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No September rise for Age Pension?
The Age Pension rate was due to rise from 20 September, but there are reports that the Department of Social Services have announced there won’t be a rise this year.
SuperGuide will confirm next month once this is officially announced. On August 19 Prime Minister Scott Morrison told reporters that a freeze on the Age Pension “was not intended and nor will it be the case that you’ll see those payments reduce. We’ll work out the exact response and the circumstances and we’ll announce that when a decision has been made.”
The Combined Pensioners & Superannuants Association reports that this would be the first time the Age Pension has not risen since 1931. “The rates applicable from 20 September 2020 have not yet been formally announced but a simple calculation shows that they will not change.” said CPSA Policy Manager Paul Versteege.
“The basis for indexation on 20 September will be the Pensioner Beneficiary Cost of Living Index (PBLCI), which is a special inflation rate for pensioners used when it increases by more than the CPI. The PBLCI numbers for the June 2020 quarter and the December 2019 quarter are the same: 115.7. The Pension Supplement is always indexed according to the CPI, while the Energy Supplement does not get indexed at all. So, both the Pension Supplement and the Energy Supplement stay the same as well.
“By law the single pension must at least be 25% of the average weekly wage, which stands at $1,498.20. This means that the average weekly wage would have to go up by approximately $250 before it becomes relevant to pension indexation again. The Governor of the Reserve Bank of Australia is on record as saying that the CPI will start to pick up again during the September 2020 quarter, so the pension is likely to go up again in March 2021.”
Council on the Ageing (COTA) Australia has urged the Federal Government to provide an additional $750 stimulus payment to pensioners in consideration of the increased costs incurred due to COVID-19. COTA Chief Executive, Ian Yates said “The impact of increased costs has been compounded by a reduced number of “specials” or “discounts” to the ticket price for many food items, and reduced access to “specials” by cost conscious pensioners when they are following government advice to stay at home and shop from home.”
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“In doing so they have also incurred the additional costs of home delivery. While the CPI has gone down because of the impact of items like childcare this does not help age pensioners.”
Premiums up in smoke
Between 2017 and 2020, the Australian Securities and Investments Commission (ASIC) found that superannuation trustees were classifying new members as ‘smokers’ by default which meant they were charged higher life insurance premiums.
AMP, Colonial First State, Equity Trustees, IOOF, Intrust, Netwealth and Suncorp were all found to have assigned ‘smoker’ status to members for specific products, either at the time or historically, unless the member took active steps to opt out of the categorisation.
All trustees have now ended this practice, and some have refunded affected members either part or in full for the higher costs, resulting in 5,000 members receiving more than $3.6 million in compensation.
ASIC Commissioner Danielle Press said the trustees that have committed to remediation are heeding the lessons of the Financial Services Royal Commission. “Trustees should seek to achieve outcomes for members in line with community standards and expectations,” Ms Press said. “Superannuation funds play an important role in meeting the insurance needs of Australians.”
If you think your super fund may have inappropriately classified you as a smoker, check with your fund. You can also contact the Australian Financial Complaints Authority (AFCA) for fair, free and independent dispute resolutions.
Call to open infrastructure investment to all super funds
The SMSF Association and the Financial Services Council (FSC) have joined forces to lobby the reconstituted National COVID-19 Commission (NCC) Advisory Board and the National Cabinet to expand the role that superannuation funds can play in infrastructure investment.
The two organisations, which represent more than $1.7 trillion of the $2.7 trillion superannuation pool, are presenting a common policy front that calls on the NCC to recommend establishing unitised, transparent and liquid investment vehicles to house infrastructure assets.
SMSF Association CEO John Maroney said: “It has always been a bone of contention with the Association that SMSFs have been largely precluded from investing in infrastructure. The benefits of this asset class to SMSFs include managing longevity risks in retirement by offering long-term investment options with low volatility, moderate yield relative to inflation and capital growth, and the desire of trustees to have control via direct investing.”
Mr Maroney said infrastructure offers a relatively low-risk investment alternative to cash and term deposits at a time of record low interest rates.
“So, the opening up of infrastructure investment to SMSFs in a unitised, liquid form would provide a new avenue for SMSF investment that could help fund Australia’s recovery and future infrastructure investment needs.”
FSC CEO Sally Loane said opening infrastructure investment to SMSFs and superannuation investors would democratise investment in critical domestic infrastructure, as well as offer stable, predictable income streams to fund Australians’ retirement.
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“Stronger infrastructure investment would allow the National Cabinet and state governments to turbocharge asset recycling to finance new infrastructure projects and create jobs,” Ms Loane said.
High risk for managed funds
Of the 1.1 million Australians who have a self-managed super fund, 32% are invested in managed funds according to latest analysis by online investment adviser Stockspot.
