Commentary on Retirement in Australia

There should be more SMSF's being wound up - March 9, 2024

Why do we think that more SMSFs should be wound up - look at the chart below illustrating the member ages of SMSF members. Nearly 20% of all SMSF members are, according to the most recent stats issued by the ATO, 75 years of age and older. Given the complexity and costs associated with maintaining an SMSF, we think it's almost certain that many of these members could/should be moved to simpler, lower cost structures, and wonder whether this inertia is a function of need or advisers wishing to maintain fee income streams. At the very least, SMSFs should be regularly reviewed to ensure they continue to be "fit for purpose".

Increases to Superannuation Contribution Caps from 1 July, 2024 - February 23, 2024

The Federal government has announced that there will be an increase in concessional and non-concessional contribution caps.

The changes to the annual caps were expected and will apply from 1 July 2024 - with the standard concessional contribution cap increasing from $27,500 to $30,000 and the non-concessional contribution cap - which is four times the standard concessional contribution cap - consequently increasing from $110,000 to $120,000.

The Transfer Balance Cap will remain at $1.9M.

Super: Tax on Funds over $3M - October 12, 2023

In the early part of 2023, the government flagged an intention to introduce a new tax on superannuation funds where the balance exceeded $3 million. There is reasonably widespread support for limiting the balances in superannuation funds which are subject to tax relief - consistent with the view that superannuation should be used for retirement purposes rather than tax planning. What inflames the public perception is that a small number of funds, whose balances are in the tens of millions, enjoy very significant tax relief.

Legislation, if passed, would establish a new tax, known as a ‘division 296 tax’, with effect from July 1, 2025 which would give rise to an additional 15% tax rate on the earnings of super accounts over $3 million, proportionate to how much of their balances are over that threshold.

What is controversial about the proposals is that they would have the effect of taxing unrealised gains within superannuation, and there is no intention at the moment to legislate any indexation of the $3 million amount - with the result that the number of funds caught within the ceiling will increase inevitably over time.

We have argued consistently over the years that superannuation is economically unsupportable as currently structured - and therefore we don't have a significant issue in terms of the $3 million limit and the initial absence of indexation - a balance will eventually be found. The fact that the AFR is full of stories which include cardiologists concerned about the impact on their SMSF because they have included their medical premises within the fund really finds no traction in the broader community.

However, the proposal to tax on unrealised gains, seems unnecessarily complex with the potential to be inequitable. What superannuation doesn't need, even though this is confined to a relatively small group of people who are almost certainly receiving professional tax advice, is added complexity

MPIR Increases to 8.15%, no change yet to HEAS Rate - September 15, 2023

Often slightly overlooked as a benchmark rate, but the Maximum Permissible Interest Rate (MPIR) - which is the rate at which refundable accommodation deposits paid an entry to aged residential accommodation, are converted into daily accommodation payments (DAP), has increased from 7.9% to 8.15%.

This reflects a deceleration in MPIR, which reflects the broader interest rate environment, but nonetheless we have effectively seen a doubling in DAP over the last two years, and there is now a clear trend towards more individuals paying for residential accommodation through RADs, if the capital is available. In effect, to do otherwise would be to forego a guaranteed 8.15% return on the money.

Conversely, and it is incongruous, we have had the Federal government maintain interest rate on loans through the Home Equity Access Scheme (HEAS) at 3.95% since January 2022. There is now a yawning gap between the rates applying for HEAS loans and reverse mortgages in the general market.

The government may be suppressing the interest rate to well below market rates in an effort to increase the attractiveness of the scheme - that is acceptable, but it leaves entrants to the scheme exposed to significant increases when and if rates return market levels. We have no problem with the government being ultra-competitive, but these rates appear to be below even the government's cost of funds - which effectively means subsidisation and this can have a distorting impact.

A Public (lack of) Service - Home Care - July 14, 2023

Why do we rely upon for profit, not-for-profit and charities to deliver Home Care services?

From a government and public service perspective, outsourcing the delivery of public services offers a number of - many political rather than economic - advantages:

• you don't have to manage day-to-day delivery, just fund the services
• it allows you to do a "Pontius Pilate" if something goes wrong
• you can always fall back on the mantra that the private sector is more efficient than the public sector, and
• if any changes impact the employment of individuals, well that's not your problem

What about the flipside, the downsides:

• the government loses almost all track of what are actually costs to deliver services - and no number of spreadsheets or consultants will bridge the gap
• you lose the ability to manage these types of services and your reliance on the providers means that you become dependent on them, and
• you lose control of costs and that means there is a risk of provider margins expanding over time, perhaps at the expense of service quality

For perspective, let's look at the top five Home Care Package Providers, according to KPMG's Aged Care Market Analysis 2022:

I am not sure that we should feel happy that there is enough apparent margin in Home Care to attract a private equity firm. Also, if you believe that having a substantial charity presence in the top five provide some assurance that there is fairness in the market, we have a tendency to support that view, but these are large charities very much run like businesses, and pay executives what would appear to be open market salaries. Charities are always a bit shy about executive remuneration, but both Uniting Care Queensland and NSW/ACT charities paid their "key management personnel" $6 million and $4 million respectively in 2022 - but are coy regarding exactly how many people are included in that group.

And what about the fact that as at June 2022 there were apparently 1407 Home Care providers - doesn't that guarantee competition. It might do, but we question why there need to be such a large number of providers - all of whom need to be regulated in some fashion to ensure probity and quality.

In summary, we doubt that Home Care outsourcing is generating any clear net benefits, and wonder why the public service couldn't take a more operational role in the sector - if only to ensure greater transparency. There are always going to be doubts about public service delivery, but we think there are substantial doubts about whether we are receiving value for money from the current arrangements. We must invest in some greater degree of operational capability in the public service; otherwise they simply become a simple, questionably effectual, funding utility.

Buying a car – perhaps a time to change your approach – July 9, 2023

History is replete with stories and jokes about car dealers in general, but a recent visit to several car showrooms suggests to me that things haven't changed much recently.

For good and bad reasons purchasing a new or nearly new car on retirement is often a rite of passage for many retirees - who are looking to set themselves up with a vehicle for the next five or 10 years, with most costs covered under warranty. What you will find is that many new car dealers remain arrogant, bolstered by continuing shortages in certain areas, and often as not trying to sell you a car that won't be produced in Bavaria or Aichi until sometime in February, with an (optimistic?) arrival date in July 2024 - with only $5000 down to secure the car! If you get involved in these, review the fine print very carefully in terms of what happens if there are price increases and the impact of delivery slippage.

And this may be a comment made throughout the ages, but there doesn't particularly appear to be any emphasis on providing value - particularly by "established" brands. That only seems to be the focus of new brands - it really was only the presence of the Korean brands in the market several years ago that the established brands began to offer reasonable warranty periods. In fact, BMW only moved to a five year warranty in late 2022.

Additionally, showroom prices seem to bear absolutely no relationship to the advertised Manufacturers Suggested Retail Price (MRSP) and we continue to pay for dealer delivery charges, in the thousands of dollars, when it is not clear what we are paying for, if anything?

The moral of the story? Once I have clearly determined what car I want to purchase I am going to be looking at the online car brokerage services rather than experiencing again the traditional showroom, which has clearly not moved with the times. I'm also going to look outside my tried and trusted brands, because they've changed too, and not necessarily for the better when it comes to value, reliability and indeed transparency. You may be mystified by Tesla and Elon Musk at times, but buying a car online for a clear price offers tremendous advantages over car dealerships where "confusing you" is all part of the sales process.

Finally, if you're wondering why car dealers aren't necessarily too enthusiastic about retirees wandering into their showrooms - bear in mind that they often make half their margin on financing a car. Retirees who don't need financing - and you should be very careful about indicating this before you've received a "walkaway price" - just aren't as attractive to the "shark pool".

A quick summary of changes happening on July 1, 2023 which are of interest to retirees - June 14, 2023

• The transfer balance cap (TBC), which is basically the maximum amount that you can have funding a tax-free income stream in Australian superannuation, will rise from $1.7M to $1.9 million on July 1 - basically as a result of indexation. The TBC available to individuals will however differ depending upon when they started their income streams - "it's complicated" and see our page on the TBC for more background. MyGov will also provide you with a precise TBC figure.
• The Age Pension thresholds, both in terms of income and assets - but not the age pension amounts payable - will change from July 1. The change in the thresholds, again a result of indexation, should allow more individuals to qualify for the pension, or qualify for higher partial pensions.. We now know by how much and who will be affected. The precise details are contained within our Age pension page and our Age Pension calculator will be updated shortly.
• From July 1 minimum annual super drawdown rates "return to normal" after being halved as one part of the response to the Covid 19 pandemic. Remember, these are minimum rates of withdrawal - you may withdraw more but, as usual, much depends on your individual circumstances as to whether this is warranted and rational.

Draft Strategy Report - Aged Care - May 30, 2023

The government has recently released a consultation paper, the Draft National Care and Support Economy Strategy, which begins a discussion around how Australia should best manage and fund the growing challenges around aged care. The major point picked up by the media is the suggestion that there should be greater user pays pricing - in other words, that pricing for aged care should reflect your financial situation, even more significantly than currently.

One of the comments reported in the media was from the Chief Executive of the Aged and Community Care Providers Association, Tom Symondson, with the following remark, "If you have a significant amount sitting in your super account why shouldn't you contribute more to your care."

Our immediate response to the Paper is:

1. Demographic changes are slow-moving, eminently obvious and unavoidable - for more than five years we have called for significant changes in the funding of aged care.
   
   
2. We view equity, or more generally, fairness, as being absolutely crucial in any discussion around funding, and to us that means:
   
   
   • No problem in principle with a user pays environment.
   • The financing burdens should not fall on younger Australians, the tax and other systems are already biased enough in favour of senior Australians
   • As previously argued, we prefer that the majority of funding is generated on a national insurance basis, similar to the Medicare levy
   • The government needs to be "braver" in terms of what assets it considers when determining an individual's ability to pay - in short, the family home needs to be considered, perhaps beyond a certain cap, for means testing in relation to both aged care and pension. Otherwise, we continue to have the absurd situation where those with investments in superannuation rather than the family home are discriminated against. As mentioned previously, it is not fair that individuals living in a multi-million dollar main residences continue to receive the age pension and other benefits and then leave those assets to family members on a tax-free basis, while being supported by the taxpayer. This is a triumph of politics over equity - particularly since there are now a variety of mechanisms to convert assets into income so these individuals can remain well supported.
     
     
3. Finally, although the paper talks about the need to abandon looking at services from a silo perspective, much more needs to be done to simplify administration across age care, social services and taxation - otherwise, the enormous complexity will continue to drive inefficiencies. This is a situation where, as valuable as clear strategies are, the greatest value and increase in productivity will derive from hard, mundane work to simplify and make services more efficient - without the constant political need to demonstrate there are "no losers".

And, talking about inefficiencies, the Report indirectly illustrates the enormous threat posed to fiscal rectitude by the NDIS and its potential to crowd out other social programs. No matter how well-meaning a program is, it still needs to be affordable and have reasonable/objectively verifiable entrance requirements and budgets. With age care, verifiable entrance requirements clearly exist - but in the space of relatively few years, look how NDIS compares with aged care and remember there is no user pays principle with NDIS. This table is excerpted from the draft strategy report.

Aged Care Residential Accommodation - Budget Shuffle - May 18, 2023

In the 2023 Budget papers there was a line item, entitled, "Improving the Investment in Aged Care", including the following extract:

"The Government will temporarily reduce the residential aged care provision ratio from 78.0 places to 60.1 places per 1,000 people aged over 70 years. The reduction in the ratio reflects the increasing preference of older Australians to remain in their homes,and will save $2.2billion over 3 years from 2024–25.

This is not a small adjustment, it represents a 23% reduction in the amount of aged care accommodation expected to be required over the 3 years from 2024-25. That individuals prefer in almost all circumstances to remain at home rather than move to residential aged care is undoubted, but we have two concerns:

1. As we mention elsewhere, residential aged care is rightly restricted to individuals who meet strict criteria - and it will usually be health concerns, including dementia, that see individuals move into residential aged care. Either the government has been too conservative in the past in terms of the number of rooms required to meet demand, and is now redressing this, or it has now found ways to address significant health issues in the home environment.


2. This is a significant shift and more detail is required to substantiate the decision - and perhaps some discussion of whether the forward saving should have been directly credited to the Home Care budget rather than simply, "...redirected to the Government's commitments in the health and aged care portfolio."

