconceptions about the impact of employment income on a person’s pension, are likely to be more effective in driving increased workforce participation among age pensioners, rather than simply doubling the Work Bonus as proposed by the bill.
2.63
The committee further recognises the advice from DSS to the Minister for Social Services that indicated that doubling the Work Bonus would place pressure on the Budget.
2.64
The committee agrees with the bill’s intention to assist pensioners to re-enter the workforce and address labour shortages. However, it does not agree that the approach proposed by the bill is the best way to achieve this objective.
2.65
The committee recommends that the Senate does not pass the bill.
Senator Marielle Smith
Chair