Retirees could face financial ruin due to COVID-19 crisis

Government assistance is only good if people can access it.

Concerned businessman talks on the phone about the economic impact of coronavirus

Retirees who were living off reliable income streams based on interest rates and dividends are now facing serious financial challenges.

And, as banks cancel payouts and returns from other investments dry up, this pain looks set to increase.

Some who have seen significant reductions in share portfolio returns may have to turn to the government for assistance.

However, according to the Association of Independent Retirees, those who have already done so are having trouble dealing with a Centrelink system that is already struggling with waves of newly unemployed and businesses seeking government assistance.

Once seen as a retirement income staple responsible for around 60 per cent of the income derived from the Australian sharemarket, banks’ dividend payouts are drying up as they defer payments or devalue assets due to the pandemic.

The Australian Prudential Regulation Authority (APRA) has also called on insurers and other institutions it regulates to cut or defer dividends, says a Guardian Australia report.

Research from Realindex Investments shows that companies in sectors including energy, transport and consumer services will also reduce shareholder payouts until the economic effects of COVID-19 become clearer.

Retirees who rely on rent payments from investment properties will also take a hit, says Association of Independent Retirees president Wayne Strandquist.

“They’re struggling to find a reliable source of income,” said Mr Strandquist.

“They might have a lot of assets on paper, but they’re not making anything.”

Prior to the pandemic, self-funded retirees held bank stocks for the fully franked high dividends, meaning tax had already been paid at the corporate rate of 30 per cent.

Bank stocks were particularly attractive when term deposit rates were at record lows.

“There were a number of commentators saying, ‘Don’t put your money in the bank, buy shares in the bank’,” Mr Strandquist said.

“They treated it almost as an annuity.”

As a result of these losses, many retirees who thought they would now be eligible for a part-pension are struggling to deal with Centrelink, with some falling through the cracks and wallowing in relative poverty.

Queues of “hundreds and hundreds” of people outside Centrelink offices have put many of them off, he said.

“What 75-year-old would want to deal with that?” Mr Strandquist asked.

“From go to whoa, it takes months to inventory all their assets, talk to their accountants, and then there’s a delay in processing from Centrelink.

“The pension can’t make up for the 40 per cent drop in dividends they’ve seen.

“Many self-funded retirees who do not receive an age pension are suffering financial hardship due to the economic impact of the coronavirus pandemic with little or no support from the government.

“The Association of Independent Retirees acknowledges the unprecedented steps taken by both federal and state governments to control the coronavirus health impact on the Australian population and the economic consequences. We look forward to the concerns of self-funded retirees being considered in the recovery initiatives of the government,” he said.

Are you falling through the cracks? Have you found Centrelink more difficult to deal with in the last few months? Is enough being done to help struggling older Australians during the pandemic?

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    COMMENTS

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    Horace Cope
    25th May 2020
    11:32am
    Again we have a totally misleading headline: "Retirees could face financial ruin due to COVID-19 crisis ". We are talking of people who could have more than $1,000,000 in assets, excluding the family home, do how they could be facing "financial ruin". I would suggest that "financial ruin" is when there is nothing left but debts.
    KSS
    25th May 2020
    11:47am
    yes, love the line "wallowing poverty"!


    If these poeple are smart enough to manage their own retirement fund surely they are smart enough to navigate Centrelink? And wouldn't they already have a comprehensive list of all assets in the self managed fund that they would be able to hand over with very little effort?

    Sorry they can't have it both ways. They have assets and they could sell something if they have not planned for 2-3 years of cash on hand to see them through. That may make them eligible to apply for a part pension. It does not give anyone the automatic right to welfare.
    Janus
    25th May 2020
    12:05pm
    What about those who have (had!) near the limit assets, say $890,000, and now have lost 25% of that. Not enough to equal the pension, not enough dividend income to live on, but nothing from CLINK because they are busy. Down they go, and so become a bigger burden on society.

    I just love the way some folk assume that everyone is just the same, or fits into a box that they have designed.
    Youngagain
    25th May 2020
    2:50pm
    Yes Janus. Some people are blinded by envy, I think - or are just ASSes who make wild assumptions without thinking through the complex problems that many retirees are facing.
    MacI
    26th May 2020
    8:45am
    If someone has lost 25% from the value of their assets then they must have invested poorly. Since the ASX has dropped 16% to date in 2020 then to lose 25% in the value their investments they must have been high risk and probably not very diversified - very little invested in defensive assets such as cash and bonds. I'd venture to say it's likely that their predicament is the consequence of being a bit too greedy.

