Unretiring: How to navigate going back to work

Retirement is no longer set in stone. More retirees are heading back to work.

Some wrestle with a loss of status and a loss of purpose while others worry about how they will make their savings last. Either way, there's a growing trend towards "unretiring".

"People's circumstances change," says Colin Lewis, head of strategic advice at Fitzpatricks Private Wealth. "They often retire and then find that they either need the stimulation or that they need more funds to live off, and re-enter the workforce."

Nick Bruining, independent financial planner and director of Bruining Partners, says often retirees find it hard to adjust and find a purpose in life.

"People underestimate the psychological impact of retiring. Many people enjoyed what they were doing and the status it brings. Being a doctor, accountant, lawyer or teacher has a lot more status than 'retiree'."

By 2047, 25% of the population is expected to be over 65, almost double the proportion today, according to AustralianSuper. The fund's head of business growth, Vicky Maguire, says the way people approach retirement has changed radically from previous generations and a fresh approach is needed to support workers that choose to "unretire".

Bruining says employers often approach former employees to do fill-in work. "It may be intermittent or seasonal, or at other times ask them to work a day or two a week."

With Australia experiencing a pandemic-induced skills shortage and job vacancies soaring, it couldn't be a better time for retirees to seek employment.

Once you find a job, though, there are a few things you need to attend to.

You can continue to draw an income stream from your account-based pension, but you will need to open a new accumulation account in order to receive your employer's compulsory 10% super contribution, plus any extra contributions you wish to make.

It's important to get on top of the rules: the annual contribution caps, your total superannuation balance, any age-based requirements and your transfer balance cap. These can be mind-numbing and may change, so it's worth checking them with your financial planner, accountant or super fund.

If you are aged 65 or more, you can access your money at any time.

Boost your savings

Lewis says you can't add to a pension once you've commenced it.

"But what many people don't realise is that if you have started an account-based pension you can stop the pension at any time and commute it, or transfer it back to accumulation phase.

"The advantage of that is that because the money was sourced from non-preserved monies, it's accessible and remains non-preserved even if you put it back into accumulation phase. You can access it whenever and however you want."

The downside is that once your money leaves the tax-free retirement phase and goes back into accumulation phase, the underlying earnings, including capital gains, of the fund are taxed at a maximum of 15%. This means you need to be clear about your objectives before making any changes, says Lewis.

You might also want to check, before fully commuting your pension back to accumulation phase, that you are not going to lose any "grandfathering" that may apply to your pension, giving it favourable treatment for Centrelink purposes.

"If you go back into the workforce, you need to work out what your income needs are," says Lewis.

"Is it purely for the engagement or because you financially need it? In either case, the question is how much will you be earning and how much pension income you still need."

He says it all becomes a numbers game because while your account-based pension is tax free, money in accumulation phase will be taxed.

"If you need the income, you might keep your account-based pension running. Or you might decide to put some or all of it back into accumulation phase, but if you do this you are still required to take your minimum drawdown for the year.

"If you generate more income than you need, you can proceed to put it back in as a non-concessional contribution provided your total super balance at the previous June 30 allows you to do this. If you had more than $1.7 million in the super system at that time, then you cannot make a non-concessional contribution."

Taking money out of super and putting it back in can have estate planning benefits where you are taking out a benefit comprising a taxable component and putting it back in as a tax-free component.

The other thing to think about is how your money is invested. Bruining encourages retirees to pay attention to their asset allocation and avoid locking in losses during a market correction.

"If there's a degree of uncertainty in the market, don't forget your fundamental asset allocations. If you think you may return to retirement, put money aside in cash. If there's a correction, you've got the funds to make your pension payments for the next year or two.

"Don't switch all of your super suddenly back from a properly structured pension with an appropriate asset allocation to high growth for the hell of it, because you might find you're back in retirement and suddenly you're retiring at a time when the markets take a hit.

Age pension challenge

If you are receiving Centrelink benefits - say the age pension or disability support pension - you need to get on top of what going back to work means for your benefits.

"The issue here is that your entitlements are means-tested. If you generate too much income or accumulate too much in the way of assets because you've gone back to work, you may end up reducing or even eliminating the pension you're entitled to," says Lewis.

"Going back to work means more money is coming in, which in turn may bolster your bank account if you're not spending it. Be careful your new salary or your increased bank balance doesn't put you over the limits of what you can earn to keep the age pension."

The trick is to keep things to a level that still allows you to qualify for your entitlements.

You are also required let Centrelink know you are receiving additional income within 14 days 
of any changes.

Bruining says the work bonus is another incentive to return to a job. "It allows you to earn $300 a fortnight before it starts to impact your pension income. What people don't know is it accumulates. If you don't use it for one fortnight to the next, the unused portion accumulates up to a maximum of $7800 a year. You are always better off working."