Also, of the 20 most popular managed funds, 18 are actively managed and more than half of the most popular active funds owned by SMSFs have underperformed Morningstar benchmarks in the past five years.
Two of the most popular active managed funds, Platinum International and Winton Global Alpha, underperformed by 21% and 13% respectively.
According to Stockspot founder and CEO Chris Brycki, the research shows that SMSFs are taking a huge gamble when investing in popular managed funds rather than index Exchange Traded Funds (ETFs).
He says investors paid active fund managers $731 million in annual fees over a five-year period, yet only beat the market by around $629 million, so any benefit in performance over benchmarks was lost in fees, eroding client returns.
Another issue with active managed funds is that top-performing managers of one period can quickly become very low-performing the next. Platinum, for example, was a star fund in the 1990s and early 2000s but has shown poor performance relative to market benchmarks over the last five years.
Overall, the analysis shows that investors wear the risk and suffer if their fund doesn’t perform. Brycki advises SMSFs eliminate fund manager risk and underperformance by investing a core part of their portfolio in index ETFs.
Seniors demand more help at home
National Seniors Australia is hitting out at political leaders for ignoring years of warnings about aged care services and leaving the sector at greater risk from the pandemic.
As COVID-19 outbreaks in aged care facilities continue to rise, the group is now urging the Morrison Government to release funding to older Australians so they can receive more help in their own homes and delay moving into an aged care facility.
According to figures from the Organisation for Economic Cooperation and Development (OECD), Australia ranks ahead of Switzerland, New Zealand, the Netherlands and Sweden in the top five countries with the highest proportion of people in long-term aged care.
Chief Advocate for National Seniors Australia Ian Henschke says successive governments have sadly ignored numerous reports recommending reform and is calling for aged care to go ‘beyond politics’.
“We’ve seen the fatal consequences of COVID-19 in institutional aged care,” Mr Henschke told the Sydney Morning Herald. “Now we need to re-emphasise and find more ways for people to have adequate home care and have institutional care as a last resort.”
Pensioners charged double
Pensioners are being charged double the rate of normal loans under the government’s Pension Loans Scheme, and seniors’ groups demanding changes to the scheme say it’s not only hurting older Australians, but the whole economy.
Australian retirees have billions of dollars in equity locked up in their homes that could be unlocked under the Pension Loans Scheme, which would be a massive stimulus to the economy.
But Ian Henschke, Chief Advocate at National Seniors Australia, says the rate of 4.5% is too high, especially when the government can borrow money at less than half a percent. If the rate was cut, he says, more retirees could use the reverse mortgage scheme to supplement their income.
Single retirees who borrow up to $33,000 a year could convert that equity into fortnightly payments of $1,300. Couples borrowing $51,000 could be paid $2,000 a fortnight.
“The 4.5% interest rate is way above mortgage rates of between 2% and 3% and start up rates as low as 1.98%,” says Henschke.
While the rate is lower than bank rates for reverse mortgages, and was cut in January this year, many argue it should be much lower, including Shadow Assistant Treasurer Stephen Jones who said: “It is simply unconscionable that the government would seek to make a profit out of pensioners who are doing it tough.”
But Treasurer Josh Freydenberg says the government has already cut the deeming rate for pensioners and provided two stimulus payments of $750, suggesting a further cut is not likely.
Australia ranked 3rd best in world’s top pension plans
By 2050, one in six people will be over the age of 65, which begs the question: Which countries are best equipped to support their older citizens and which aren’t?
Data from the Melbourne Mercer Global Pension Index (MMGPI) analysed 37 countries to show which are most likely to ensure their pension systems will withstand the strain. Each country’s pension system is shaped by its own economic and historical context, which makes them difficult to precisely compare, so MMGPI organised them into three sub-indexes: Adequacy, Sustainability and Integrity.
In terms of Adequacy, which looks at the base-level income as well as the country’s pension system, Australia ranked 11th best with a score of 70.3. Ireland achieved the highest score of 81.5 and Thailand had the lowest at 35.8.
In Sustainability, which considers the pension age, level of government funding and government debt, Australia ranked 3rd best with 73.5. This compares to Denmark, which ranked the highest at 82, and Italy at just 19.
Lastly, in Integrity, which compares regulations and governance put in place to protect pension plan members, Australia ranked 5th best with 85.7 compared to the Netherlands leading at 88.9 and the Philippines at just 34.7.
Overall, the Netherlands is the country most prepared to see its citizens cash in their pensions at 81. Thailand has the lowest score of 39.4 and, at 75.3, Australia ranked 3rd behind the Netherlands at 81 and Denmark at 80.3.