    Even so many, if not most pensioners, would still love to be in a position of having $890K in assets (or $667K after a 25% loss if that what was meant). Also, one would assume that potentially some of these losses would be recovered in the future.

    I'm with Horace - to characterise retirees in these circumstances as facing "financial ruin" is a gross overstatement.
    Youngagain
    27th May 2020
    8:58am
    If most pensioners would love to be in a position of having $667K, they should have saved to have that much. And if they had, they would be as unhappy as the self-funded retirees that an unfair system is depriving them of the benefit of having saved so well.

    That $890K didn't fall from the sky, Maci. It was acquired through hard work and sacrificing lifestyle, planning for a more comfortable future. But a stinkingly unfair system, supported by greed and selfishness, is denying people the comfort they EARNED.
    PJ
    25th May 2020
    11:41am
    I didn't even bother applying for my part-pension and dealing with Centrelink - It is just not worth the hassle (and I am IT literate!!). Best decision I ever made was to pay for an agent to deal with the fiasco that is Centrelink on my behalf (I didn't even know what my CRN was or if I had one!!). My part-pension starts in a few weeks when I turn 66!! The entire retirement industry is a entangled mess of beaurocrats and entitled financial advisors!!
    Rae
    25th May 2020
    1:39pm
    How do you find an agent. I'm in the same boat , eligible but never applied. I'm kicking myself now having missed out on the $750 and want to apply. I'm willing to pay an agent though.
    Skiing
    25th May 2020
    11:55am
    “Suffering financial hardship “... give me a break. Maybe some with assets solely in property and no rent coming in are are struggling but the article focuses on shares and dividends. If assets were high enough to preclude pension, don’t talk about financial hardship. Draw down on some of the capital, lodge your application for a part pension if you’re now below the asset limit.
    Anonymous
    25th May 2020
    12:10pm
    I certainly wouldn't like to live on the interest $1 million in the bank makes today. That is beyond struggling.
    Mariner
    25th May 2020
    12:21pm
    If you have a $1million, take $50'000 out every year to live on and leave the rest in, would last 20 years! But of course after about 8 years you can then apply for the age pension. Easy to work that one out, if you do not want to leave that million behind - and that is the crux of the problem for a lot of folks.
    Anonymous
    25th May 2020
    1:10pm
    I wouldn't want to live on $50,000 today let alone it's discounted cashflow value in 20 years time.
    Mariner
    25th May 2020
    1:16pm
    RW - some of us have to do that, and some with a lot less. Be realistic, if you cannot live on $50'000 a year you are certainly not a pensioner.
    Youngagain
    25th May 2020
    2:55pm
    Mariner, with asset values falling, that $1 mil might very soon by halved, or worse. If people take out now, they take out at a huge loss. Meanwhile, the whinging pensioners who constantly shout 'take it out - you have plenty' are taking taxpayer-funded handouts averaging $1 mil or more over the course of their retirement. Why should some get $1 mil handed to them and others - who lived more responsibly and went without to save - be told 'stuff you - just use your hard-won savings'? When nobody bothers to save and everyone demands a pension, the country will really struggle to cover the cost. But that's the scenario you are pushing for.
    panos
    25th May 2020
    3:48pm
    Because youngagain. you have the dosh so spend it.....

    I am sick of these bleeding over 65's who have a fortune in the bank or other assests crying if they have to spend some of their enormous capital..

    The tide has turned welcome to poverty, you will be allright till you get to zero
    Anonymous
    25th May 2020
    5:00pm
    $1 million dollars is no where near a fortune today so there would not be many self funded retirees with a fortune in the bank.
    panos
    25th May 2020
    5:08pm
    WEll I would like a million in the bank and I am sure there is a lot of others would too.
    Captain
    25th May 2020
    9:19pm
    Perhaps saving during a working life of 45/50 years will get you that Million dollars Panos.
    MB100D
    27th May 2020
    8:24am
    Panos is showing by his comments why he is on Welfare.
    Youngagain
    27th May 2020
    8:55am
    Agree MB100D. And also demonstrating selfishness, thinking it's fine to live off the taxpayer, but those who lived far more responsibly (and likely paid far more tax) should get nothing and enjoy no benefit for their effort.
    ex PS
    30th May 2020
    7:35pm
    I have no intention of lowering my lifestyle. Ibwill spend my money to sustain a comgortable life and when or if it runs out I'll get a government pension.
    I have contributed to the system for forty years and have no problem with taking what is my entitlement.