The Objective of Super and taxing Large Funds - February 28, 2023

The current Labor government intends to legislate an objective for superannuation, and in the consultation paper recently released, the proposed wording is

"To preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way"

The Objective has a "boring but necessary" feel to it, but it has a number of consequences:

Firstly, the use of the term "preserve savings" suggest that the government intends to strengthen the focus on the use of funds only for retirement, and reducing or eliminating the capacity for superannuation to be accessed early. Early access is already difficult, but the issue has gained a high profile because of the recent access allowed to superannuation by the government during the Covid pandemic and because it is being increasingly accessed for a whole variety of health related reasons - even stomach stapling to address obesity issues.

Additionally, there are elements within the opposition Liberal party that would like to see superannuation used for residential property purchases. We think this is absurd in a market that is already overpriced - and given that most housing "initiatives" in the past have flowed directly into the pockets of how sellers through higher prices, and we see no reason to doubt that allowing access to super wouldn't have exactly the same result.

Secondly, the objectives indicate that super is for ".. a dignified retirement ....in an equitable and sustainable way". The objective is inconsistent with high-value super funds which have been used more as a tax haven than as a way of funding retirement. As we have said previously, it is absolutely essential that superannuation is economically sustainable in the long term.

Today the Treasurer announced that from 2025-2026 the concessional tax rate applying to future earnings on super funds with balances over $3 million would be 30% - which is double the current concessional rate of 15%. Fewer than 1% of all superannuation accounts have more than $3 million in them.

We support this change, and indeed wonder why a two-year interim period has been provided, 12 months would appear to be sufficient.

Because we believe that sustainability is absolutely important so that we can rely upon superannuation for the long-term, we also believe that the government should take the same approach when it comes to NDIS. There are few programs in the history of Australia that have been less well thought through and represent a potential bottomless pit of taxpayer money.

Currently, access to NDIS funding is often a lot less constrained than access to age care funding - that is inequitable; NDIS should not be an exception and should be subject to the same considerations regarding sustainability.

Inflation and a Lazy Economy - January 25, 2023

Perhaps no other section of society is more challenged and impacted by inflation than retirees, and particularly self funded retirees, given that individuals receiving the old age pension at least have the benefit of indexation - while self funded retirees retirees have seen their ability to maintain their incomes challenged by declining superannuation balances.

Anyone in retirement at the present time has seen (worse) inflation before, but it is something new to many Australians, and it may represent an opportunity to effect some very significant economic changes which have been disregarded over the last 20 or 30 years.

We believe both the economy and consumers have become lazy, and if we had to nominate a few areas to concentrate on for both government and consumers, it would be:

Competition Policy

It is inarguable that Australia's economy is too concentrated - we have too few firms in very significant areas of the economy to ensure that genuine levels of competition exist. The industries that come top of mind include, the banks, general insurance companies, supermarkets, car dealerships, airlines and utilities. The argument often put that a few strong competitors are better than a range of smaller competitors is simply a convenient farce. We should make it more difficult for mergers to occur and we should look to the ACCC to consider corporate break-ups where necessary.

Further:

• Don't support any government initiative which involves the private sale of a monopoly, whether it be a utility, Airport terminal, public transport system or, for example, a "birth deaths and marriages" registrar. Anyone who thinks that the consumer is better off with these sales is not lucid.
• Support greater transparency in every aspect of government - and do not support arrangements in which government information must be sourced through brokers on a fee basis. Government information should be considered public information, accessible freely, by default.
• Hold supermarkets and retailers accountable for price increase - they have spent billions on polishing brands which allow them to compete on anything but price comparisons; this needs to be resisted by intensive comparison shopping.

The Medical and Dental Professions

During the debate over whether the general practitioner (GP) industry was in crisis, the leader of the Pharmacy Guild apparently indicated that it was the fault of GPs themselves, who had become "too commercialised". We agree with that view, but it's slightly ironic coming from an industry that has relied upon government lobbying for years to maintain what are essentially restrictive trade practices around the location of pharmacies.

We think it is clear that the medical profession has become much more commercial over the last 20 or 30 years, and whilst many medicos maintain a largely vocational focus, there is a significant and potentially growing proportion that primarily seek to maximise their income. This should be recognised and we should review how the medical profession is regulated, and the role of the various surgical colleges in terms of how they impact the demand and supply of GPs and specialists. A similar approach should be taken in relation to dentists, and more particularly dental specialists, who are often overlooked because they do not fall within the parameters of Medicare.

Clearly, in many areas, "self-regulation" has proved to be "no regulation" - and in an area as complicated as medicine, where doctors have an almost a singular ability to generate demand, and individual clients have little leverage or knowledge, we should consider the role of government and transparency requirements.

Bear in mind that a concern over (increasing) "gap" payments is one of the reasons why self retirees maintain larger than required capital balances.

Tradies are a challenge

For every hard-working, energetic and resourceful tradie we see on the various reality programs on TV, there is the tradie that retirees regularly meet who can't be bothered providing a quote, has to be chased for a quote, doesn't arrive on time, "wouldnt work in an iron lung", carries out their work poorly, takes forever to complete a job and/or "charges through the roof".

Things are even worse than usual at the moment, as the building industry struggles to complete a backlog, but this is a long-term pattern, perhaps largely of our own making - trade training has been awful and we just haven't given enough emphasis to the importance of trade skills and management. The end result is that many retirees avoid calling tradies wherever possible short of an emergency unless there is a "tradie in the family".

Do tradies care - the good ones - yes, but how do you sort the "wheat from the chaff". It's not from going online in places like Hipages, what retirees need to do is leverage on their local networking skills and maintain shortlists of individual tradies who have a reputation for being good workers and charging fairly. Relationships with these tradies need to be fostered, prior quotes shouldn't always be required and payment should be made immediately if work has been carried out satisfactorily.

Groups should be happy to both exclude tradies and "customers" who do not do the right thing.

The "Objective of Superannuation" – January 19, 2023

The government, following a long period of consultation, will shortly legislate the "objective of superannuation". This is not, as it might appear, a simple existential argument and there has been furious debate within the superannuation industry about the issue, some seeking a narrow focus on providing for retirement benefits and others a wider focus, which would perhaps allow individuals to fund the purchase of houses.

If recent comments by the Assistant Treasurer are indicative, then the government will choose a narrow definition very focused on superannuation being for retirement benefits only, and one corollary of that decision may be to set financial limits on how much money can be held within superannuation funds and attract preferential tax treatment. In that regard, there are said to be several funds in Australia where the amounts exceed $100 million, and in total there are 11,000 Australians with more than $5M in their superannuation accounts.¶

Figures currently suggest that if the Government were to limit individual superannuation funds to a balance of $2 million, then the budget saving would be in the order of $3 billion annually.

On balance, we are supportive of a fair limit being placed on individual superannuation balances, perhaps in the order of $2.5M subject to that limit increasing to reflect inflation over time. It is very clear that funds with exceptionally high superannuation balances are not focused on providing retirement benefits, but simply providing a tax effective structure in which to hold investments.

In this context, we do need to be a bit wary about what is driving the approach of superannuation funds - seeing fund balances maintained until retirement suits their business model. However, we would have thought that very few suggestions are more inappropriate than allowing super funds to be used to purchase residential property. Australian house prices are already too high and any further flexibility would simply make things worse by feeding directly into prices.

Equitably funding quality aged care - political courage needed - January 7, 2023

The latest StewartBrown Aged Care Financial For the 2021/2022 financial year, shows that the majority of aged care providers are currently running at a loss and facing a myriad of issues - including their ability to properly staff their aged care centres. This is important because it suggests that the sector will struggle to cope with both an increasing number of individuals moving into aged care, driven simply by demographics in the coming years, and delivering necessary improvements in care standards.

Funding, or lack of funding, is very much an issue and one that continues to be hamstrung by the reluctance of any politician in Australia to properly address how "main residences" are treated both for the purposes of age care and the age pension. The fact is that both from an aged care and pension perspective we have individuals owning mult-imillion dollar properties who make little or no contribution to the cost of their (very expensive) age care. The value of those properties is then passed to their descendants often without any capital gains tax applying to the sale of the property and without these assets being actually used to support an individual's retirement.

We believe, as we have mentioned before, that equity requires a greater acknowledgement of the value of an individual's main residence - perhaps only above a base level depending upon where they live - in the means test for both age pension and aged care purpose. Otherwise, we again have the general "taxpayer" bearing an unfair and rising tax burden.

In general terms, we think it would be beneficial for funding in aged care to be the subject of a short, wide-ranging report by the Productivity Commission - with the scope of any report including how individuals should contribute to their own age care. We remain of the view that the use of refundable accommodation deposits (RADs) is both inappropriate and gives rise to wider economic damage by inhibiting spending during retirement.

National Seniors – "walking a fine line" – December 1, 2022

We regularly receive inquiries about providing content to SimplyRetirement - these range from obvious scams to well-known and well-regarded companies seeking to write and provide content for which we would receive remuneration. Legitimate companies always make clear that any content provided would be marked as "sponsored" but the clear intent, whether directly or indirectly, is that any information will be advertorial in nature and intended to steer business towards the writer/provider.

Many companies, particularly it seems in the financial space, have adopted the view that sponsored material is more effective in terms of converting clients than simply paying for advertising.

Thus far, we have refused all offers to provide sponsored "professionally written content" - simply because these companies are effectively trading on the reputation of the website or organisation - and unless you retain complete editorial control of content, and ensure that you are providing an objective perspective, you trade away your reputation. And reputation should mean everything.

That's why we are concerned that National Seniors, probably the pre-eminent retiree organisation in Australia, seems to have become very reliant on sponsored material for finance news content. Let's review the six finance news stories published on November 28 -

• Retire in the comfort and style of your own family home - Tagged as a "sponsored story" from Home Equity
• How do I apply for Life Insurance? - Tagged as a "sponsored story" from NobleOak
• Four reasons why people lose track of their shares - Tagged as a "sponsored story" from Investafind
• The 3-step plan to ease the squeeze
• How to create a budget tailored to your spending
• Can’t afford financial advice? Here are some alternatives to help you keep track of your budget

There is nothing wrong with the advertisers involved in sponsoring National Seniors stories, but if you continually mix up stories that are sponsored with those that are produced internally, then they necessarily blur together.

It is even arguable that an organisation such as National Seniors should not participate in providing certain services, even if they do so with the best of intents - and this includes offering access to term deposits and insurance. For example, how can you provide demonstrably objective advice or commentary around the "best" term deposits and life insurance if you directly offer them as a service or products - given that they are actually provided by sponsors, Auswide banking and NobleOak.

Australian Federal Budget: Items of Relevance to Retirees - October 26, 2022

Provided below is a short summary of measures announced in the incoming Labor Government's first Budget, released yesterday, of interest or importance to retirees.

• The Government will freeze social security deeming rates at their current levels until 30 June 2024.
• More people will now be able to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from 60 to 55 years of age. The age requirement has now fallen from 65, to 60 and now 55 since this measure was introduced in 2018. The new age limit will have effect from the start of the first quarter after Royal Assent of the enabling legislation.
• The Government announced that they would extend the assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients and change the income test, to apply only the lower deeming rate (0.25 per cent) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
• The Government confirmed that age and veterans pensioners would be eligible for a once off credit of $4,000 to their Work Bonus income bank. The temporary income bank top up will increase the amount pensioners can earn in 2022–23 from $7,800 to $11,800, before their pension is reduced,
• Confirmation that the income threshold for the Commonwealth Seniors Health Card would increase from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. This change is currently in legislation before Parliament.
• From 1 January 2023, the maximum co‑payment under the PBS will reduce from $42.50 to $30 per script, a 29% reduction.

Time for a total Retirement Review - our (short version) "Wish List" - October 18, 2022

When it comes to the factors impacting a retiree's life, there are several significant drivers, and almost all are within the Federal Government's authority. They are, in no particular order:

1. The tax system
2. The superannuation system
3. The social security system
4. The aged care system, and
5. The complete health system - Medicare and otherwise

All are overly complicated, which adds to operational costs and inhibits compliance, but when it comes to looking at reform, whether the in the area of retirement or otherwise, these sectors are usually considered in isolation - reflecting the fact that they are managed by separate Government departments.

If someone were given the opportunity to review retirement generally, these are some of the things that we would like considered – taking a "blue sky" approach - in order to provide a better retirement regime without necessarily increasing costs.

