13th Mar 2019
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The banks have failed to help Pat. Can Noel Whittaker?
Noel Whittaker

Pat has a house but no superannuation and very little retirement income to allow her to spread her wings and enjoy life. She asks personal finance guru Noel Whittaker how she can live a little.

•••

Q. Pat
I was born when superannuation was not a word in the dictionary. I worked for 43 years and, in 2001, after many changes in my career, superannuation was introduced for casual teachers. I missed out again, because I retired that year.

I have been subsistence living on an Age Pension ever since. I have a substantial equity in my home and have no one to leave my estate to, so I thought I would try to take out some of the equity to enhance my living – take a holiday, do repairs and so on.

Was I surprised at the results! First, I tried a reverse mortgage. When I did the maths, it turned out not to be a viable proposition (beware people). Then I approached the bank for a loan. It was like getting blood out of a stone, even though I have been in the same bank since 1966 and never faltered in payments. I’ve been offered a loan that will reduce my pension substantially. 

Do you have any suggestions for me and pensioners in the same predicament? What is the good of having money tied up in equity when one can hardly afford to live?

A. I think the perfect solution for you is the Pension Loans Scheme, which will be expanded from July. It will enable people like you to draw extra money by way of a government reverse mortgage with a fixed rate of 5.25 per cent and minimal fees. Also, because the drawdowns will be paid to you fortnightly, the compounding effect will be greatly reduced.

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

To make the most of your money in retirement, first you need to know the rules. The PensionChecker™ tool has all the information you need.

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    COMMENTS

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    TREBOR
    13th Mar 2019
    11:25am
    Let's look at 'annualising' incomes. For example, a casual works for three months on a casual part-time basis..... in order to arrive at an 'annualised' figure for income (just continuing the 'wage gap' debate here) you simply multiply one moth(for example income by twelve..... arriving at a total annual income.

    Same applies to Pat's superannuation (she's not alone there - many financially devastated men have little to none as well) - if her super contributions have been low - that's how it is/was.. no other factors apply.

    e.g. - Joe works three months in a caravan part casual seasonal part-time, and earns $2000 a month - $2000 x 12 is the equivalent 'annualised' income = $24,000.

    The FAILURE in reckoning by the wage gap jihad enforcement agency (all women, BTW) is in NOT, by their own admission, working out an HOURLY rate of pay, but instead relying totally on an annualised figure without consideration of any and all other factors.
    TREBOR
    13th Mar 2019
    11:28am
    .... and on a cold starry night on the Western Front, continuous returns of shellfire devastated the night while stars in a frosty sky looked down pityingly, but with a gimlet gaze....
    johnp
    13th Mar 2019
    11:42am
    And what happens later when her capital value in the house is substantially depleted and she needs to go into a nursing home ??
    TREBOR
    13th Mar 2019
    11:47am
    Yes - be very wary of financial advisors and their schemes...
    Rae
    13th Mar 2019
    11:59am
    If you have nothing it costs nothing to go into a nursing home. The State picks up the tab so she may as well enjoy any lifetime left by taking equity out of the home.

    I'm really surprised that she didn't save a bit during her 423 years teaching though. With no Superannuation to pay there would have been amply funds for some savings.

    If she doesn't get on top of spending and saving then borrowing could be a disaster.
    Rae
    13th Mar 2019
    11:59am
    43 years haha
    TREBOR
    13th Mar 2019
    12:01pm
    Some strange twists and turns to that state super system....
    Paddington
    13th Mar 2019
    12:18pm
    Rae, she did casual teaching like contracts and emergency teaching. There is no holiday pay and she would have only been paid for the days she worked. Going back 43 years it would have been bleak as well. Her average pay for each year would have been reduced to cover holidays and when school is not in. The pay is better in recent years but she was not paid 52 weeks of the year. You can’t judge her circumstances as you do not know. She may have been just getting by and the fact she paid off a home is impressive.
    Rae
    13th Mar 2019
    1:18pm
    Paddington I did casual teaching too. Twelve years of it. There is holiday pay. It's in the casual amount. If you work the 202 days you earn exactly the same including leave loading, holiday pay etc. as a full time employee on the same pay level.
    A casual gets the same pay but divided into 202 days instead of 365 days.

