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Australia: $800,000 to keep up with pension


South Australia Advertiser


 July 1, 2003

Australia - Self-funded retiree couples now need $800,000 in interest earning assets to be as well off as Centrelink aged pensioners, a South Australian economist has warned.

Prescott Consultants chief economist Daryl Gobbett said a predicted fall in interest rates would see the already poor returns on investments deteriorate even further for struggling retirees.

Lowering of interest rates may prove a short-term boon for mortgage holders but retirees surviving on returns from their decades of savings are feeling the pinch as the rate of return reduces when interest rates fall.

"A self-funded retiree couple needs to hold at least $800,000 in interest-bearing assets to deliver an income equivalent to a Centrelink pension," Mr Gobbett said.

"Already many retirees who pay their own way are worse off than people who are getting a Centrelink pension. With falling interest rates obviously a lot of self-funded retirees are going to be left worse off again."

From today, Centrelink is indexing its assets limit test for pensioners, potentially allowing more people to qualify for assistance.

For a single homeowner, the allowable assets limit increases by $4250 to $149,500, while for couples the limit rises by $6000 to $212,500.

Those who do meet requirements would hold little more than their family home in assets.

In comparison to self-funded retirees, from today, a couple receiving a Centrelink pension receives a maximum of $768 a fortnight, including a pension supplement and pharmaceutical allowance, plus rent assistance of up to $88. A single pensioner is entitled to up to $555.60 a fortnight, including rent assistance.

Mr Gobbett called on the Federal Government to reassess thresholds for Commonwealth assistance.

"In the first instance the Government should move quickly to bring into line the deeming rates," he said.

Deeming rates are the interest rates the Government assumes retirees are receiving for their investments.

The rate is used to estimate the income and therefore the eligibility for assistance but there is always a delay in resetting the rate when interest rates drop, which causes the Government to overestimate returns for some time.

O'Halloran Hill resident Tony Hodgkiss plans to receive a part pension payment from the Government by the end of the year.

"I am self-funded at the moment and because I have taken control of my investments I've been pretty happy with my returns," he said. "But falling interest rates have made it harder and I have had to spend some of our capital."

Garrisons Financial and Retirement Specialists adviser Yoni Carter predicted retirees would lose some assets under the interest rate climate.

"Obviously lower interest rates mean retirees will tend to use more capital to provide the quality of life they aspire to," she said.

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