1. A Universal Pension

1. Introduce a universal pension, that's to say all retirees would have access to the aged pension, dismantling the asset and income tests and making the system much simpler- in much the same fashion as occurs in New Zealand.

How would this be funded:

• Consider introducing a minimum level of tax on superannuation income streams, or simply making income streams fully taxable, but providing a 15% offset to reflect the tax on contributions. There should be restrictions placed on the maximum size of tax advantaged superannuation schemes - there are super schemes that have been historically used for tax rather than retirement purposes.
• Limiting the capital gains tax shelter afforded main residences - and particularly in terms of the treatment of inheritances. Improve mechanisms allowing retirees to draw income from their equity in their main residence.

This approach should also reduce the amount of "gaming" that occurs around the means test and improve simplicity.

2. Remove RAD's

Revamp the funding mechanism for residential aged care accommodation, and removing refundable accommodation deposits (RAD's). These are material amounts ($400,000+) which self-funded retirees particularly feel the need that they have to "save" for in retirement - this inhibits spending, is not efficient And economically disadvantageous.. Given that only a certain percentage of retirees will need residential accommodation, this could be funded through an insurance product levied on individuals above a certain age.

3. More efficient and available Homecare

Australia has more people in residential aged care accommodation than comparable other countries - more emphasis needs to be placed on Homecare, and the factors driving the comparative early entry into residential aged care. Costs need to be looked at in great detail, and in particular the share of the budget being absorbed by "management fees". You only need to look at the proliferation of companies, often located in expensive high street locations, to wonder about the efficiency and cost of both the Homecare and NDIS programmes equally.

4. Review the delivery of Health Care and the role of the major participants

Retirees also maintain funds and also to provide a reserve against significant health costs - in other words the significant financial "gaps" that now exist within the healthcare system. Our concern that part of the reason for rising healthcare costs has been the fact that medical practitioners can influence both supply and demand in a fashion which is not allowed in other parts of the economy.

There have been clear recent situations which illustrate/confirm that at least part of the medical profession is driven almost entirely by remuneration, and that is a difficult situation to address where we are dealing with a complex service where the consumer can have little or no leverage. There deserves to be at least some assessment of whether we currently have the right balance in Australia when it comes to the provision of medical services – public and private - and whether services in countries such as Canada and the UK represent learning opportunities.

Investments: Nowhere to hide for Retirees – October 16, 2022

As the table below illustrates, there is no asset class for self-funded retirees that is currently providing any effective shelter, and any returns are being substantially undiluted by historically high levels of inflation. Real returns for balance superannuation accounts are tracking at -10.9% over the course of 12 months to the end of August, once adjusted for inflation of 6.1%, according to Rainmaker.

That doesn't necessarily mean that retirees should be looking to change their investment approach, or portfolios. As we mention elsewhere on the site, most people "spend a long time in retirement" and they can't afford not to be exposed to growth assets, and with that comes a degree of volatility. Remember, it was only two years ago that some super funds were generating annual returns of close to 20%. However, you do need to ensure that you have sufficient liquidity to see yourself through the "winter months", and don't need to sell off your investments for income.

The Direct and Indirect impact of High/Higher Interest Rates - 27 September, 2022

The very rapid rise in interest rates, coordinated by Central Banks across the world, in an effort to address inflation risks, is well known - but let's consider some of the direct and indirect impacts it is having on current and future retirees in Australia.

1. Mortgage rates have increased significantly, and may reach 6% on a typical variable rate mortgage by the end of this year. Retirees currently have historically high levels of mortgage debt on retirement and this will have a direct impact on their cost of living - it will also impact decisions on whether to use any super they have to pay down mortgages. The increase in rates is likely to re-balance that decision in favour of reducing or eradicating debts as much as possible rather than letting superannuation run in parallel. Very few, if any, super funds are currently earning at a net of tax rate of 6%.
   
   
2. The increase in rates will feed through into reverse mortgage rates, and eventually into the interest rate used on what is now called the Home Equity Access Scheme, previously called the Pension Loan Scheme. Both involve variable-rate mortgages and (much) higher long-term interest rates need to be built into any financial assessment - particularly as we're going through period where one direct result of higher interest rates is also lower property values. The net result is debt is compounding more quickly whilst property values are either stagnant, or in many situations reducing. Participation in these schemes does however need to be considered against a time-frame of 10 to 20 years - but bear in mind that it is not possible to go into "negative equity"under either of these schemes.
   
   
3. Interest rates are the mechanism used to convert between capital values and income streams. In terms of age retirement, the MPIR is the figure used and it has just increased to 6.3%, see below, with further increases likely. The result is that it has suddenly become much more expensive to choose to pay for aged care accommodation through a daily accommodation payment (DAP) rather than through a refundable accommodation deposit (RAD). Given that very few investments are paying a guaranteed rate of 6.3%, there will likely be a move away from paying DAP's to paying through a RAD; if individuals or their families have sufficient assets.
   
   The fact that the DAP can increase and decrease so substantially over such a short period of time, leading individuals to pay markedly different rates for occupying the same accommodation, depending upon what month they entered accommodation this year, just illustrates how ludicrous this approach is.

MPIR Rate Increases to 6.31% from 1 October - September 16, 2022

The MPIR rate will increase to 6.31% for the period October 1 to December 31, 2022 - reflecting recent substantial increases in base interest rates. The MPIR ss primarily used to convert refundable accommodation deposits (RADs) into daily accommodation payments (DAPs) and the change will see a substantial increase in DAP pricing - see the table below

The increase in MPIR was very foreseeable and we have already heard of instances where residential aged care providers have effectively tried to delay access to accommodation until on or after October 1. An individual's DAP rate typically applies for the entirety of their stay in accommodation and you can see that operators had a clear financial incentive to delay occupancy - effectively a 26% difference in daily charges.

The fact that there are these "cliff effects" in aged care pricing is an indictment of the system and another example of why aged care funding needs to be examined at the earliest opportunity. Meanwhile, this change will probably see a reversal in the trend towards the payment of accommodation by DAP, towards a greater proportion of payment by RAD.

Work Bonus Changes - September 3, 2022

On September 2, 2022 the Government announced that Age Pensioners would be able to earn an additional $4,000 in the 2022-23 financial year before it affected their pension payments - this would be effected through an increase in the Work Bonus, from $7,800 to $11,800

No legislation has yet been enacted and the Government has not yet provided any indication regarding whether the Work Bonus increase will apply beyond this financial year. When more details are available we will update the material below accordingly.

Remember, the work bonus only applies in relation to employment income, it does not extend to income earned through investments or other passive income.

Hearing Services in Australia - the role and performance of "Hearing Australia" - August 29, 2022

Hearing Australia is a statutory authority constituted under the Australian Hearing Services Act 1991 and the largest provider of government-funded hearing services in Australia. They currently provide about 290,000 Australians with, "a wide range of information, education, research and clinical services, including the fitting of hearing devices and follow-up services"*. This includes providing Government funded hearing services to:

• pension concession card holders
• recipients of Centrelink sickness allowance
• holders of a Department of Veterans’ Affairs Gold and White card
• National Disability Insurance Scheme (NDIS) participants
• children and young adults under the age of 26 years adults with complex hearing needs, and
• Aboriginal and Torres Strait Islander adults aged over 50 years or who are participating in Community Development Programs

As we mention elsewhere on the website, we are very concerned about the accelerating commercialisation of health services in Australia and are fully supportive of having government owned corporations providing health services - as long as they are competitive on a level playing field basis - because they provide a window into actual costs within the sector. They have the ability, directly and indirectly, to constrain the ability of other providers to "over price" products and services to clients.

However, this requires an effort to be transparent in terms of the pricing of the products and services they deliver and to be a market leader in terms of the quality and detail of information provided to clients. It is not adequate, as we have seen recently, to have hearing aids costing thousands of dollars individually, sold on the basis of a single sheet of paper with few or no technical details, to clients. Device manufacturers were not specified, and indeed devices were "re-labelled" vaguely as "Active, Social, Comfort and Everyday" so that it is not even possible for individuals to conduct their own comparative research. Even device performance was labelled, "Level 1, 2...5", without the benefit of those performance levels being defined.

Specification and feature sheets should be offered to the client, including specific device details and the audiologist should explain the differences between the hearing aids available, and the basis for any particular recommendation, using a comparative analysis. Whilst some elderly clients particularly may be happy to simply accept an audiologist's recommendations, nevertheless the process itself is important.

Market share data seems extraordinarily difficult to obtain the hearing industry in Australia, but the concern is that having a government owned operator with a large market share, leads to a comfortable, complacent organisation rather than one focused on transparency and vigorously leading and improving industry behaviour.

*Hearing Australia Annual Report 2020-21

Super Consumers Australia - New Alternative Retirement Savings Targets - July 27, 2022

Super Consumers Australia (SCA) have recently released a new set of retirement savings targets, effectively as an alternative to the Australian Superannuation Funds Association (ASFA) Retirement Living Standard, which has been in widespread use over the last decade or so.

The SCA and ASFA standards are similar in the sense that they both look at retirement savings required for singles and couples who own a home without a mortgage, on the presumption that the age pension will apply in certain circumstances, but differ quite significantly in terms of the methodology attaching to how the various savings levels required are calculated.

There has always been a concern that savings targets produced by the superannuation industry may be biased towards larger lump sums, but regardless it is healthy to have another set of published targets to which individuals and couples can refer when assessing the adequacy or otherwise of their savings for retirement depending on the income they target.

There is one aspect of SCA's approach that we find fundamentally attractive, and that is a focus on providing retirees with the confidence to spend, rather than save in retirement. However, as we mention elsewhere, we believe there are some structural impediments that make retirees adopt a more conservative approach than should be necessary when it comes to retaining capital - and that includes the high profile attaching to retirement accommodation deposits (RAD's).

In the mindset of many retirees, even though most will not move into aged care accommodation and despite the ability to pay for accommodation on a daily basis (DAP), a certain amount of capital needs to be set aside to pay for RAD's - on average over$400K per individual. The simple result is that superannuation is then often passed on as an inheritance rather than spent during an individual's lifetime. Age care accommodation funding needs to move to an insurance model or based on tontines - with premiums paid by retirees.

The tables below provide the new SCA savings targets for two groups, pre-retirees and retirees, to age 85 and 90, and we have also provided a link to download SCA's Consultative Report: Retirement Spending Levels and Savings Targets, released in March, 2022.

Super Consumers Australia: Consultative Report: Retirement Spending Levels and Savings Targets - March, 2022.

Capital Gains Tax Exemptions and Discounts - Who really Benefits? - July 25, 2022

I think there would be few Australians who would argue that the economy is too focused and dependent on residential housing - it borders on a national obsession and does not support a productive allocation of capital in the economy. Unfortunately, any move to restructure a taxation, and particularly the fulsome capital gains tax exemptions around main residences, appear to be beyond the talents of our current politicians.

It has been said many times, but the chief beneficiaries of capital gains exemptions and discounts are those who hold the wealth in the economy, and they tend to be older Australians - so this is often characterised as a battle between young and old and vested interests. Certainly, it is our view - unusual from a website focussed on advice for retirees - that older Australia disproportionately benefit from the current tax system compared to younger Australian and the imbalance needs to be addressed as a matter of equity.

Additionally, who really benefits from these capital gains tax discounts and exemptions - other than property developers - if they largely generate higher asset values which need to be financed by higher (and longer term) mortgages for most of the population, and debt which increasingly stretch into retirement.

From data extracted from the 2021 and 2001 censuses by the ABS and analysed by The Sydney Morning Herald and The Age, it is apparent that 20 years ago, more than one in five 35 to 44-year-olds owned their home outright. In 2021, fewer than one in 10 in that age group could say the same, and amongst 55 to 64-year-olds the proportion of mortgage holders had more than doubled, rising from 15.5 per cent to 35.9 per cent, and the number of people with a mortgage at retirement age or older has increased from 3.2 per cent to 9.6 per cent. See the charts below for more detail.

Tax breaks, combined with reduced interest rates, large migration programs (until relatively recently) and Government payments to new home buyers which have simply increased entry prices have all conspired to generate an unproductive, misplaced and unfair boom in house prices which ultimately benefits very few.

The Retirement Income Covenant - More Form Than Substance - July 2, 2022

From July 1,2022 all superannuation funds (other than self-managed super funds) are required to become more proactive in how they help retired members turn their balances into regular income. Called the "Retirement Income Covenant" (RIC) , fund trustees must now help their members balance three key objectives:

• Maximise their expected retirement income over the period of retirement;
• Manage expected risks to the sustainability and stability of retirement income over the period of retirement; and
• Have flexible access to expected funds over the period of retirement.