    25th May 2020
    12:19pm
    Let's face it if you lost your job or 70% of your income you would be receiving Jobseeker or Jobkeeper payments. However if you lose 70% of your investment income your get nothing unless you are a stock trader and run it as a business.

    Where it gets even more unfair fi you lost your job and have $2 million in super you still get Jobseeker or Jobkeeper. However if you are a self funded retiree with $1 million you get nothing.

    It all seems quite unfair to me.
    Rae
    25th May 2020
    1:41pm
    It is a very unfair, inequitable mess.
    Youngagain
    25th May 2020
    2:58pm
    Even more unfair that if you spent up big or gave your money to your kids, you get about $1 mil handed to you from the taxpayer, but if you worked hard and lived modestly, and invested your savings responsibly, you are told 'stuff you - spend your savings to live and you get nothing'.

    Oh, actually, you do get something. You get nastiness from people who are living off the taxpayer - telling you it's greedy to want to actually benefit a little from your savings.
    panos
    25th May 2020
    3:50pm
    spend your savings to live and you get nothing'

    Oh boy this is just typical..... what the hell are you going to do with your capital....
    Rae
    27th May 2020
    7:23am
    panos those who upgraded homes every decade for capital appreciation just live in those mansions and they are not assessed now but if you chose to invest for income as well as capital in shares, bonds, property or businesses then you are assessed.

    It's not fair. Perhaps that first home might be left out of the asset test but subsequent capital gains by upgrades should also be assessed. Too many put all their saving eggs in that home basket for their entire working lives and now cry poor and need welfare.

    No one suggests they sell and use the capital for living until it's all gone.
    panos
    25th May 2020
    3:44pm
    This article is a joke. The poor old self funded retirees living it up, may have to actually spend that 2 million dollars they have in the bank, and maybe downsize their million dollar houses.

    Welcome to the real world of the old age pension to live on...
    Anonymous
    25th May 2020
    4:58pm
    Most self funded retirees couples are closer to owning only $1 Million in assets and a modest home. They are the ones struggling.

    The ones with many millions and mcmansions are doing OK.
    panos
    25th May 2020
    5:09pm
    1 million in assetts well sell em and make do...
    Captain
    25th May 2020
    9:23pm
    Panos, you may be like 80% of the people in the world. Give you a million dollars and within 5 years, you will be back to where you are now - moaning about those lucky bas----s with a million bucks.
    panos
    25th May 2020
    9:34pm
    Nice to know I am in the majority of the population 80 % - compared to the other 20% of the population on here bemoaning the use of having to use their capital and complaining because they saved all their lives and begrudging those spendthrifts getting the full pension and all the benefits etc etc cards...
    Captain
    26th May 2020
    6:28pm
    Panos, I begrudge no-one receiving the aged pension, and if you are happy to be one of the 80% (lemmings) of people then good luck to you. I prefer to be one of the few who think for themselves and not follow the herd.
    Youngagain
    27th May 2020
    8:51am
    Panos, I don't begrudge anyone a pension, but I think it's disgraceful that some of the 80% begrudge savers the right to benefit from their saving. Why should spenders get a million dollar handout from the taxpayer and savers be deprived of the benefit they earned by saving? They have every right to complain. They are being treated very unfairly. But worse than that, the way they are being treated is harming the national economy because it's rewarding people for living irresponsibly and leaning on the taxpayer in retirement.

    BTW. I don't think anyone with $2 mil in the bank is complaining much. It's those with less than $1 million - between two in a couple - who are struggling and entitled to complain, since if they hadn't saved, they'd be handed that much over the course of their retirement.
    Bazza
    25th May 2020
    6:04pm
    To anyone looking to side swipe using Centrelink in order to apply for a pension, there is a firm called Retirement Essentials and they can do all the heavy lifting for you from start to finish. Check out their website and all the info is there for you to digest.
    A friend of mine has applied via these people and will receive a full pension in July and the cost was $370.00. So its able to relieve you of all the dramas involved in completing the Income and Assets forms as this is stressful in itself.

