How interest rate cut will affect retirees

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UPDATED: The Reserve Bank of Australia (RBA) cut official interest rates on Tuesday, which is good news for anyone with a mortgage but bad news for millions of retirees with money in the bank.

And unless the Social Services Minister revisits deeming rates, which have not been changed since 2015, it’s also bad news for pensioners.

Self-funded retirees in particular, and retirees in general, are advised to keep some money in the bank for emergencies. But if they are relying on using the interest that money earns to supplement their income, alternative investment strategies are required.

Five years ago, a bank term deposit could earn upwards of four per cent interest, now it is more likely to be earning a little over two per cent.

Inflation is well below the RBA’s target at 1.3 per cent and the official cash rate was cut by 0.25 percentage points to a record low of 1.25 per cent. Another cut is expected in August.

The Australian reports that since 1 January, the big four banks have slashed their five-year term deposit rates by between 85 and 35 basis points.

Sally Tindall, research director at financial comparison site RateCity, sees no signs of a economic turnaround.

“The people who will be hurt the most by an RBA rate cut are people like retirees and young Australians who are saving for something like a house deposit or a car or things like that,” she told The Australian.

“If term deposits and savings accounts continue to fall, people may start seeking alternatives that come with greater risk, like on the stockmarket or peer-to-peer lending.

“That’s something to be aware of as well because people need to be comfortable with where they are putting their nest egg.

“If people stopped putting money into the bank, it would force banks to be more competitive in this space. But if you look at the APRA (Australian Prudential Regulation Authority) data, their loan books are steadily increasing.”

The cut in official interest rates is likely to put extra heat on the RBA and Social Services Minister Anne Ruston to reassess deeming rates.

The purpose of deeming is to encourage social security recipients to invest their money in order to receive the best possible return.

Currently, if you are single, you are deemed to earn 1.75 per cent on investments of less than $50,200 and 3.25 per cent on any investments above that.

If you are a couple and one or both of you receive benefits, you are deemed to earn 1.75 per cent on a balance of less than $83,400 and 3.25 per cent on larger investments.

YourLifeChoices member PlanB had his say on deeming rates last month saying: “It is a bloody disgrace that we are being deemed to be getting 3.25%. You can get NOWHERE near that even with a term deposit. The highest I can get for three months is 2.38.”

Tricky says: “If the deeming rate is 3.25% and the Government assumes we can receive this amount, why don’t they (the Federal Government) offer Australian bonds at the rate of 3.25% for eligible senior citizens? The LNP would much prefer to obtain a benefit by deceiving our senior citizens who contributed to making this a great country.”

Will the predicted interest rate cut affect your retirement? Do you believe deeming rates should be reviewed more regularly?

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Written by Janelle Ward

74 Comments

Total Comments: 74
  1. 0
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    Yes and if they can’t see themselves (Government) Reducing The Interest Rate at Least Allow the First $50000 for singles $80000 for couples Zero Interest Rate.
    This way you can have easy access of Your Money when needed.
    Odd thing though is the Pensioner Loan Scheme has a Higher Interest Rate.

  2. 0
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    Lets not forget that A.L.P. Gillard raised the penalty REDUCTION for earnings above $304 A WEEK from 40% to 50% in the rush to lower income tax is it not time that this is revisited.

  3. 0
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    We don’t have a lot of money in the bank but I’m aware that a lot of retirees have chosen safety and a low interest rate. That’s their choice and one that is to be respected. I read today that, in the event that the RBA does reduce rates, the government expects banks to also reduce interest rates in line with the reduced rate. If the government wants to interfere with banks then it should also look at the deeming rates and reduce them in line with the RBA’s figures. Bear in mind that the RBA’s rates are targeted at borrowers and banks have always had a lower rate for investors. That’s the way any business works; buy stock in at a low price and sell at a higher price. It would seem fair that the deeming rate should be lower than the RBA’s rate.