In other words, the RIC forces superannuation funds to move away from a preoccupation with the investment of super funds to assisting members with the efficient and flexible drawdown of the funds post-retirement. In essence, it has taken 30 years from the time superannuation became compulsory for attention to turn to the primary purpose of superannuation, which is to support member retirement.

If ever there was an issue, apart from recent national energy planning, that illustrates why a Government elected on a revolving three-year basis should not be tasked with long-term planning it is superannuation and retirement - the amount of money involved is too significant, and the issues too politicised, to guarantee an effective, efficient outcome.

The current practical impact of the RIC is to have superannuation funds searching around for annuity partners, on the premise that lifetime annuities are the most obvious (and available) "product" that fills the retirement income gap - at least in terms of sustainability and stability, if not maximising income and flexibility. The other result is that the past LNP Government's success in reducing financial advisor numbers by 40% and increasing fees by a similar amount has exacerbated a yawning gap in the ability of "middle Australia" to access professional advice around retirement.

We believe that the emphasis simply on retirement income is too narrow - there needs to be some broader assessment of how other changes, for example in terms of the provision of residential aged care and health care, might provide a more secure basis for individuals to live and spend more freely in retirement, without the need to retain large capital sums for "security" and to ensure that superannuation is used to support retirement, not as a means of passing inter-generational wealth at the expense of the broader community.

Preferably, management of this issue should be contracted to a body insulated from politics and staffed by numerate individuals without any gift for, or need to provide, "sound bites" - in effect an institution similar to the RBA.

Sharp increase in Daily Accommodation Payments (DAP) from July 1 - June 16, 2022

The Government has announced a sharp increase in the maximum permissible interest rate (MPIR) to 5% on July 1, up from 4.07% currently. The MPIR sounds obscure but it is the rate used to determine how much you pay as a daily accommodation payment (DAP) as an alternative to paying the lump sum refundable accommodation deposit (RAD). Moving from 4.07% to 5.00% effectively means that DAP's have increased - for the same accommodation - by 23%.

The impact is probably better illustrated by comparing the DAP payable currently - prior to June 30 - on a $400,000 room with that payable after July 1, 2022 - in the table below. Bear in mind that the MPIR remains static throughout a person's stay in aged care accommodation.

Over the past few years there has been a definite trend towards paying for accommodation on a DAP rather than RAD basis. Where there is capital available, particularly given adverse situations in the broader investment market, we expect that there will now be a trend back towards paying RAD given the effective 5% earning rate. Particularly if, as we expect, interest rates continue to rise and therefore the MPIR rises with them - it was only back in 2019 that the MPIR was 6%.

Prepare for Adverse Superannuation Returns - June 14, 2022

After what was a stellar year for many superannuation funds last financial years, a detiorating economic environment will likley result in a very different performamce for 2021/22. The funds have done their best to flag that returns of 20% are "not repeatable" but neveretheless many will be surprised by negative returns this year.

The Chief Investment Officer of AustralianSuper was quoted very recently as saying that Australia was headed towards a "material downturn", and specifically that AustralianSuper was on track to "post its first financial year loss in 13 years", with its balanced investment option down 0.83% in the financial year to June 9. The following Tuesday, June 14, the ASX promptly dropped 5% on the back of poor market news out of the US and significant potential increases in US interest rates.

Labor throws the Financial Planning Industry a lifeline - June 4, 2022

It is hard to express just how poorly the previous LNP Government managed reform in the financial planning industry over the last 3 to 5 years. The aspirations were fine, to improve the professionalism and probity of advice provided by planners, but a blizzard of red tape and confusing legislation resulted in just 10% of the Australian population receiving financial planning advice, down from 14% prior to the Hayne Royal commission. This was in concert with a 40% increase in the cost of advice - largely as a consequence of almost half of the financial planning workforce leaving the industry.

In a recent interview the new Financial Services Minister, Stephen Jones, has indicated that action will be taken shortly to remove some of the regulatory burdens and review the requirements around professional qualifications, in an effort to try and forestall more retirements from the industry. All good news, particularly if an effort is also made to try and simplify - even perhaps at the expense of equity - superannuation rules and regulations,

Superannuation and retirement in Australia is just too complex - improving access to advice is obviously necessary, but the emphasis should also be upon simplification in concert with making an effort to improve the quality and delivery of financial education.

Federal Election Campaign Promises - Income Deeming and Seniors Concession Cards - May 4, 2022

During the course of the 2022 Federal election campaign both Coalition and Labor parties committed to:

1. Maintaining the current deeming thresholds for 2 years to offset the impact of higher interest rates on pensioners, and.
2. To raise CSHC income caps significantly from July 1, 2022. Those new caps would be:
   
   
   • $90,000 a year for singles 
   • $144,000 a year for couples
   • $180,000 a year for couples separated by illness, respite care or prison

Given that this website focuses on providing advice to retirees, the presumption is that we would welcome this news. Unfortunately, we do so with some reservations, given that we believe - as we have stated elsewhere - that the tax and social security system already leans too heavily in favour of retirees and holders of capital, if contrasted with the younger generation.

It is neither ethical nor efficient, for reasons which are political rather than economic, to have young people bear a considerably higher relative tax burden than retirees. At some point or other, and politicians run scared at the thought, there needs to be a re-set of the tax system to ensure that is fair and equitable across all the generations.

Specialist's Out-of-Pocket Fees - Time to Act - March 7, 2022

The Grattan Institute has just released a Report focusing on how to reduce out-of-pocket healthcare payments in Australia. And just to get some indication of the scale of the problem, read a couple of excerpts from the report below:

"Australia’s universal health insurance scheme, Medicare, is designed to make healthcare available to all, no matter how wealthy or poor. And mostly, it achieves this goal. Public hospital care is free, and the vast majority of services outside of hospital are ‘bulk-billed’ – meaning the patient pays nothing out-of-pocket. But Medicare is not perfect. Australia still relies more heavily on patients contributing to the cost of their care, compared to similar countries. In 2019-20, Australians spent a total of nearly $7 billion on out-of-hospital medical services and on medications listed on the Pharmaceutical Benefits Scheme (PBS)."

"Many Australians can’t afford needed care. In 2020-21, nearly half a million Australians missed out on seeing a specialist because of cost, and more than half a million deferred or did not fill a prescription because of cost. The people who need the most healthcare – the poor and the chronically ill – miss out on care most. This is bad for those individuals, but also bad for taxpayers and the economy. It makes people sicker, widens inequities, and puts further strain on the health system down the track."

The report identifies that specialists fees are a major cause of high out-of-pocket payments, with long public hospital waiting lists forcing individuals to go to private specialists. But as anyone who has sought specialist advice soon realises, specialist fees are unregulated and they typically charge significantly above the Medicare schedule fee. Apart from that, there is "only" the issue are perhaps waiting six months or more for an appointment and the first discussion with reception staff ensuring that you know that the, "consultation attracts a (sic) $200 gap, plus additional fees for procedures".

The Grattan report focuses on a number of concrete and reasonable measures that can be taken to reduce or blunt the impact of these additional costs on the community and the Report is worth reading in its totality.

We believe that a significant aspect of the problem around the specialist medical services relates to the issue of supply. At the present time the various surgical colleges in Australia - including general surgeons, ophthalmologists, anaesthetists and psychiatrists - effectively have monopoly control over the number of specialists working in Australia. Where else in the economy does this level of control on supply go unfettered by regulation - and we are long past the days when the medical fraternity could be universally guaranteed to place community health ahead of their commercial position. Dealing with many doctors today is more akin to a commercial transaction than any other experience.

So, the "supply of specialist" needs to be addressed on an urgent basis, perhaps by wresting away control from the Colleges, and in the meantime we suggest again that you talk to your GP in terms of receiving an "open referral" to a specialist, rather than one nominated by the practice. You shouldn't presume that referrals aren't driven by "networking" just as much as the proficiency of the specialist.

Important Superannuation Changes introduce additional flexibility for retirees - February 11, 2021

Recently legislated changes to superannuation, first announced in the 2021 Federal Budget, provide important additional flexibility to older Australians wanting to make significant additional contributions to superannuation. The changes provide significant strategic opportunities from 1 July 2022.

The legislated changes included:

• removal of the work-test requirement for non-concessional contributions (NCCs) and salary sacrifice contributions, for individuals aged between 67 and 75
• extended eligibility to make NCCs under the bring-forward rule to individuals aged under 75 at the beginning of the financial year, and
• extended eligibility to make downsizer contributions to those age 60 or over

The funding of Residential Aged Care needs to be reviewed as a priority - December 27, 2021

If you interview retirees in their 70s and 80s and asked them why, as is often the case, they continued to save in retirement or feel a need to maintain access to considerable capital, largely in the form of their home, they will often tell you it is to fund future residential aged care costs. Predominantly we think this is because of the large RAD fees publicly quoted - regardless of their ability to choose to pay through a DAP.

Yet, if you review the figures in terms of people entering permanent residential aged care, disregarding that there is a substantial proportion who will never entered care, you find that 25% will spend less than six months in residential aged care, 50% who will spend less than two years and 75% will spend less than four years. Only about 10% of people spend more than six years in residential aged care and very few indeed, about 3%, spend more than 10 years. See our chart below for more details - sorry about the complexity, we are looking at how we represents this in a clearer fashion.

Given these numbers, this is a service or option that should be paid for through an insurance type of product - for example a Government levy, indirect or direct, on all retirees, to fund accommodation costs. There are enormous benefits involved in providing security to retirees and liberating the capital constrained because of the fear of needing retirement aged accommodation.

This would still leave providers with the option of providing high-value accommodation, at additional cost, to those retirees who wish to participate. Basic RADs and DAPs should disappear! Alternatively, these figures will give comfort to many people concerned about whether they have enough funds to last them through their time in aged accommodation and demonstrates yet again that very few, if any, people move into aged accommodation unless they need to because of health reasons.

Financial advice only for the wealthy, Government policy? - December 18, 2021

Without doubt, certain broad elements of how financial planning advice in Australia was delivered needed complete "root and branch" review. Instead, the Government's response was to focus entirely upon education and introduce an overwhelming deluge in terms of compliance requirements, the broad result of that which has been, to quote the AFR of December 18 – 19;

It's hard to remember a Government which has been more tactically, rather than strategically, focused in a generation. Everything appears to derive from short-term thinking and there is an unwillingness to tackle big, complex problems with solutions invariably involve "winners and losers".

Explicitly, Australia's tax, superannuation and social welfare/age care systems are just too complex - that is why many, if not most, individuals and families would benefit from financial planning advice prior to retirement but the Government has conspired to just make this too expensive.

We think there would be extraordinary benefits involved in a wholesale review of our tax, superannuation and social welfare systems - but the benefits are only available if we are led by Government which is capable and willing to lead and properly communicate the benefits. Too much to ask?

Home Care - Essential, but is it good value? - November 20, 2021

We've just taken a look at what you receive if you have been fortunate enough to access a Home Care 4 package - the maximum level of support providing individuals with a budget of $56,400 to manage their own care.

We were surprised to see that a budget of this amount could translate to perhaps only 8 to 12 hours of care delivered per week - with a quarter of more (still) devoted to management fees. See our page, Home Care - Value for Money - for more details.

Ideally, we would like to see the whole issue of the delivery of aged care - home and residential - the subject of a Productivity Commission review to ensure that the delivery of resources and time is as efficient as possible. Our concern is that the Government's preoccupation with the private delivery of care - whether aged care, NDIS or health care - is simply generating duplicate resources and expanding salaries for many Aged Care, NDIS and senior health care managers and professionals - as well as overly commercialising what was previously an ethical, generally cost efficient "not for profit" sector.

Too much inequity ... Time to start again? - July 21, 2021

Most individuals reading this commentary will have been around long enough to have seen a number of cycles in their life, both economic or societal, and have developed an increasing sense of déjà vu. You also innately develop a feeling for when things need to start all over again, and that's our feeling with respect to tax and superannuation in Australia.

Why, it's because we believe that the current systems give rise to demonstrable inequities, including how the cost of Covid 19 will be borne across the various generations in Australia. And also because the various systems have reached the point where they are just too complex for individuals to understand - particularly in a world where Government misadventures have made access to advice both more difficult and expensive.