    If she worked a full year she'd have earned a full years pay. She would not have received pay increases for time teaching though. She wouldn't have been paying the high amounts of superannuation after tax though and so should have managed a wee bit of saving.

    As I said if she can't get on top of spending and saving then borrowing won't help.

    If she can sort that out she'll have some funds for a bit of fun.

    I have two friends both on disability and then aged pensions who manage to save for trips, a new car every ten years or so etc simply by managing their money.

    That's all I can add as we can make excuses until the cows come home but if you continually bleed money then you can't afford much no matter how much money you have.
    Misty
    14th Mar 2019
    9:40am
    Wouldn't Super have been compulsory during some of those years?
    Rae
    14th Mar 2019
    12:17pm
    Not sure Misty. I got super paid at $30 a day as a casual. I'm not sure when it started though. Possibly as early as 1992. Teachers have a very strong union and they try to provide as much equity between members as possible including casual employees.
    Cheezil61
    14th Mar 2019
    12:52pm
    Rae you still don't know peoples circumstances & can't assume everyone can/should save/have savings! Single parenting & keeping a roof over kids heads & food in their bellies, schooling, medical expenses, regular bills/insurances, utilities, etc don't leave much i can tell you! There may have been a divorce settlement that she had to pay out ex husband or partner or sick elderly parents. All takes a toll on finances when you are single/solo as I've found out the hard way!
    Not everyone is as fortunate as you!
    Farside
    14th Mar 2019
    2:18pm
    Pat asks "What is the good of having money tied up in equity when one can hardly afford to live?"

    The amount borrowed is paid out progressively and at 5.25% the amount borrowed takes almost 14 years to double. Capital depletion is therfore unlikely to be a problem given Pat has already eked out a pov existence on the pension for 18 years after working for 43 years.
    Rae
    14th Mar 2019
    5:06pm
    Exactly so Cheezil61. If that is the case then she is in a pickle. She needs more income or less spending. Sometimes you have to face the situation.

    She could sell and buy a smaller place to get some spending money.
    Or borrow on the house as suggested here.

    Regardless of the situation you have to look at where the money goes and how to get more or cut costs.

    I was widowed young with three little kids to raise alone. I lost my soul mate there was no luck about it . It was damn hard. I lost60% of our income and I worked very hard to keep on top of bills. That's why I know it's the only thing you can do. Face the facts, work out expenses. Can you cut them. What is needed or just wanted and so on.

    My mother then died with breast cancer and I ended up looking after dad when he lost all to a second wife.

    How did I save during all this.

    I did it by putting $1 out of every $10 I got away first. And managing on the rest until I had a little pot for contingencies which was always something like a doctors bill or a school excursion.

    I still do it now and it is so good to have that pot.

    I don't know circumstances of others but I know what worked for me.

    What doesn't work is never making any changes because only by changing either income or spending is this lady going to solve her problem.
    OlderandWiser
    17th Mar 2019
    3:26pm
    Well done, Rae! Why does everyone assume that it's 'luck' that determines circumstances in advanced years? It rarely is! It's the life habits one develops. And what irks me is that having worked hard and sacrificed to position oneself comfortably in senior years, it seems everyone thinks it FAIR to rip you off and hand out to those who didn't - claiming, falsely, that you must have been 'lucky'.

    I'd have given my eye teeth for teacher's pay and conditions in the 70s and 80s - casual or otherwise. Pat must have had a major catastrophe - or been a spendthrift - to retire in the circumstances described.

