According to the Department of Social Services, only 2.9% of pensioners (74,000 of the 2.6 million) receive income from employment. With key sectors, such as home care, hospitality, agriculture and tourism, struggling to attract and retain qualified staff, we need to tap Australia's large resource of mature workers.

However, for every $1 work income over $480 per fortnight ($12,480 pa), a pensioner loses 50c of their fortnightly pension. With pension income also taxable, many question why they should bother working.

This situation is acute among pensioners with limited savings. They can only work one day per week without penalty. In contrast, pensioners with adequate savings (whose pension is determined by the assets test) can work more without affecting their pension. 

The present income test penalises those with the most to gain from ongoing workforce participation.

We recommend employment income be exempt from the income test for pensioners with limited savings or assets.

Exempting employment income for these pensioners with limited savings would allow them to work. 

This would help Australia meet worker shortages and retain skilled and qualified staff while there is uncertainty about immigration.

The exemption could be applied economy-wide or, alternatively, it could be targeted at specific sectors e.g. health and aged care, tourism, agriculture and hospitality, and geographic areas e.g. regional Australia where demand is high and labour supply is low.

For pensioners:

• increases both income and savings of low-wealth pensioners, particularly women
• provides social and emotional benefits from ongoing workforce engagement
• removes any need for regular reporting of employment income via Centrelink.

For the economy:

• by encouraging ongoing workforce participation this will addresses workforce shortages
• additional worker availability will reduce inflationary pressures
• pensioners earning additional income would pay additional income tax, offsetting additional pension costs.