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