What are the "red flags" we currently see::

A tax system in which, to quote a recent Grattan Institute report, "an older household earning $100,000 a year pays on average less than half the total tax of a working age household earning the same amount." This is unsupportable, not just from an ethical point of view, but from an economic perspective. The younger part of the population will already bear the larger part of the costs of Covid, and feel disenfranchised when it comes to the property market. Remembering that most of the recent, sometimes untaxed, gains in the property market have accrued to older generations.

A superannuation system of astonishing convolution and complexity - largely driven by political involvement. It is also a system that remains too expensive to support, even given recent changes which have reduced government exposure slightly, by limiting the amount than can support a tax-free pension. It still tax shelters some very large funds that go well beyond supporting individual "retirement". To quote the AFR, July 16, 2021:

There is an understandable disquiet over making retrospective changes to any legislation, but superannuation funds of this order - given the tax support they receive - are simply unsupportable and this should be acknowledged across the political divide.

We also continue to have a system where primary residences are afforded special treatment for both tax and pension purposes - something which again benefits older age groups, at a time when young individuals and families struggle to access housing. As we have said elsewhere, it is again unsupportable to have a situation where individuals are regularly occupying multi-million-dollar properties and claiming age pensions, and then passing on the properties - exempt of capital gains tax - to family members.

Any solution to these and other inequities needs to be "root and branch", imaginative and accept that there will be "winners and losers" - and in this case a recalibrating of the tax system towards younger individuals and families. In this context, we wonder whether there is a scope for a grand bargain, where in exchange for superannuation becoming fully taxable, and perhaps some elements of inheritance tax, all the Australians of pension age become eligible for the age pension.

It is hard to see any political leader in this environment, in the absence of a significant recession or depression, being capable of making these enormous changes, rather than continually pandering to their electorate, but we hope we are wrong.

The Pension Loan Scheme – slow progress – July 7, 2021

Now that the Government has made some changes to the Pension Loan Scheme which will provide access to small lump sums, the scheme should prove more popular with retirees seeking access on a reasonable basis to the equity they have built up in their homes.

There has certainly been an increase in the number of people choosing to access the PLS, as we illustrate in the chart below, but the numbers are underwhelming. As a recent paper from the School of Risk and Actuarial studies at the University of New South Wales (UNSW) mentions, "there were just over 4000 participants in the scheme ..... which is an extremely low take-up given the 4 million or so Australians of Age Pension age, including around 2.6 million age pensioners, of which around three quarters are homeowners."

We believe that the PLS still suffers from a low profile, believing that the Government should do more to highlight its availability, and that they should perhaps "sharpen their pencil" in terms of the current interest rate applicable. 4.5% is competitive in terms of private reverse mortgages, but not against the broader market, and this is a very conservatively positioned scheme.

Intergenerational Report: Diminishing opportunities for "lazy" economic growth - July 1, 2021

The federal government recently released the fifth Intergenerational Report (IR), a grandiose name that really promises too much, since the main focus is on issues that will impact future Federal budgets. Hence, there is no discussion about the cost of housing, and how, for example, the cost of Covid should be equitably borne across all generations in Australia.

From the Federal Treasurer's perspective, the report is said to deliver three key insights:

• our population is growing slower and ageing faster than expected.
• the economy’s growth will be slower than previously thought, and
• while the Federal government’s debt is sustainable and low by international standards, the ageing of our population will put significant pressures on both government revenue and its spending.

No surprises and all these aspects are intertwined, but the Government is sweating on the implications for lower immigration in the next few years and a consequently smaller overall population Australia. I am not sure that ordinary Australians, faced with traffic congestion and rising in house prices, will share the concern of the Treasurer and business over migration rates. In effect constant, migration driven population growth (targeted at 235,000 people a year - nearly the population of Newcastle) provides the Government with an easy and lazy route to trumpet continuing economic growth, and it reduces pressure on business for wage growth and training. Productivity growth should be the focus.

Rather than focusing on the downside to reduced migration, the Government should be focusing on improving participation rates amongst older Australians, and the incredible wastage of experience seen in the recruitment policies of many Australian employers. Even if they don't do it, and no one could characterise this Government as hyperactive or socially progressive, then the "market" will likely "fill the void" and this may prove an opportunity for many individuals in middle age to actually leverage their experience back into the workforce.

Magellan's FuturePay - June 8, 2021

We are more than pleased that a number of serious attempts are now being made to address the issue of providing regular, reliable retirement income.

Magellan announced Futurepay (FP) last week, and although formally it's not limited to, or pitched only at retirees, that's clearly its focus. Apparently the product of several years of research and development, the innovative aspect of the fund is the creation of a support trust, attached to the main fund, which will receive contributions from the main fund in times of market over performance, and then support the main fund in times of market underperformance. Magellan will contribute up to $50 million to provide backing for the support trust in the early days, and the trust also has the ability to borrow $100 million from Magellan to provide more flexibility.

The approach is not unlike the "buckets" approach used by many individuals, but on a pooled basis which may provide a more a "set and forget" approach for retirees. For many retirees it will also give rise to a sense of déjà vu - being a somewhat more transparent example of what used to happen in terms of whole of life insurance policies in the past where returns were "smoothed" - evening out the good and bad years for the sake of consistency.

Our view is that the product may suit some retirees, but it's never going to be the "full sandwich" - it can perhaps be used in conjunction with other products to protect and build both income and capital during retirement. Our concerns would be around the need for retirement products to be around for 20 to 30 years and however good Magellan and may be, the nature of the industry suggests that it will have a much shorter lifespan, and likely be absorbed into another entity well within that timeframe. Maybe that doesn't matter, given this is an exchange traded product, but it's arguable.

You also need to bear in mind that payments made to the reserve fund are not accessible to you, and will not form part of any payment should you leave the main fund, and we are not quite sure how the mechanism will work. Note the phrase in the PDS below:

As said, we are pleased by the emphasis placed on putting together an innovative retiree product, but at the present time we would probably favour QSuper's Lifetime Pension - discussed below - in a traditional retiree setting.

Finally, there is an old saying that the only certain things in life are "death and taxes". That being the case we believe that long term retiree products which rely on pooled mortality profits are the only secure way to address longevity risk. To be absolutely frank this means that some of the assets of individuals within a product or service who "die earlier than averager" remain within the fund to support those who "live longer than average". QSuper's Lifetime Pension does, we believe, contain some element of mortality profits, but you may need to be an actuary to understand exactly how.

Government Policy: Financial Planning for the Wealthy Only! – June 5, 2021

The reputation enjoyed by Australians overseas is of a freewheeling, very casual and flexible society - but you don't need to look too closely to appreciate that we have an undoubted talent for bureaucracy. That's clearly very much to our disadvantage in many places, and none more so than when it comes to the regulation of financial advice.

Everyone wants a well-functioning, ethical framework within which financial advice is provided, but in recent years huge compliance costs and requirements have been put in place, perhaps on the mistaken impression that you can legislate out all risks of poor or indeed fraudulent advice. The impact of this approach has been very clear:

• Advisors are leaving the industry in droves – and these are not all poor advisors; there are many advisors who are simply sick of the overwhelming compliance requirements and the fact that they are making much of the industry economically unviable.
• The additional compliance costs means that quality financial planning advice is being relegated to the wealthy, in an environment where all the financial areas in which individuals seek advice, including superannuation and aged care are becoming more complex.
• Nothing is being put in place to fill the void in advice - superannuation funds do not want to, and cannot without significant conflicts and potential liabilities, fulfill this function.

The main game appears to be politics on both sides of the divide - neither main party wants to appear on the popular TV channels explaining why ordinary Australians have received poor or fraudulent advice. The fact is that you cannot ensure that a small part of the population will not do stupid things - for example investing in products that advertise ridiculous rates of return. If you somehow want to protect these people, then the community costs are huge. If the concern is the vulnerable, then they are simply making advice unavailable - financial counseling services cannot cope.

The focus in this situation should be on making compliance within the industry simpler and more "fit for purpose", to improve the economics of providing advice, and spending the money saved on a huge increase in financial education - through all age groups. Apart from that, make a genuine effort to improve the simplicity of our financial system – accepting that there will be some winners and losers.

Extension of Changes to Super Minimum Drawdowns - May 30, 2021

On Saturday 29 May, the Government surprisingly announced an extension of the temporary reduction in superannuation minimum drawdown rates through to the 2021/22 financial year. Continuing through the next financial year, minimum pensions will again be halved for all account-based and term allocated income streams as follows:

Recent Changes involving Super and other matters - May 12, 2021

There have been a number of recent changes of interest to retirees, and future retirees, as a result of the 2021 Budget and more generally which we thought worth highlighting in the summary below. Over the coming days we will update the various sections within the website dealing with these matters individually.

Superannuation

• Downsizer Contribution - Eligibility age

The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age from, "the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022." The downsizer contribution allows people to make a once off, non-concessional contribution to their superannuation of up to $300,000 per person from the proceeds of the sale of their main residence.

• Repeal of the "Work Test" for Non-Concessional Super Contributions

The Government announced they will "allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps". Individuals aged 67-74 years still need to meet the work test to make personal deductible contributions. The measure is expected to have effect prior to 1 July 2022.

• Removal of $450 super threshold for SG elegibility

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. This will impact some retirees in casual employment.

• SG level to Increase

There has been a lot of public discussion over the last six months regarding whether the superannuation guarantee rate would increase to 10% on July 1, 2021- largely in terms of whether it would be beneficial in the current climate. In the absence of any mention in the Budget, or elsewhere formally, we can expect the SG rate to increase to 10% in July, and thereafter by 0.5% each year until the SG rate reaches 12% in 2025.

Pension Loan Scheme

• No Negative Equity Guarantee

The Government has said it will introduce a "No Negative Equity Guarantee" from July 2022 - so that borrowers under the PLS, or their estate, will not owe more than the market value of their property. Given that open market reverse mortgages are already subject to this protection, this has come late, and should apply retrospectively to those who have already taken out a PLS. Although the amounts available under a PLS are conservative and negative equity should be (very) rare it is a strange oversight.

• Access to (small) Lump sums

PLS terms will now allow participants to receive a maximum lump-sum advance payment equal to 50 per cent of the maximum Age Pension. At current Age Pension rates, this is around $12,385 per year for singles, while couples combined could receive around $18,670 - giving greater flexibility to make capital purchases such as cars, home renovations etc.,

We continue to believe that the PLS is an under-utilised facility, but in part that as a consequence of the relatively high interest rate (4.5%) applying to the loan. It is unattractive when compared to general interest rates in the market, although less so when comparisons are made with a reverse mortgage rates. We believe that there is clear scope for the rate to fall, but stress again that this is a variable rate product, and therefore it will rise and fall with the market and individuals looking to participate need to bear that in mind in terms of their own position and projections.

QSuper launches an Innovative Pension Product - May 1, 2021

QSuper is to be applauded for launching perhaps the most innovative approach yet to meeting a key recommendation of the Financial System Inquiry of 2014 (!) calling for a Comprehensive Income Product for Retirement (CIPR).

As we repeatedly mention throughout the website, perhaps the greatest failing or superannuation is to provide certainty around income in retirement with the result that individual retirees often spend less and save more than would be optimal, with too much capital being retained and unspent in superannuation funds.

We provide a short summary of QSuper's new product, called their "Lifetime Pension", below but stress that professional advice should be sought prior to any commitment to this or any other product which, for all its potential benefits, still means that some or all of your funds are locked away or committed for the rest of your life. Regardless, you should take the time to read in detail the product description statement (PDS) to which we provide a link at the bottom of this article.

In summary, the Lifetime Pension pays a fortnightly income for life but there is a provision for your estate to receive at least the total of your initial investment regardless of how long you live. For example, if you invested $100,000 and died after receiving $50,000 then you your estate would receive $50,000 as a reimbursement, but if you died after having received $100,000 or more of income then no reimbursement would be provided.

A Lifetime Pension can be taken out on a single basis or you can opt for spouse protection - the latter provides that should you die then the pension would continue to be paid to your spouse until their death. The cost of spouse protection is a slightly lower level of annual pension payment, as illustrated in Table 1 below which shows some indicative current payment rates for individuals starting a pension between 60 and 80 years of age. Note that you are not eligible to start a pension unless you need the normal criteria for access to superannuation.