    Rae is right. You have to cut your cloth according to your means, and those who don't should not expect the taxpayer to compensate them. Sadly, it seems a large portion of the population is infected by the envy disease and only to eager to steal from workers and savers to hand out to the less responsible. We all support helping the disadvantaged - but today it's profitable to pretend disadvantage, and that's creating an intolerable burden that the nation simply can't carry. Unfortunately, though, the idiots in power can't see that the solution isn't to keep bashing the responsible, but rather to reward responsibility.
    TREBOR
    13th Mar 2019
    11:55am
    5.25% on a reverse mortgage is daylight robbery from a government - if they'd said just below mortgage rate I'd say it was equitable... my reasoning being that since a reverse mortgage continually escalates rather than reduces, there is not one reason in this wide world for a higher interest rate to be applied to it.

    Where a mortgage simple reduces over time, a reverse mortgage continually pays interest on interest upward until approaching infinity ... if you live long enough.

    In the case of a 5.25% I'd venture to suggest (without doing figures as I did on retail RMs) the amount borrowed would double in ten years (RMs double in eight, treble in eleven, and quadruple in thirteen, and then there is a down side to RMs) .. so I'd say the progression would be about ten for doubling, then around thirteen for trebling, then around sixteen for quadrupling...

    NOTE: for the detractors who will arrive like vultures - I have not done precise figures here .. if you know better - say so clearly and politely.

    In other words - if Pat (was it?) retired at 65 and took a GRM (government reverse mortgage) she had better not live much after 81, and hope that if she does, the housing price market will not collapse.

    Wouldn't touch an RM with a satellite link to the moon...
    Triss
    13th Mar 2019
    2:06pm
    Sounds as though government has taken some lessons from the banking industry, Trebor.
    TREBOR
    13th Mar 2019
    2:29pm
    I'd say so - if there's a dollar in it, they'll find a way to extract it.

    It's not as if they are running a risk by offering a reverse mortgage on established property, so there is zero need for a higher than mortgage interest rate. Even bank mortgage rate would be better... they are mostly under 4%... no need to shaft the retiree (again)... and let's be honest - how much actual cost is there in managing such a loan structure?
    TREBOR
    13th Mar 2019
    2:32pm
    The parasite(s) who came along and said government should be run as a business need horse=whipping in a public square, then hung drawn and quartered for the greedy self-serving vultures they are.

    You all know their names....... and every one of them is fattening daily off 'privatised' 'businesses', their fat government payout for life, and their pre-existing business arrangements.

    Now bring me some clown to argue 'politics of envy' for my calling out thieves and liars and cheats.... no 'envy' at all - I simply despise thieves .... someone has to say these things and keep the truth in the public eye.
    Chris B T
    13th Mar 2019
    3:14pm
    Why not the "Deeming Rates" that they charge for Assets Test?
    The reduced capital and Reduced Pension seems to be a Loss.
    Tread carefully, the advice given and reasons for going down this path need to be exceptional.
    TREBOR
    13th Mar 2019
    4:53pm
    Hmm - what are those deeming rates now?

    Aha!

    1.75% on the first $51,200 of your investment assets, plus.
    3.25% on your investment assets over the amount of $51,200.

    Hmm - yes... considering the 'work' is already done by existing infrastructure - I see no valid reason not to apply same or similar interest rates on an 'investment' in retirement income.... ummm .... not sure if that's the right (twist of) phrase, though..

    Borrow $51,200 at 1.75% ... any above that interest rate is 3.25% ... hmmm...

    It's not like the government could lose.... and to quote Kerry Packer ... it's not like they're doing a good job with the money .....
    Farside
    14th Mar 2019
    2:21pm
    Pat has already been on the pension 18 years (since retiring in 2001) so every chance Pat is already in 80s, left teacher college at 21, 43 years working and 18 years retired.
    Adrianus
    17th Mar 2019
    8:25am
    TREBOR, proving once again that math is not your strength. It's a fixed rate on a small amount. It hardly covers the cost of paperwork.
    Adrianus
    17th Mar 2019
    8:25am
    TREBOR, proving once again that math is not your strength. It's a fixed rate on a small amount. It hardly covers the cost of paperwork.
    TREBOR
    13th Mar 2019
    12:00pm
    I'll cheat here and paraphrase:-