    And no I am not an employee of the company involved but a 70 year old self funded retiree who has never had one single cent from the Govt, and that includes not receiving a service pension from my tour of duty in Vietnam.As I was above the threshold when I applied, I was advised sorry you've got too much and was given a Commonwealth Seniors Health Card in lieu.
    panos
    25th May 2020
    6:27pm
    Nice one seems to make it rather easy to apply.
    Youngagain
    27th May 2020
    9:54am
    I don't see changes in asset values as the problem, but rather reductions in dividends and rent income. Many SFRs have been struggling to achieve incomes even equal to the OAP, and now they are facing substantial cuts to the income they rely on to live. Selling assets to live on savings means crystalizing losses and slashing future income opportunities. Ultimately, it means large numbers of SFRs will have to apply for part pensions, putting more strain on the taxpayer.

    It's really easy to say 'just spend your savings', or to carry on about there being many who are worse off. The latter is not relevant, and the former is a selfish attitude that denies people the respect they deserve and the benefit of having made the sacrifices necessary to have those savings. But ultimately, the real harm in the 'just spend your savings' attitude is that it discourages responsible planning for retirement and encourages more and more people to decide to maximise their pension entitlements.

    I agree that some of the words used in this article are inappropriate, but the overall message is that many who have worked hard and sacrificed a lot to be independent in retirement are going to now find it a major struggle to maintain the standard of living they worked so hard to achieve, and ultimately that will result in a much higher drain on the taxpayer and more age poverty.
    Captain
    27th May 2020
    2:25pm
    Youngagain, you are correct in what you are saying. The short-sighted lowering of the assets limit that took effect in Jan 2017 meant that some people spend down to the limit to receive a part pension and many others will not bother to save for their future. A disaster waiting to happen and those who took a long term view are the one's to suffer.

    Similar to the Labor policy of last election re the franking credits. Everyone except SFR's could use their credits to offset taxes or in the case of pensioners just receive the credits as a tax refund. Short sighted policies to discriminate against a minority of the people.

    Revamp the tax system to make it more equitable for all and ensure that companies pay their fair share (I have discussed how this could be achieved in other articles).
    enyaW09
    28th May 2020
    1:35pm
    I have no problem with the govt. taxing self funded retirees, but make it sensible.As you probably already know those that have over 1.6 mill. in super are taxed at 15% on any income generated by the portion over 1.6 mill. Well then make it that if anyone with over 3 mill. in their super are taxed at the nominal rate on the income generated by that capital that is over the 2 mill threshold. This will then make the rich pay their fare share of tax. And also don't allow those over that 3 mill threshold to receive tax imputation credits, this will generate a lot of revenue for the govt.
    Anonymous
    29th May 2020
    11:00am
    Anything over $1.6 million should be withdrawn from super immediately so it is not used as a tax haven.
    ex PS
    2nd Jun 2020
    9:17pm
    Not too worried, we have allready recovered 80% of what was lost, it pays not to panick. And it pays not to speculate with your Super Fund.
    simo60
    6th Jun 2020
    7:32am
    happy to live on a $1000 per week . Super UP shares UP.
    Marty1
    15th Jun 2020
    11:42am
    I’m a disabled retiree that didn’t earn a large income during the year’s I worked hard but I tried to pay extra money into my super until due to my serious spinal injury I could no longer work. I was employed by the Defence Force at the time but I didn’t receive any lump sum payment or income & was told to go to Centrelink , I was not aware that I had 6 years to make a legal claim as I thought being the government I would be looked after but when I tried to claim I was told that it was to late even though I wasn’t made aware of the time limit. Until my wife died suddenly at only 53 years old I was coping & didn’t touch my super. Last year I tried to get a small bank loan to buy into a retirement village but they didn’t give it to me so I had to withdraw the money from my super account to purchase the unit. So with the small amount that I have left it means that I only get a part pension, so do you fit & healthy people with homes worth $millions begrudge me a pension I can barely live on ? There’s no fancy car or holidays for me so walk a mile in my shoes & see what it feels like to be in chronic pain with sleep deprivation.


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