    • 0
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      Wishful thinking OM

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      Wishful thinking OM

    • 0
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      Yes, Discontented, I suppose it is wishful thinking. Doesn’t affect me too much but does others and maybe if enough of us can get to politicians and convince them that there is a huge voting bloc out there in Greyhairland there could be a change. Remember that Bowen told those who didn’t like their franking credits to be taken away should not vote for Labor and the unlosable election was lost. Could have been a contributing factor anyway.

    • 0
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      Popping the money in a safe deposit box at the bank might be a whole lot safer if losing the money is a concern.

  4. 0
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    The only decision required for the banks, either voluntarily or by compulsion, is for them to straighten up and fly right. The Labor decision to re-regulate them meant bastardry became the order of the day … now it seems a tribunal of the people must compel them to toe the line….

    *rolls eyes* and all these years they said Castro was wrong….

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      Did I miss something Bob? I thought that the banks were deregulated under Hawke and nothing has been done to change that. The bastardry of which you speak is a lot worse than people really understand. History shows that there was a federal bank and each state had their own bank and when the RBA changed rates all banks were required to change their rates in line. Even then the banks played cute by immediately increasing rates the day after the RBA made their announcement but waiting until the end of the month should rates drop citing staff problems.

      There are no longer any federal or state banks to compete with the privately owned banks which are only interested in their shareholders, not the customers who invest and borrow to give the banks their profits. Is it time to regulate the banks again? I think it is as they are making decisions for themselves, not for customers and certainly not for the good of the nation. What use is the RBA if their monetary policies are ignored by those who are directly involved in implementing monetary policy?

    • 0
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      Didn’t miss anything – I said ‘Labor decision’ ….. both parties hold a degree of culpability here…. well said.

      Perhaps partial re-regulation is the answer. The RBA is nothing but a group of bank honchoes – it is NOT a Federal body, much as it is often mistaken for one, and it has zero power.

      Waste of time and money, but nice work if you can get it.

    • 0
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      I think the biggest disaster was the privatisation of the CBA. While it was owned by the taxpayer it imposed a brake on the other banks behaviour even altho’ it actively competed with them.

      I cannot forgive Hawke and Keating for that.

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      I think the biggest disaster was the privatisation of the CBA. While it was owned by the taxpayer it imposed a brake on the other banks behaviour even altho’ it actively competed with them.

      I cannot forgive Hawke and Keating for that.

    • 0
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      Hawke didn’t, and Keating doesn’t bother about anybody’s forgiveness, Tom Tank, as they both soared to multi-millionaire status [thanks to taxpayers] after they left parliament…giving the finger to said taxpayers ever since.

    • 0
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      None of them ever do, Triss – none of them ever do. They can talk endlessly about how their heart is with the people and how they entered politics out of conviction and a call to duty – but the reality is that they are crass opportunists lining up with their party to get a gig and a sweet ride for life and into the future for their descendants.

      If they were so sincere, how about they take a pay drop of 50% for starters? And tight controls over their perks?

      Never Going To Happen!!

      One of my mistakes in life was thinking you actually worked for your money – nobody told me how to cop a sweet ride. I even offended the public service by wanting to achieve too much on their behalf and streamline things… oh, well…..

    • 0
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      Old Man – you might be right about the banks not caring for their customers only their shareholders. But look at your superannuation and check where YOUR money is invested in. You might find that you are the very shareholder benefiting from the bank’s business. When I had Super I always checked where my money was riding. At 65 I took it out because that was a couple of years after the GFC – did not to go thru that again. Do not like what is happening to interest rates but if it helps to young getting into houses we should welcome that aspect of it.

    • 0
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      Trebor, I wonder, if we really tried to push the minor parties into campaigning for the next three years instead of the puny three weeks that they usually put in maybe we could make a change of government with a few policy changes that benefitted pensioners. Perhaps we could also put enough fear into Lib/Lab so they’d take a 50% drop in salary.

    • 0
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      Correction – at the top I meant De-regulate – not re-regulate… buggar…

    • 0
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      Hawke/Keating were the overseers of privatisation of banks.