    “The (television business) reverse mortgage industry is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free and good men die like dogs. There is also a negative side…”

    Dr Hunter S Thompson (apologies to)...
    Paddington
    13th Mar 2019
    12:20pm
    Never do the the reverse mortgage thing. Move and try to save from buying something less expensive if possible. My sister has done that successfully.
    TREBOR
    13th Mar 2019
    1:43pm
    Just sold and actually downsizing, but up-pricing - due to oceanside + heated pool for the disabled ex and such... it's not always straight forward...
    Sundays
    13th Mar 2019
    2:24pm
    This scheme pays people fortnightly. It is promoted to top up the pension. In effect you are eating your house at a very high rate of interest. If she wants money for holidays and home repairs, she will need to save up. Sort of defeats the purpose of her original request.
    TREBOR
    13th Mar 2019
    2:34pm
    Hereinafter to be titled "The White Ant Loan"....??
    ozrog
    13th Mar 2019
    2:24pm
    Down size. You are allowed $250,000 in the bank before it reduces your pension. Ofcourse the normally deeming rates will apply.
    tams
    14th Mar 2019
    3:57pm
    Wrong.

    Pat will lose at Least $74 per fortnight under the deeming rules
    tams
    14th Mar 2019
    3:57pm
    Wrong.

    Pat will lose at Least $74 per fortnight under the deeming rules
    GeorgeM
    13th Mar 2019
    8:48pm
    Looks like a Govt (Liberal) sponsored article with the response promoting the Govt's Pension Loan Scheme - meant to spend down your assets with benefits to the Govt at the high 5.25% interest rate. Can't let retirees get away with a decent scheme, can they?

    How about the Interest Rates be same as the Deeming Rates? Now, that would be sensible - but too difficult for our pollies?
    johnp
    14th Mar 2019
    12:20pm
    From the comments in here it looks like Noel's advice is fairly shallow and not comprehensive !!
    Farside
    14th Mar 2019
    1:49pm
    worth every bit you paid for it!
    johnp
    14th Mar 2019
    2:22pm
    So it was worth $0-
    Farside
    18th Mar 2019
    11:21am
    exactly, which is why there is a rider to alert readers "advice is general in nature", in other words commentary and if interested "readers should seek their own professional advice before making any financial decisions."
    tams
    14th Mar 2019
    4:03pm
    Hi Pat,
    Noel's comments are correct if you just need an income stream. Your needs require a lump sum component which Pension Loan Scheme does not provide.

    How can your bank, under responsible lending, give you a servicing loan when you are on an aged pension. ASIC would love to hear details about that.

    It does open up the conversation on a traditional reverse mortgage and I would suggest you contact a reverse mortgage adviser who provides a face-to-face discussion and how your needs can be assessed. A Google search will lead you to a source.

    Good luck
    tams
    14th Mar 2019
    4:03pm
    Hi Pat,
    Noel's comments are correct if you just need an income stream. Your needs require a lump sum component which Pension Loan Scheme does not provide.

    How can your bank, under responsible lending, give you a servicing loan when you are on an aged pension. ASIC would love to hear details about that.

    It does open up the conversation on a traditional reverse mortgage and I would suggest you contact a reverse mortgage adviser who provides a face-to-face discussion and how your needs can be assessed. A Google search will lead you to a source.

    Good luck
    Doodlebug44
    15th Mar 2019
    1:13pm
    Pat, depending on where you live, try looking at the "Homesafe Security" website. They lend money against the equity in your home, then get it back when you sell. It's not a reverse mortgage and as you have no one to leave your home to, it would seem like the perfect solution.
    Good Luck
    johnp
    17th Mar 2019
    9:00am
    Huh !! Re Homesafe Security. had trouble finding that ??
    Doodlebug44
    17th Mar 2019
    1:59pm
    thesenior.homesafe.com.au/wealth-release ph:1300 307 059


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