Super news for November 2020

Interest rate cuts will hurt retirees

The Reserve Bank of Australia has handed down an interest rate cut that will cause self-funded retirees a lot of financial pain, according to the President of the Association of Independent Retirees Mr Wayne Strandquist.

“Fixed interest investment forms a substantial part of a retiree’s superannuation and private savings, particularly in the latter years of retirement”, Mr Strandquist said. “The Reserve Bank cash rate reduction will put more downward pressure on term deposits rates with cash held in bank accounts paying almost zero interest.

“When retired, risk tolerance reduces over time to favour more conservative investments with less volatility and less risk like term deposits, bank savings accounts and other fixed interest investments. The reduction in fixed interest by the Reserve Bank continues a trend that has seen term deposit rates fall to historic lows, to a fraction of what they were when many retirees left the workforce.”

“After bank account fees are charged and zero-interest paid, retirees are effectively paying the banks to hold their savings”, said Mr Strandquist. “This negative return will further lower the living standards of retirees and require larger drawdowns from their retirement savings until they are forced to rely on the Age Pension”, Mr Strandquist explained.The Association is calling on the government to urgently reduce the current deeming rates to reflect the fall in bank deposit rates.