Noel Whittaker is one of Australia’s foremost financial authorities, especially when it comes to matters of superannuation and Age Pension. He sat down with host John Deeks on the podcast this week to talk about the shift towards a cashless and chequeless society, how deeming rates work and the new Age Pension rates.
Noel has published 13 books to date on the subject of wealth building, including his latest, 10 Simple Steps to Financial Freedom. He spoke to YourLifeChoices this week after returning from an overseas holiday.
Host John Deeks has also just returned from overseas, and notes that refunds he received from a cancelled train journey on his trip were given to him in a cheque, which banks here in Australia don’t seem to be accepting anymore.
“They [the train operator] said ‘if you’d like to claim the money, just put in this form, and we’ll send you the refund authorisation’,” John says.
“Unfortunately, no, they sent us a cheque. And our bank and three other banks don’t take cheques anymore.
“My partner had to open a building society account just to cash this jolly check. Doesn’t anybody take cheques anymore?”
Mr Whittaker says he had similar experiences with refund cheques received after his trip to the UK.
“I got a refund cheque for £240, and no-one will take them. But I’ve done some research.
“I found Heritage Bank would take it. Both Heritage Bank and HSBC will accept overseas checks. But most people won’t.”
He emphasises that the trend is simply a continuation of the march towards a cashless society, where all payments are digital.
“I must say, I haven’t written a cheque for many, many years. And I just don’t use cash anymore,” he says.
Mr Deeks wonders what effect this will have on older Aussies.
“Is this going to have any effect on senior citizens? They’re not used to having cards,” he says.
“I guess they’re all going to have to get a card.”
Deeming rates
Mr Whittaker is keen to explain what deeming rates are and how they affect your Age Pension.
Put simply, it is an estimated rate of return on your investments calculated by Centrelink each year that plays a role in your pension eligibility. Centrelink assumes your investments grew by this rate, whether or not they actually did.
We’ve written about deeming rates before here at YourLifeChoices, but here’s how one of Australia’s foremost financial minds explains the concept.
“It’s a notional value on your investments,” Mr Whittaker says.
“At the moment, for a single, it’s 0.25 per cent on the first $60,000 [of assets], and 2.25 per cent on the balance. For couples it’s 0.25 per cent on the first $100,000 and 2.25 on the balance.
“So, if you put $100,000 in a venture returning 5 per cent, you’re only being deemed to be earning 0.25 per cent.”
Mr Whittaker says deeming rates were first introduced as a way to incentivise people to invest in high-return income streams.
“Deeming was to encourage pensioners to get better returns than the deeming rates,” he says.
“The deeming rates [being set at] 0.25 and 2.25 per cent are way below market return rates. These rates are frozen until 30 July.
“The government has an obligation to increase the deeming rates on 1 July, considering we’re 15 months from the federal election.
Mr Whittaker explains that deeming rates only affect income-tested pensioners, not asset-tested ones. He says income-tested pensioners tend to be poorer than the asset-tested.
So, if the government were to lift deeming rates to be closer to market rates, many of the most vulnerable pensioners would see a reduction in pay.
“If they increase the deeming rates on pensioners, they’re going to affect the income-tested, the poorest pensioners. They’re not asset-tested, and they’ll get a big reduction in the pension [if rates are lifted].
New pension rates
Speaking of the Age Pension, new pension rates came into effect last week, with singles set to receive an extra $19.60 a fortnight and $29.40 for couples.
“The pension for a couple is up to $841.40 each per fortnight and the asset cut-off point is now up to $1,012,000.
“Now, for a single pension, the cut-off point is $674,000. So, if you’re an asset-tested couple with assets of $900,000, you’ll be getting a part pension.
“If one of those people dies and all the money goes to the partner, because their money is over the $674,000 for a couple, the survivor will lose all their pension.”
He says avoiding this scenario is precisely why it’s important to get financial advice when structuring your will.
“It’s very important when you’re doing your will, that you look at things and try to organise things live enough to your kids with charities, that the survivor is under the single pension cut-off test.”
Does a move away from cash concern you? Do you have assets affected by deeming rates? Let us know in the comments section below.
Also read: Noel Whittaker reveals his investing rules
I’ll NEVER use cards for my food & general spending! What I spend and where is no one’s business but mine. All that’s on the bank statement is an ‘ATM Withdrawal’.
I understand that many of the elderly only use cash, and that’s our prerogative.
How embarrassing would it be if you keep on ‘tapping’ and don’t look at the bank balance, then you go to purchase food, and you don’t have enough funds in your account.
I really don’t care of the trend away from cash, but I don’t want to try and reconcile a monthly bank statement up to 8 pages long!
I use MYOB and Excel to keep an ‘eye’ on my spending.
My motto is: CASH IS KING! Use it or lose it.
BTW, the new pension rates are ridiculous! How can we as full (single) pensioners afford all the increased prices if we only get $23 (including rent assistance)? My landlord isn’t going to accept the $3.60 increase per fortnight I receive in Rent Assistance as my only affordable increase in contribution to my rent when it’s reviewed in July! He’ll want a 10% increase, which to me is $50 per fortnight, which I can’t afford, as I can’t ‘cut’ my spending to accommodate this – there’s no ‘wriggle room’ in my budget for that sort of an increase! I’ll probably be given a ‘termination notice’, but, if I can’t afford any more in rent, then I could be made homeless, through no fault of my own.
I don’t have any super, as I haven’t worked since 1995, and compulsory super came into being on 1 July 1992, the day I left my last full-time position.
If yoiu get an 8 page statementy from your bank, you must be spending a hell of a lot for a single person. I cannot think what you are doing to wearrant 8 pages,– for one month!!
Especially as you are making a withdrawal from and ATM and using cash foir your purchases.That’s an awful lot of withdrawals and bill to pay online. !!
Not very helpful from your financial authority regarding the cashless society. Apart from the fact that I believe legal tender should be accepted. There is the ever increasing trend to have all card transactions, including debit card and eftpos, subject to surcharge on payment. These are not small and seem to be increasing. some nearly 2% and over sometimes. Having spoken with some traders, including one who used to run a small business in a country town in Victoria, some still see the cost of card usage as normal business expense. This is becoming less so, most markedly in the last year.
I still use a cheque for a couple of things if I do not have the cash at the time,. my bank tells me they will accept cheques until July. Now that we do not drive anymore we cannot get to the shops or bank as regularly. After havgin been the victim of a cyber attack I do not trust on-line banking so we are going to be one of theo nes this new idea will hit hard!!
Government and banks please think of your elderly customers wo have ut a lot of hard work and money into this country
I’m sorry to say Patricia, but they just don’t care. We have our career politicians who are only in it for the lerks and perks they receive. Serve two terms and get a huge pension for life. The banks are just as bad. By not providing cash and directing everyone to paying digitally they save themselves the cost of providing cash to all their branches. They will in effect reduce their costs and still make the same revenue thus increasing profits. It is the same as supermarkets with their self serve checkout. You do the work and they still get paid.
It means every single person who needs paying immediately (tradespeople, etc) will have to carry a mobile card terminal, or everyone accepts mobile phone to mobile phone payment (or a later bank transfer). When the mobile card terminal of my supermarket delivery person does not function, I have to write a cheque. What will be the back-up systems in a cashless society?