    • 0
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      Old Man, you are right on the money here. When the government owned the RBA it was possible to do with competition that which cannot be done by legislation – keeping the banks under control.

      It is a reasonable hope that the deeming rate will now be reduced to the official interest rate. We won’t hold our breath!

    • 0
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      Old Man, you are right on the money here. When the government owned the RBA it was possible to do with competition that which cannot be done by legislation – keeping the banks under control.

      It is a reasonable hope that the deeming rate will now be reduced to the official interest rate. We won’t hold our breath!

  5. 0
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    Lowering bank interest rates is just another way of propping up an economy in tachycardia, and is (frankly) a frank admission by THIS government that its fiscal management has failed. They’ve been offered the ways out, here and elsewhere, many times…. but they refuse to accept them and to strap on the balls required for the job.

    Here is an apt quote:-

    “‘When the oil begins to flow into Uganda, will the people of Kivu be better off? My friends, as the oil is drained away, they will grow poorer by the day. Yet these are our mines, my friends, our oil, our wealth, given to us by God to tend and enjoy in His name! These are not water wells that fill up again with the rains. What the thieves take from us today will not grow again tomorrow, or the day after.”

    It’s from John Le Carre`’s “The Mission Song”, a work of fiction – but I believe it tells the story. We need, as a nation, to take back the asylum.

  6. 0
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    When the dust settles on the proposed LNP government’s “review” of retirement incomes the least of our worries will be lower bank deposit rates and unrealistically high deeming rates. Instead we will all be wondering how to pay the new taxes imposed on our retirement incomes and restrictions imposed on withdrawals from retirement superannuation. The best advice is – “plan for the best, but prepare for the worst” when considering our retirement futures under this LNP government. Those on pensions won’t be exempt either – prepare for tougher income and assets test and the inclusion of the family home as an asset.

  7. 0
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    The only way to get anything from a bank in Australia is with a gun or as a senior exploiter, I mean senior employee.

  8. 0
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    About time the media picked up on this!
    Every time there is an interest rate cut, a self funded retiree gets a pay cut.
    Oh well, on the upside, perhaps it will allow more to receive a pension.

    • 0
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      I’m sure that’s been mentioned here before.. but the mainstream may not have the same level of interest (sic)…. they have bigger social fish to fry than the mere retiree.

  9. 0
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    With the tracking of accounts by the ATO how hard would it be to follow the actual interest earned instead of making up a fantasy deeming rate?

    • 0
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      Yes – raised that before – it really is a matter of one simple equation, but the government gains from not doing that, so they don’t change it. It is possible to view exactly how much income an SFR, for example, receives in a year, and keep track of whether or not they fall into the part-pension category.

      Government loves to make hard and fast rules for its serfs, in order to retain as much control over them as possible…. too much fluidity and reality is too much for the government mind to handle.

      CPS has never been the same since I resigned over the manner of implementation of affirmative action.* Nobody with any real forward-looking ideas and pushing the envelope now.

      * Simply commanding that all will be treated equally from Day Zero would have resolved the entire issue(s) in a few years, without the never-ending disputation and discrimination that has now become entrenched and impossible to remove. Two ‘generations’ of new starters, 70% of public servants women, and they STILL receive preferential treatment in appointment and promotion to ‘make up equality’….. Jesus God!!

    • 0
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      Agree. A few years ago I got fined by ATO because I had accidentally forgotten about interest of less than $100. So they definitely have the ability to find out.

    • 0
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      I made an honest mistake and left out interest…wrote to them..explained that it was an honest mistake and said we were going to get an accountant to do our tax returns in future instead of husband…they accepted that and no fine. Always get an accountant now as things are too complex these days.

  10. 0
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    Well here we go again your investment is getting worth less and less. I can remember in 2012 I invested some money on fixed interest for one year in a credit union at 6.7% interest. Where can a person invest money for that kind of interest? No doubt high risk companies but I wouldn’t be game. Under the mattress best – at least you can take it out when feeling down and run your fingers through those lovely notes to warm your heart for a moment.

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