Self-funded retirees have missed out on the financial support other sectors have received during the coronavirus crisis and the government should “get creative” in finding a way to help support pensioners, according to the National Seniors Association.

While the government has implemented a range of assistance programs including stimulus payments for aged pensioners and the unemployed, ‘jobkeeper’ subsidies for employees and increased asset write-offs for businesses, Henschke says the fate of self-funded retirees has been ignored.

“Older Australians who are self-funded have a difficult road ahead because of the new and weird world of COVID-19,” says Ian Henschke, chief advocate at the NSA. “There’s talk of bank shares paying minimal dividends, if any, then there’s record low interest rates and the steep fall on returns in super funds.”

He suggests the government could assist self-funded retirees and part pensioners in one of three ways, with the most obvious way being to fix the “broken” taper rate used to determine age pension accessibility.

The taper rate has been a particular bone of contention for retirees since it was changed in 2017 from $1.50 to $3.00 for every $1000 of assets over the relevant threshold. The change meant more people got the full pension, but part pensions were reduced more dramatically.

Moreover, modelling showed the taper rate actually reduced total income for retirees with balances between $400,000 and around $800,000, depending on the data and the variables.

The taper rate ‘dip’ is an anomaly financial advisers are acutely aware of, and one actuary Rice Warner described as “punitive” in their recent retirement income review submission.

“The taper rate has distorted the retirement income system,” Henschke says. “It’s created a perverse incentive in the retirement income system whereby the ones that have saved more are actually getting less.”

It’s an issue Henschke says compounds the woes of part pensioners who’ve had the value of their savings slashed during COVID-19. Now is the time to switch the rate back to “$1.50 or $2.00”, he says, and equalise the income disparity for pensioners “stuck in no man’s land”.

Source: National Seniors Association

Deeper cuts required

Henschke says the NSA has received a flood of correspondence from members asking the representative body to plead their case in Canberra since the crisis started.

“Again, self-funded retirees are ‘dumped’ by the Government,” one pensioner stated.

An alternative measure the NSA advocates is cutting the deeming rate back to the cash rate.

The government reduced the deeming rate – used to calculate the estimated earnings on investments ­­– twice already this month by a total of 75 basis points to a rate of 2.25 per cent. Henschke says it’s still too high with the official cash rate at 0.25 per cent and term deposits rarely reaching 2 per cent.

“People are not getting that kind of return on their investments at the moment,” he says.

The third measure the NSA is advocating for self and partly funded retirees is an amendment to the interest rate on the government’s pension loan scheme, which gives Australian citizens of pension age the ability to borrow against their home.

The rate for the scheme was reduced recently from 5.25 per cent to 4.5 per cent, which Henschke again says is not effective enough to make it palatable for older Australians.

“The government should look at halving the rate and making it less unfair,” he says, noting that the government can hardly ask the banks to follow cuts in the official cash rate for home loans when they’re only taking half-measures themselves. “4.5 per cent is still too high,” he says.

What this will mean for retirees, Henschke explains, is that self-funded retirees can halve their pension drawdown – as per the government’s recent policy change – and supplement their income with loan payments instead of selling assets required to fund a full pension drawdown when market returns are poor.

“Then when they come out the other side they can go back onto their 5 per cent drawdown,” he says.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at tahn.sharpe@conexusfinancial.com.au
One comment on “Self-funded retirees ‘dumped’ during COVID-19”
  1. Avatar andrew.rafty@icloud.com

    I find Henschke’s attitude disappointing to say the least but I suppose as a lobbyist that’s his job.

    His comments remind me of the lyrics in the 1982 hit by Moving Pictures “What about me?; It isn’t fair; I’ve had enough, now I want my share”.

    So he feels if other sectors receive a very necessary benefit from the government , why should his constituents miss out?
    To me this contemporary attitude of “it’s not fair ; why should they get something and not me” unfortunately is all too prevalent in our modern society.
    The government support is mainly targeted at workers and business for the obvious reasons. Self-funded retirees are not workers; nor they are businesses.
    He justifies his “what about me ” attitude by saying there are going to be falls in bank dividends and super returns. Has he not heard of the risk / return tradeoff?
    Long-term investors have greatly profited even taking into account the recent market falls. There is no free lunch and why should tax payers be called upon to subsidise recently incurred losses incurred by share/ growth investors and these same investors get to keep the earned 10% plus over the last ten years ?

    He mentions the age pension taper rate should be changed and one of his justifications is that self-funded retires have incurred large recent losses . He does not mention they have enjoyed way above average returns over the long term , even over 16 months, since Jan 1 2019, a ‘balanced’ pension fund would have earned 4-6% pa.

    He wants the tax payer to subsidise self-funded retiree losses by upping the asset test cutoff to way over a million dollars.

    He mentions deeming rates , knowing that deeming is based upon more than cash rates. Superannuation, post-Jan 1 2015 pension funds, shares are all deemed and returns from these areas have far exceeded current deeming rates over every time frame, except of course over the short term since mid February.

    The government has done a commendable job so far to help those who have lost their job; to support businesses to keep workers on the payroll and to assist employers. As a very fortunate individual, still working and paying tax, I count my blessings but I would be very disappointed if the government takes notice of this self-interested spokesperson and in effect socialises his constituents recent loses, especially after such long periods of excellent above-average returns received from the market.

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