Table 1: Annual payment amount at commencement per $100,000

Note that the payment rates on this product exceed those typically available annuities and that flags a feature of this product needs to be stressed - thatthe payment levels are not guaranteed, and are dependent upon the performance of the investment pool and some other factors, including mortality experience. Every July 1, the previous year’s income is adjusted based on how well the pool has performed against a benchmark net return of 5 per cent. In other words, if the return is more than 5 per cent, you may expect a proportional pay increase next year but, when returns are less than 5 per cent, you can expect a reduction. Table 2 below, contained within the PDS, provides an example.

Table 2: Impact of investment returns on pension payments

Pool financial result	Annual amount the following year would:
10%	Increased by 5%
5%	Stay the same
0%	Decrease by 5%
PDS, Page 28 "John's Story"

In dollar terms , let’s assume you were receiving $500 a fortnight as an income stream. If net returns were 10% – 5% over the benchmark – you could expect your income to increase about 5% the following year to $525 a fortnight. However, if net returns were 0 per cent you could expect a cut to $475 a fortnight.

Other considerations regarding the product include:

• In terms of the age pension tests, only 60% of actual income is included in the age pension income test, and only 60% of the purchase price (and 30% after age 84) is included in the assets test.
• It needs to be stressed that you cannot exit this product except during the initial six-month cooling off period - hence again, why we recommend professional advice to avoid any possibility of "buyer's remorse".
• Unlike annuity payments, where we always suggest that individuals choose cover for inflation, there is no intrinsic inflation protection mechanism built into this product, and
• There is no ability to withdraw lump sum payments - and this is why it would perhaps best be used in conjunction with an account-based pension, as the combination would offer the prospect of a good income for life and concessional assets test treatment together with flexibility.

Download the Lifetime Pension PDS

The main reasons why Age Pension claims are rejected – April 10, 2021

Services Australia (SA) recently published a short summary of why most claims for the Australian age are declined. No real surprises, but they include:

1. Applicants haven’t been an Australian resident for long enough

To obtain an Age Pension you generally need to have been an Australian resident for at least 10 years. For at least 5 of these years there must be no break in your residence. Some people can get Age Pension if they’ve been a resident less than 10 years - but this usually depends on whether they have been resident in a country with which Australia has an International Social Security Agreement..

2. Applicants don’t reply to requests for more information within the requested time-frame

SA will write to you if they need more information to assess your claim. If you don’t reply within the proscribed time given in the letter your claim will be rejected. Communicating via myGov rather than by letter is usually going to be more efficient - so set up an account if you don't already have one.

3. Applicants own assets above the cut off point

SA includes assessable assets owned by the applicant and partners - wherever in the world - in the assets test.

4. Your income is above the cut off point

SA ncludes assessable income earned by the the applicant and partners - whatever or wherever the source, including foreign pensions - in the income test.

5. Applicants don’t provide all necessary documentation

When you claim online, SA will let you know which documents you need to provide prior to submitting the claim - and there is a checklist provided.

We can assist in providing advice with respect to Age Pension claims, but professional fees will apply and if your circumstances are not complex then any queries in relation to the Age pension should be made directly to Centrelink. In particular, Centrelink's Financial Information Service (FIS) can help you understand your financial affairs and options.

Super Contribution Caps and Transfer Balance Cap to increase from 1 July 2021 - February 28, 2021

From 1 July 2021, the concessional and non-concessional contribution caps are set to increase due to indexation for the first time ever since July 2017.

The concessional contribution cap, currently $25,000, is indexed to " average weekly ordinary time earnings" (AWOTE) in increments of $2,500. Given the announced AWOTE figure for the 4th quarter of 2020, the concessional contribution cap will increase to $27,500 pa from 1 July 2021.

The non-concessional cap will also increase in 2021-22, from $100,000 to $110,000. Accordingly, the maximum amount an individual under 65 at the start of the year can contribute under the bring-forward rules will also increase from $300,000 to $330,000 from 1 July 2021.

Note that the proposal announced in the 2019 Federal Budget to extend access to the bring-forward rule to people under age 67 at the start of the first financial year has not yet been legislated. Therefore, currently, only individuals who are aged under 65 at the beginning of the financial year are eligible to trigger the bring-forward rule

Finally, the $1.6 million non-concessional cap threshold will also increase due to the indexation of the general Transfer Balance Cap on 1 July 2021 to $1.7million.

Historically Low Term Deposit Rates - Dec 29, 2020

Just to put into perspective just how low term deposit rates are, the chart below illustrates the interest rate payable on 12 month $10,000 term deposit since 2000.

 

We have long commented on the dangers attaching to an over reliance on term deposits, but apart from concerns relating to how self funding retirees maintain income in these circumstances, there is now a concern that many are are progressing too far along the risk curve to maintain their income and will be over exposed to any significant volatility in equity prices.

How are Super Funds Performing - November 23, 2020

For anyone wondering how Australian super funds have performed following the large drop in the Australian equity market earlier this year because of Covid 19, the best performing balanced funds are beginning to show positive returns on an annual basis. Despite the equity markets improving over the course of the last six months, they are still well down on levels seen at the beginning of the year; however the larger funds particularly have benefited from diversification, including investment in the big US tech stocks.

The charts below illustrate the best performing balanced funds over 1 and 5 years, with a number of funds (highlighted in blue) that feature in both lists.

Feedback on the Retirement Income Review report – November 21, 2020

There will be a lot of media speculation regarding the impact of the Retirement Income Review report which was released on Friday, November 20, having been with the Government since July.

Our short take on the impact of the report is as follows:

Firstly, the report is likely to be seen as supportive of the Government seeking to pause or discontinue planned increases in the superannuation guarantee (SG), currently 9.5% of ordinary time earnings. The Report takes the view that an increase in the SG is likely to reduce real-time wages and, when considering all factors, Australia is comfortably placed in terms of retirement income - particularly if we look beyond simply superannuation and pensions. The areas of most concern were Australians entering retirement in rented accommodation and those made redundant late in their working life

Secondly, the report notes that much of the accrued superannuation balances are not being used by retirees and are being passed on as inheritances. The report suggests that individuals need to appreciate that retirement income should include a draw down of capital rather than simply seeking to live on investment income and retain capital.

Thirdly, the report highlights individuals who are accessing the full age pension whilst living in high-value residences, and clearly places a focus on improving mechanisms to extract income from assets, such as the Pension Loan Scheme. Like many commentators, including ourselves, the report is critical of the imbalances caused by having main residences fully exempted from the pension assets test.

In terms of the second item above, we do think that many retirees are retaining too much capital, sometimes at the expense of their own quality-of-life, but largely over concerns relating to future medical costs and aged residential accommodation. The report does not extend to making comments regarding aged care accommodation, but as we mention in the website, many retirees have a highly exaggerated view of the cost of aged care accommodation and the Government should review the funding mechanism.

Retirement Income Review – Final report released – November 20, 2020

The federal government has finally released for public consumption the Retirement Income Review, which it received in July of this year. You will remember that the review was restricted to providing the government with a "fact base" around retirement income, and precluded from making recommendations; obviously to provide the government with with as much manoeuvring space as possible.

A copy of the report can be found at this location. We will be providing feedback in due course once we've had a chance to consider the findings.

Large life insurance premium increases scheduled for 2021 - November 12, 2020

Within the website we mention the need to continually review the need for life insurance, including reducing cover as you approach retirement, on the premise that many people will have a reduced "need" and because the cost of cover increases substantially with age. There is also a need to ensure that any cover you have is quality cover which fits your circumstances; do not rely upon direct marketed insurance unless you've taken the time to fully understand all the terms and conditions applicable.

There is now a particular need to focus on the need for cover in the new year, with a major life insurer flagging substantial increases in the cost of cover - outside pure life cover - in 2021. The suggestion is that cost of critical illness cover will increase by 9.5%; TPD by an average of 9.7% - with substantially higher increases applying to blue-collar occupations - and income protection by 13.6%.

These increases should be seen as indicative of price changes across industry, and probably a decreasing tolerance for accepting unusual risks.

Potential reduction in deeming rates signalled – November 7, 2020

The Federal Treasurer, Josh Frydenberg, seems to have signalled that a reduction in deeming rates may follow as a consequence of the RBA's decision this week to reduce official interest rates to a record low 0.1%.

Most retirees will be aware that the current deeming rates - 2.5% for investment balances over $53,000 for singles and $88,000 for couples - are now well above the risk-free rates of return that used to be available through term deposits in the past.

SMSFs - The love affair with property continues - October 20, 2020

Recent quarterly statistics release by the ATO have confirmed that SMSFs continue to make significant investments in property, both commercial and residential, with a 9% increase in real property assets held in the full year to June 2020 - and a corresponding increase in limited recourse borrowing arrangements (LRBA), which largely finance these investments. See the table below for more details.

Many commercial and residential landlords have been severely affected by Covid 19, with some tenants being unable to maintain rental payments, and it remains to be seen how the valuation of (particularly) commercial properties will be impacted. Meanwhile, retirees are between a rock and a hard place, given disappearing returns on term and bank deposits, and an environment where lending rates are at historic lows, and even the Reserve Bank seems willing to accommodate asset inflation.

In short, do super members jump on the property bus once again? The answer is probably going top be a "yes" for younger members, given a more favourable lending environment and their ability to balance the additional risk and volatility with high returns, but the lack of liquidity and enhanced risk make it a particularly difficult decision for older members.

The Retirement Income Review - Time to release - October 6, 2020

On July 24, the Treasurer received the 600+ page report of the Retirement Income Review. The Report was to,“to establish a fact base of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians”.  The Panel had been asked to identify:

• how the retirement income system supports Australians in retirement;
• the role of each pillar in supporting Australians through retirement;
• distributional impacts across the population and over time; and
• the impact of current policy settings on public finances.

Note that the Panel has been instructed not to make any recommendations but to set the fact base which can then be used for public policy initiatives - presumably so that the Government would not bound to implement any recommendations. The report has been much anticipated, mainly because it may contain commentary around the level of the superannuation guarantee, and more precisely whether it should increase in the current Covid 19 environment.

Our interests are wider; we believe the current retirement income system is just too complex and inadequately integrated and see the Report as a means of creating common ground upon which a fairer and more transparent can be implemented. Currently, the system shares the same awful complexity that we see in aged care and large parts of the health system.

We see no reason for the Government to continue sitting on the report, particularly since it is only a "fact base".

Financial planners witness the enormous cost of pursuing the impossible - the total elimination of risk - August 26, 2020

To the outsider, Australia represents a freewheeling and carefree environment, one that doesn't eschew risk.

In reality, Australia has a talent for bureaucracy - new migrants and expatriates are often perplexed at the high, and clearly growing, level of regulation in Australia, as are older generations.

Why are these comments being made in the columns of a website focused on retirees? It's because the single-minded pursuit of risk reduction has clear costs - and an example has been the introduction of huge compliance burdens on the financial planning community. The result has been a reduction in the number of financial planners by nearly 25% over the last 2 years, and the very real prospect that financial planning in the future will be an activity reserved entirely for the well off and rich.

When the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry was announced, it was applauded by many in the community, including financial planners who are looking to have "bad apples" and poor performers pushed out of or excluded from the industry. However, the increased licensing costs and new education standards, including countless hours spent on ethical training, have forced many older, very experienced financial planners - who naturally service the retiree market - to simply leave; unprepared or unable to meet these new requirements. Now, in a situation where people need good advice more than ever, there are fewer people to provide it and at higher cost.

Moves need to be taken not just to limit the amount of compliance activity in financial planning, but across broad swathes of Australian industry - and not just limit it, but reduce it and consequently reduce living costs. Money now spent on compliance needs to be shifted into financial education, across all age groups, and there needs to be an acceptance that you cannot reduce financial risk to zero - otherwise you risk underwriting absurdly poor behaviour at the taxpayer's expense.

In terms of how advice can now be provided to middle income earners on a reasonable basis, we need to look at the suggestion made by the Actuaries Institute that Superannuation funds could fill the void to some degree, mentioning that, "the current AFS licensing rules make giving guidance or advice to individuals difficult and expensive".

In terms of the issue, at least the Labor Party appears to accept that there is a problem. Indicating that the dwindling supply of professional financial advisors has been a "disaster for consumers" and that, "The gap between need and availability has never been greater", it nevertheless refuses to accept the need for changes to the compliance regime. A bit of having your cake and eating it (too), but that's politics.