Some thresholds for benefits are generous, he says. The Commonwealth Seniors Health Card for self-funded retirees is only income tested - you must earn no more than $92,416 a year for couples.

There have been countless calls over the years to have the complexity and hurdles seniors face simplified. For them, the cost of advice is a further challenge.

"The less you've got, that's where you really need the services of a good planner. But what we've now got is an industry that is so expensive that people who really need it can't afford it," says Bruining

"It creates a hole for people who need good quality, holistic advice. People think advice is all about where to invest your money. It's more about getting your strategies right so you keep tax down and get your benefits from Centrelink and make sure your kids and your loved ones get your money when you're gone. That's the real work of a financial planner."

Whole system needs a shake-up

Australia's labour shortage has put the age pension and its punitive means-testing under the spotlight, with the Australian Chamber of Commerce and Industry calling on the federal government to allow pensioners to work more without having their pension cut.

Its chief executive, Andrew McKellar, says the income-free threshold, capped at $480 a fortnight, needs to be lifted.

"Once you start to get above that level it becomes a severe disincentive to go back into the workforce," he says.

"We know there are tens of thousands of people who are on the pension who would think about coming back two to three days a week at a time when we have a severe labour shortage and make a great contribution. We need an equitable way to encourage people with great experience to come back into the workforce."

National Seniors Australia has long been pleading for such a change. "If you exceed $480 per fortnight you lose 50 cents in the dollar for every extra dollar earned. We need to change the rules around working if you are on a pension," says its chief advocate, Ian Henschke.

"For many, and possibly most, given we have so many part-pensioners, that's less than a day's work a week before they are penalised.

"We have fewer people working past pension age than a comparable country like New Zealand. There, 24.6% of pensioners are working. The figure here is less than 5% that are doing some paid work," he says.

Like many other developed nations, New Zealand has a universal pension. "Everyone at 65 gets the age pension. You keep working and you pay tax on your income and you pay tax on your pension. They have a simpler system all round.

Our retirement system as a whole is riddled with complexity, which is why people find it so confusing."

Now that we are facing a labour shortage in so many areas, he hopes the community will recognise the value of older workers.

"It's time to rethink the way we have our society set up. It's time to say to people, if you want to keep working we will encourage you to work, not discourage you. If you take away someone's sense of purpose and discourage them from working, you are going to have more problems with people and society.

"One in four pensioners, when they retire, live in pension poverty now. It's about the same number that rent. This is increasing, so you're going to have more pension poverty.

According to the Grattan Institute, by 2050s only 57% of people will retire owning their own home.

"So almost half the population will be renting," says Henschke.

He says our entire super system is based on the assumption that when you retire you'll own your own home.

"This is why housing is the critical issue for government: how to fix the housing problem in Australia.

If you get that right, you get the retirement income system right."

With an election on the horizon, he hopes all sides of politics take these issues seriously and do something tangible to address them.

Case study

By Colin Lewis, head of strategic advice at Fitzpatricks Private Wealth.

Paula, age 67, is returning to the workforce, having missed the social interaction she enjoyed while at work. The additional savings she makes from working again will boost her super and give her more income to live on when she ultimately retires.

Paula started an account-based pension (ABP) with $960,000 when she retired four years earlier but now - no longer needing the pension income - she commutes her remaining balance of $850,000 back to accumulation phase.

In accumulation, the fund's earnings, including capital gains, are taxed at a maximum of 15%, but the money is fully accessible. Paula commenced her ABP with "non-preserved benefits" at 63 and commuting it back to accumulation phase does not change this.

In addition, as Paula is 67, all new contributions she makes, including her employer's compulsory 10% superannuation guarantee (SG), are freely accessible, as turning 65 is in its own right a condition of release, so Paula can access her funds at any time.

On July 1, 2021, Paula's transfer balance cap (TBC) - the limit on the amount she can move back into the tax-free retirement phase - increased to $1.64 million thanks to indexation.

Having used $110,000 of her cap space while in pension phase previously ($960,000 minus $850,000), she can transfer $1.53 million back into retirement phase.

This could come from any number of sources: the money she has in accumulation phase, which has grown with favourable investment returns; or her employer's SG contributions and the voluntary contributions she makes at work.

Paula could also make a downsizer contribution of up to $300,000 from the sale of her home or from inheriting her husband's super as an income stream when he dies.

Going back to work gives Paula the opportunity to save more money for retirement through boosting her super savings and to utilise her unused total balance cap, which has increased 
with indexation.

The calculations to figure out your unused TBC are complex. If you had a TBC before July 1, 2021, you can look up your own personal TBC through the Australian Tax Office's online services on the myGov site.

To find out more about the transfer balance cap and how it works go to: ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Transfer-balance-account/.

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