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Rate cut adding to elderly retirement woes

by Lewis Panther | 02 Oct 2019
Australians don’t have a hope of arriving at their graves safely with a well-preserved body these days - to abuse a famous Hunter S Thompson quote.

Many of them will be hard-pressed to sum up the enthusiasm to finish off the hard-living author’s pay off line about making sure they enjoyed the ride along the way.

They’ll be too busy juggling finances, worrying how they’ll get by, judging by the litany of bad news that has been emerging from all angles recently.

A slew of surveys, the RBA interest rate cut and the government’s announcement of the widespread revamp of pension provision have been written up with doom-laden headlines.

Top of the list is the historically low interest rate forcing retired Australians to take a much more active role in money management.

The 0.75% base rate introduced by the RBA on Tuesday means they have to look beyond their superannuation and low risk financial products or face hardship.

That’s the view of Society One chief executive Mark Jones who launched a peer-to-peer product aimed at both individuals and institutional investors before this week’s cut.

It’s a view shared by others in financial services offering alternatives to the country’s 3.8m retirees. 

The gloomy news for retirees keeps coming though.

On the back of Treasurer Josh Frydenberg’s Friday night announcement of a review of the entire retirement system, a quality of life in retirement survey has found Australia slipping in the rankings. 

Jones, whose P2P product claims to have a 6% monthly return, said: “In the current interest rate environment, retirees are now struggling to generate a liveable income from fixed term deposits and other “low risk” financial products.

“A growing inability to survive is causing an exodus into higher-risk investment options.”

Don Hamson, Managing Director of retirement specialist investors Plato, said: “Mortgage holders will benefit from this rate cut, although I don’t expect banks to fully pass on all of the cut.  

“On the other hand retirees living off cash-linked income are already struggling to make ends meet, and this cut will further crimp their income.  

“So, it is very timely for retirees to reconsider their income generating asset mix.  

“Thankfully, given the somewhat surprising election result, retirees can continue to bank on receiving franking credits from Australian share investments.”

Australia is now ranked ninth in the world for retirement outcomes, sliding three places since last year, according to the Natixis Investment Managers Global Retirement Index.

It assesses key areas like health, finances and quality of life.

Chief executive of Natixis Australia Damon Hambly said: “Australia's superannuation system is the envy of many other countries and provides retirement security for Australians.

“But the fact is that most balances are too low, particularly given our ageing population, which is why our retirement age is set to increase to 67 in 2023."

Looking further ahead the Actuaries Institute seems to have even more worrying news, judging by its latest report.

The report by Dr Ramona Meyricke and Rafal Chomik claims: “Within the lifetime of Australia’s millennials, the occurrence of heatwaves will triple and they will be longer, leading to increased deaths among the nation’s elderly.”

President Nicolette Rubinsztein said: “Many Australians understand the physical risks posed by climate change but few appreciate the impacts it could have on their mortality risks and their retirement savings.”

“The potential impact of climate change on people’s lives could also extend to lower superannuation contributions and investment returns,” it says.

“Increased periods of under- or unemployment, driven by economies around the world transitioning to net zero emissions and/or a higher frequency of natural disasters, could lead to lower superannuation contributions. 

“In addition, climate change has negative long-term return implications for investors who are not diversified at a total portfolio level to climate change, which could lead to lower superannuation balances. 

“Illustrative scenario modelling suggests that an individual earning around $75,000 pa could retire with 11% to 18% less, or a superannuation balance of $40,000 to $70,000 less, because of lower contributions and/or lower investment returns.”

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