Superannuation and the Retirement Income Review - an unmistakable opportunity amidst a crisis - August 15, 2020

The Government received the final Retirement Income review report on Friday, July 24, and has yet to comment on any findings. To a degree that is understandable, given the interposition of the Covid 19 pandemic and more immediate priorities

Coincidentally, there are rumours that the Government is pondering a decision to back away from an election promise to honour the scheduled rise in compulsory superannuation contributions. The Government is likely to rely upon concerns expressed that arise in contribution levels would lead to lower wage growth over time, including a recent comment to that effect by the Governor the reserve bank, Dr Lowe. That is particularly pertinent given that the country is facing the deepest recession since the 1930s.

What is clear at the present time is the Government has an unprecedented opportunity to make fundamental changes in terms of superannuation, taxation and retirement incomes to rebalance the system in an equitable fashion that serves stakeholders across all age groups. Whether it has the courage and time to do it justice is another question.

SMSF Performance - Covid 19 - July 8, 2020

The ATO provides very good statistical information with respect to self managed super funds (SMSF), but it is subject to a delay of 12 to 18 months - consequently it is not yet possible to assess how they have performed in detail over the last financial year, given the impact of the Covid 19 pandemic.

However, some information regarding asset allocation in SMSF's, illustrated in the chart below, does provide some insight and would make the following comments.

• SMSF's do have a significant exposure to listed shares, and that increases significantly during the retirement phase. Those investments are likey to have a bias towards (previously) high dividend paying shares, such as the Australian banks, and the SMSF's would have suffered twofold as both shares prices declined and companies reduced dividend payment levels.
• SMSF's continue to maintain high levels of liquidity, in terms of cash and term deposit levels. This is consistent with financial advice, including comments within this website, that retirement funds should maintain around two years worth of income is cash. This should assist the funds in coping with high market volatility - and not require them to dispose of investments in poor market conditions.
• The figures show a very much reduced exposure to leveraged residential property investment in the retirement phase (limited recourse borrowing arrangements = LRBA), which is a very positive sign and reflects the need for additional liquidity.

Industry Superfund Performance - 2019/2020 - July 7, 2020

It's rare that superannuation fund members would feel some relief hearing that their super fund barely broken even over the last 12 months - but 2020 has been anything but normal so far and the savage downturn in Australian equities as a result of the Covid 19 pandemic has hit many super funds very hard.

AustralianSuper, the largest Industry fund, has just announced that their balanced fund - chosen by 85% of their members - made a 0.5% return over the last financial year, the worst result in over a decade. Exposure to tech stocks in the US effectively saved AustSuper from a negative result, with domestic equities and property generating returns of -5% and -6% respectively.

AustralianSuper, reflecting on the market fall earlier this year, noted that, "We had $8 billion switching from growth options to cash options, and they all did it at the bottom." That doesn't mean that all investors should just "hang on in there regardless" as circumstances will vary, but acting too presumptuously can be expensive.

It will now be exceptionally interesting to compare the relative performance of the Industry funds, who have wider diversification options available to them because of size, with self managed superannuation funds (SMSF) , which are typically much more exposed to the domestic equity market.

Changes to Concessional and Non-Concessional Contributions and the application of the Work Test - July 1, 2020

From July 1, 2020, as long as you are less than 67 years of age, you no longer need to meet the requirements of a work test or work test exemption if you want to make concessional or non-concessional contributions to super. Previously the limit was age 65, but the requirement has now been pushed back to age 67 in an effort to align ages for both super and the age pension. The Age pension age will increase from age 66 to age 67 from 1 July 2023.

In summary, this mean you can contribute any amount up to the annual concessional and non-concessional contributions caps for the financial year (currently $25,000 and $100,000 respectively) as long as you are aged less than 67. In addition, subject to legislation currently before Parliament being passed, you may also be able to use the bring-forward contribution rules to make a larger non-concessional contribution of up to three times the normal annual cap, in other words 3 x $100,000 = $300,000 - if aged under 67.

In another change, from July 1 spouses below the age of 75 can now receive spouse contributions - previously the maximum age was 69. There remain a number of stringent requirements before an offset can be claimed - in terms of meeting the work test mentioned above if aged over age 67, maximum income and super fund balance requirements.

A quick summary of what has happened to the ASX over the last 6 months - June 30, 2020

The chart below illustrates just how turbulent the first half of 2020 has been in the financial markets. Limiting ourselves to just the ASX, despite all the commentary about how "out of step" the equity markets have been with the "real world", it remains the case that the ASX on June 30 was 17.6% lower than its February high.

Some confusion over minimum payment rates for Superannuation income streams - June 15, 2020

There have been reports in the media recently which suggest that some super funds have not been as clear as possible in communicating the impact of new minimum rates of superannuation payment in some cases - or have been instituting the new levels on a "default" basis without enough individual discussion with members.

Because of the significant losses sustained in financial markets as a result of the COVID-19 pandemic the Government acted to reduce the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% for the 2019–20 and the 2020–21 financial years; see this ATO page for more details and the table below.

It is important to appreciate that these new minima are not mandatory payment levels; retirees can continue to receive whatever payment levels they want subject to meeting the new minima. The new minimums were simply introduced to allow more flexibility for individuals where the standard drawdown levels were creating difficulties because of market conditions.

Retiree organisations need to strike a balance - June 14, 2020

For many self-funded retirees 2020 has represented an almost perfect financial storm. Extremely low interest rates saw many move into the sharemarket in search of improved returns, both capital and dividend, and then the Covid 19 pandemic saw a 30% drop in the local sharemarket; with many major companies, particularly banks, reducing or completely withdrawing dividends.

That has led to many retiree organisations calling for a range of measures to redress the shortfall in retirement income, varying from a universal wage through to changes in the age pension, particularly the taper rates, deeming rates and access to the Commonwealth Seniors Health card.

Some of these measures are well thought through, but there needs to be an appreciation by retiree groups that the impact of the Covid 19 pandemic has been exceptionally widespread and, whilst retirees deserve attention, they are not alone. Additionally, with many of the measures taken during Covid 19 focussed on protecting the older generation, there are many in the community - you just need to read the comments in the major papers - who believe retirees are now being ungrateful and unwilling to bear their fair share of the cost.

Consequently, any changes in terms of the age pension, deeming rates or concession cards need to be considered against the backdrop of general "fairness". The community won't react well to stories of how individual retirees "lost $250,000" in the sharemarket drop if those retirees had a superannuation fund of $2.5 million.

There needs to be flexibility shown in terms of a whole raft of superannuation income tax measures - particularly around capital gains tax and the treatment of the family homes. Measures such as reducing the interest rate on the pension loan scheme should be considered carefully, as it enables individuals to access equity and take advantage of low interest rates, but there should not be any subsidisation. Otherwise, for example, young couples and families seeking to enter the real estate market might rightly feel aggrieved.

So, in summary, retiree organisations should seek positive and constructive change, but it needs to be done in the fair and measured fashion, focusing on retirees with any real need and having regard to the community as a whole.

Super Fund Performance - The impact of COVID 19 - May 11, 2020

Everyone will be aware that equity markets, including Australian equity markets, were very significantly affected by the impact of the Covid 19 pandemic; with the ASX down nearly 30% at one point compared to highs reached earlier in February, 2020.

Obviously this has had a significant impact on super fund returns, with many Australian balanced and growth funds having a significant exposure to the ASX. The extent of that impact is illustrated by the chart below which displays the year-to-date performance of some of Australia's best performing balanced funds over the last five years. Returns amongst this group range from around -3% to -6.5% in the period from July 1, 2019.

Early thoughts on what lies beyond the Pandemic - April 11, 2020

It seems too early to be turning our minds to what might happen after the corona virus pandemic, and tempting fate! However, the measures taken so far to isolate the community and keep us all safe will have an enormous cost, and we need to ensure that all parts of the community - including retirees - participate fairly in the financial re-building. It is not satisfactory or ethical to think in terms of merely managing the debt - the financial equivalent of "kicking the can down the road" for future generations.

Politics in recent years has become more factional, more reliant of catering to often narrow support bases rather than seeking a national consensus. That can't continue to be the approach adopted if all parts of the community are to bear an equitable load.

There is a belief that Australian are better managing emergencies than "good times" - and the recent bush fires and corona pandemic provide some support to that argument. If that is the case, the earlier we discuss "what happens after" the better for all of us.

Other interest rate impacts to bear in mind - March 26, 2020

For many retirees reliant on bank term deposits for regular income, the relentless reduction in interest rates over the last few years, culminating in the generational lows wrought by the corona virus pandemic, has caused enormous stress and angst.

There is however another side of the coin, and low interest rates have some upside in certain particular areas. For example:

• The maximum permissible interest rate (MPIR) is the interest rate that converts the refundable accommodation deposit (RAD) into a daily accommodation payment (DAP) for residents of aged care accommodation. This rate has been trending down, very modestly, from 4.91% on January 1, 2020 to 4.89% on March 20, but should fall more markedly, effectively reducing DAP levels for new entrants to residential accommodation.
• Recent events may also see a reduction in the current interest rate applying to the Pension Loan Scheme, although there was a significant drop in the effective rate from 5.25% to 4.5% per annum on January 1, 2020. Reductions in this rate, and those applying to reverse mortgages in general, should make it more cost-effective for retirees to extract income from their residential properties on a more attractive basis.

Deeming Rate and Super Changes - March 23, 2020

Just confirming some recent announcements regarding deeming rates and superannuation drawdown and release arrangements.

Deeming rates

On top of the deeming rate changes made at the time of the first Corona Virus package, the Government is reducing the deeming rates by a further 0.25 percentage points to reflect further rate reductions by the RBA.

As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent.

Drawdown rates

"The Government is temporarily reducing superannuation minimum drawdown requirements for account based pensions and similar products by 50 per cent for 2019-20 and 2020-21."

Early release of Super

The Government will allow individuals in financial stress as a result of the Coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21.

Eligible individuals will be able to apply online through myGov for access of up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 for another three months. These amounts will not be taxable and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.

A tumultuous week - financially and socially - March 21, 2020

It has been a tumultuous couple of weeks, both socially and financially, but we would just summarise a couple of items that might be of interest to retirees, or individuals on the cusp of retirement.

Firstly, there are clear indications that, as part of a new corona virus assistance package to be announced shortly, the government will be reducing the minimum drawdown rates associated with superannuation. This reflects a similar moved made during the global financial crisis more than a decade ago. The current drawdown rates vary from 4% for someone aged under 65, to a peak of 14% for those aged 95 and over.

Some flexibility is in order, but you will notice that in ordinary times we have a concern that many retirees aren't drawing down adequate funds, and place too much emphasis on savings. This is only likely to increase further in this uncertain environment, and this is a weakness with the Australian superannuation system. General uncertainty prompts individuals and families to maintain even more reserves against unforeseen costs or a rise in living costs.

Secondly, there are some indications that access to superannuation prior to retirement, on financial hardship grounds, will be made easier - temporarily. This sounds sensible, but needs to be approached carefully, because significant withdrawals particularly in this environment would give rise to liquidity problems for superannuation funds.

Thirdly, the tremendous recent reduction in interest rates will be reflected in deeming rates during the course of May, as we mention below, but the other side of this coin is that this makes reverse mortgages a considerably more attractive option, if low interest rates become a prolonged feature of the environment.

Government announces reduction in "deeming rates" - March 13, 2020

On March 12, the Federal Government announced, as part of a package of measures intended to address the financial impact of the coronavirus pandemic, that there would be a reduction in the "deeming rates" associated with financial investments, which applies as part of the assets test for the age pension. The changes involve a decrease in the lower rate from 1% to 0.5% and the upper rate dropping from 3% to 2.5% - reflecting a significant drop in interest rates.

A media release from the Department of Social Services indicated that about 900,000 Australians would see an increase in their fortnightly social security payments and that on average age pension is a receive an additional $8.42 a fortnight, or $219 a year.

Rather confusingly, the release said that the, "extra money will start flowing through into peoples banks accounts from May 1". The presumption is that this means the effective date is May 1, but we have yet to be able to confirm as such.

Coronavirus - Some further thoughts - March 7, 2020

Reading about the coronavirus, and its potential impact in Australia, is almost unavoidable at the present time. We would make a couple of short comments.

Firstly, residential aged care accommodation will come under significant pressure, given that their occupants are at most risk to the virus - by virtue of age and probably pre-existing healthcare conditions. This will place these businesses under both operational and financial pressure, which we hope will be recognised by the Government. Clearly, unless there are no alternatives, individuals should probably not be moving into residential aged care accommodation in the short term, and we would expect operators to be very selective in terms of new residents. The relatives of residents should expect, and support, restrictions on their access to the facilities - to mitigate the risk to residents.

Secondly, the coronavirus is already having a significant economic impact, and at the present time it's unclear about both the severity and duration of any impact. Regardless, however, the share markets have suffered a significant correction and we have seen yet another interest rate reduction by the RBA. At the earliest opportunity, the Government should be reviewing the deeming rates used in the age pension test, the interest rate applying in relation to the pension loan scheme and the maximum permissible interest rate (MPIR) which is used to convert refundable accommodation deposits (RADs) into daily accommodation payments (DAPs).

The Coronavirus and Retirement Villages - March 3, 2020

There is an enormous amount of media attention now focused on the coronavirus and its implications in Australia. Given that the virus has a particularly elevated fatality rate for the elderly and those with pre-existing medical conditions, we expect a lot of attention will be focused on the residents of residential age care homes - and the operators should be, or shortly should be, in communication with residents and their families regarding their preparedness and action plans.

The residents of retirement villages will attract less attention, simply because they are living independently and have a lower age profile. Nevertheless, we think it is incumbent on the operators, particularly where there are co-located aged care facilities, to also communicate with retirement village residents regarding their approach to minimising the risk of coronavirus. We say minimising, because it seems almost inevitable at this stage that the virus will become widespread throughout the community, and the efforts of this stage are focused largely on delaying its onset and spread, with a view to reducing pressure on health facilities and the economy at large.

From a layman's perspective, we think the following are important issues:

• If residents have external families, there should be some discussion around whether, if and when residents should move in with family members, in situations where the virus becomes prevalent in their retirement village. This is very situational, and dependent upon the personal, medical and family circumstances of residents.
• Our experience is that, given the age profile of retirement villages, it is very common for a significant percentage of the community to have ongoing and regular requirements for medical attention, including visiting hospitals and medical facilities, and this raises the risk of the virus transferring into the retirement village. Therefore residents need to exercise common sense and reduce their level of "face to face" contact with other village residents, in favour of electronic means.
• Similarly, many residents have support staff in common, ranging from district nurses to regular cleaners - we think is reasonable to suggest that any services that are "discretionary" should be suspended indefinitely - to minimise external contact.
• Finally, as with other members of the community, residents should ensure that they have adequate stocks of any medicines that they require on a regular basis, to reduce their need to visit a pharmacy, or medical establishment.

Radical reform of Retirement Income - Possible in Australia? - February 20, 2020

In his submission to the Retirement Income Review, Prof Kevin Davis of the University of Melbourne, suggests a "radical" way forward in terms of retirement income, involving:

• introduction of a universal (non-means-tested) full age pension

• restoring tax on the income of super funds in the retirement (pension) phase

• other tax changes, including removing the seniors and pensioners tax offset, and a different tax scale for those in receipt of the pension.

We think the approach has considerable merit, and have discussed it internally, but lacked the ability to model the outcomes in terms of the relative cost to Government. The approach would have the benefit of markedly simplifying the nation's approach to retirement income, and perhaps being almost Budget neutral.

Prof Davis acknowledges, unsurprisingly, that there would be "winners and losers" in the approach but the only losers with be those with "retirement superannuation balances currently generating tax-free income in the region of $100,000 p.a above". Regrettably, looking back at the last Federal election, the state of politics is such that our "leaders"seems unwilling, or unable, to manage the introduction of a policy with any apparent "losers".

What we don't think Australians appreciate just how odd our approach is to the taxation of retirement contributions and income, compared to the rest of the world. Most developed countries, such as the UK, US Canada and most of Europe, provide a tax holiday or contributions to pension funds, and then tax the funds at normal marginal rates on retirement. Our problem in Australia partly stems from the curious decision made to tax superannuation contributions at 15%, presumably for cash flow purposes, and in the latter decision to forego taxation on (most) income streams post age 60.

The latter decision will prove untenable, and something significant and radical is needed to fix the current system, and reduce the level of complexity for retirees.

As an addendum, in the National Australia Bank's latest Wellbeing Survey, the major cause of financial anxiety and the community was identified as:

Addressing this anxiety, apart from having societal benefits, would likely also lead to a whole spectrum of Australian society feeling more comfortable spending - rather than saving "just in case" - with very significant multiplier benefits.

Does a better breed of Life Cycle Products offer an improved investment strategy? - January 23, 2020

Research suggests that around 80% of the superannuation funds regulated by APRA - and that includes both industry and retail superannuation funds, but not self managed superannuation funds - are invested in the individuals funds "default investment option". In all likelihood, the default option will have an allocation to growth assets of about 70 per cent and be called the "balanced option".

That investment option worked out very well for most members in a balanced investor option during the course of 2019, given the significant exposure to growth assets - and particularly with respect to Australian and international equities. Indeed, consultants Chant West report that growth orientated super funds delivered an average return of 14.7% during the course of 2019. See the chart below for a list of the top performing balanced funds.

Given returns of this magnitude, it would be natural for many superannuation members to simply adopt an approach of remaining with the default investment option, but recent research from Rice Warner suggests that this may not offer the best investment strategy over time.

As part of research released in December 2019, Rice Warner model ised five different investment strategies:

• A Balanced Strategy which adopted a 70% allocation to Growth assets and a 30% allocation to Defensive assets irrespective of a members age or balance.
• High Growth Strategy which adopted an 85% allocation to Growth assets and a 15% allocation to Defensive assets for all members irrespective of age and balance.
• First-generation Lifecycle with an emphasis on defensive assets that segment members by age and de-risk from a young age.
• Second-generation Lifecycle with higher allocations to growth up to age 55 before slowly de-risking to more defensive levels as members age.
• Multi-dimensional Lifecycle which adopts a high allocation to growth assets unless a member is at an advanced age and has a low balance.

So-called "life-cycle" products have recently suffered from a poor reputation - largely because they "dialled down" an individual's exposure to growth assets at an early age, sometimes as early as 30, and therefore under-performed quite significantly, compared to balanced funds, in a strong investment climate.

Second-generation life-cycle products begin to reduce exposure to growth assets at a much later stage, typically from age 55 onwards, and continue to maintain a high exposure, circa 70%, to growth assets.

Multifactor life cycle products involve adjusting growth asset allocations according to both a member's age and account balance - the account balance is important because individuals with larger balances typically have longer investment horizons.

Rice Warner research suggests that Multifactor life-cycle products may offer a significant improvement over a balance fund. Rice Warner found that for somebody aged 30 with an opening balance of $26,000, a Multifactor life cycle product had a 91.8 per cent chance of outperforming a balanced fund by the time of retirement at age 63 and that, “Moving to an optimised default strategy (multi-factor life cycle) can increase the expected income a member receives in retirement by up to 35 per cent, or $708,000, assuming that the member is currently in a balanced fund with a 70 per cent allocation to growth assets."

Clearly, life-cycle products are becoming more sophisticated, and may represent a real alternative to simply "moving with the herd" - worth watching in detail and discussing with your adviser.

Royal Commission into Aged Care - Consultation paper: "Aged Care Program Redesign" - December 9, 2019

On December 6 the Royal Commission into Aged Care released a consultation paper entitled, "Aged Care Program Redesign". The overwhelming theme of the consultation paper is "putting people at the centre" of aged care processes - the Commission's view is that the current system is largely focussed on the government's need to manage fiscal risk and financial models rather than on delivering individual care, as well as being overly focused on an institutional model of residential care, rather than care in the home. Nor is the present approach seen as effectively ensuring the quality and safety of aged care, or delivering equitable outcomes.

The consultation paper makes a number of in-depth observation regarding the current process and where improvements might be made, and also provides a model for a proposed (new) aged care system. The model involves providing assistance to individuals and their families through interposing a "Care Finder" - who will provide direct assistance in navigating what will remain a complex system. Click the figure below to download a larger copy of the suggested process diagram.

Retirement Income Review - Consultation Period - November 25, 2019

The Government has initiated a Retirement Income Review, which is scheduled to report by June 2020, following a consultation period which finishes on February 3, 2020. Interested parties are now invited to comment on a consultation paper released by the committee.

The terms of reference of the review are that it will, "establish a fact base of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians. The Retirement Income Review will identify:

• how the retirement income system supports Australians in retirement;
• the role of each pillar in supporting Australians through retirement;
• distributional impacts across the population and over time; and
• the impact of current policy settings on public finances"

Obviously, establishing a clear factual basis for discussion around retirement options is crucial; but clearly the Government has sought to minimise the chances of the Review producing politically unattractive recommendations - and the Treasurer has expressly indicated that family homes would "never" form part of the assets test for pension purposes. Why he would seek to exclude that possibility from any general analysis is irrational, other than for overtly political reasons - given the significant part that property plays in the wealth of Australian households. To illustrate, see the chart below - which also appears in the consultation paper

For those relieved at the thought that the family home will not form part of any assessment - be careful what you wish for. There is a real possibility that the Government will look for cost savings in other areas, such as deferring access to superannuation (in line with pension age), the further taxation of superannuation and inheritance taxes. Unfortunately, it is just not viable or acceptable to have individuals obtaining the full age pension while sitting properties valued at $2 million or more; which are now capable of generating a reasonable income through the pension loan scheme or reverse mortgages.

Interestingly, the consultation paper also makes reference to individuals saving beyond their retirement income needs. The concern is to determine whether this is a function of individuals being concerned about longevity risk, or whether superannuation is being used as a tax efficient structure for savings and wealth accumulation.

We think evidence exists for both approaches, but the majority of individuals (if not the vast majority of funds involved) are saving more than they should or need to simply to ensure against longevity risk and substantial one-off costs - be they medical gaps, household repairs or family emergencies.

The focus should be on alleviating pressure on these individuals - because it holds out the promise of substantially improving the welfare of a large number of retirees whilst liberating funds into the economy, and potentially improving turnover within the real estate market for younger generations. Superannuation funds of very significant size which extend well beyond retirement needs do not warrant any form of community support.

Answering the perennial question - "How much can I spend ?" - November 7, 2019

The proper answers to this question is as always..."it depends on your personal circumstances". But the Actuaries Institute has come up with a novel "rule of thumb" about how much a retiree can spend in each year of their retirement.

Their suggestion is, and this applies only to single pensioners who are homeowners, is that the "average retiree" should be spending a percentage amount equivalent to the first digit of their age each year to avoid over and under spending. In short:

Hence, someone age 65 would spend an amount equivalent to 6% of their superannuation/investment base every year, and someone aged 75 would spend 7% - and, if they had $350,000 in savings, they could spend a further 2%.

For more information about their approach and recommendations, read "Spend Your Age, and a Little More, for a Happy Retirement".

The "good thing" about these approaches is that they do foster more discussion; the "bad thing" is that most people aren't "average" and will often benefit from advice which is individual to their situation.

Some thoughts about "lower and longer" interest rates - November 6, 2019

There is a very real prospect, at the present time, that Australian and global interest rates will trend to and remain at historic lows for a very lengthy period of time. This has serious potential significant consequences for retirees; with the recent low term deposit interest rates simply being the "canary in the coal mine".

Very low global interest rates raise the prospect that what is called the "risk free rate of return" will trend to zero, and perhaps lower if you look at bank interest returns in parts of Europe and Japan. This calls into serious question about whether it remains robust to plan a retirement based on the premise that, even with a balanced portfolio of equities and bonds, you will see a return of 5% or more in excess of inflation. Indeed, chief investment officers from major super funds are becoming more public in suggesting that nominal annual returns around 5% - inclusive of inflation of 1.5% - should be considered the new "normal".

At the very least, you must include in your retirement planning more conservative assumptions than have been the norm over the last 10 or 20 years - and consider whether some degree of capital run down should feature in your planning.

Lower interest rates may also have some unusual knock-on implications that will take some time to surface - for example, when individuals enter aged care accommodation they are offered a choice between making a refundable accommodation deposit (RAD) or daily accommodation payment (DAP). A factor, called the maximum permissible interest rate (MPIR) converts between these two payments - if the MPIR becomes very low then DAPs will also reduce significantly, in principle.

Additionally, if the costs of reverse mortgages also reduce in line with normal domestic mortgages, then they will become a more attractive (and less risky) way of generating income, particularly if asset inflation is going to be a consequence of lower interest rates.

Stop Press: The Government announced on October 23 that it would review the interest rates applying to the new Pension Loan Scheme, after criticism that it was "ripping off pensioners". Whilst the current rates (5.25%) are still better than those applying in the reverse mortgages market, that is probably a poor comparison - given the relatively small nature of that market and funding costs.