21 May 2020
Peter Van Onselen
Spare a thought for self-funded retirees in these difficult times. Not only are they in the age bracket most at risk from the virus, but their financial wellbeing in retirement is being put at substantial risk.
The collapse in the stock market, including among most blue chip stocks, is just the start of their financial pain. These big businesses, even if they survive, aren’t likely to pay out the dividends they once did for years to come, if ever.
The financial plans of self-funded retirees are built around dividend projections which therefore no longer apply, and with interest rates so low its not as though they can simply transfer their saving into cash accounts and do any better.
The RBA cash rate is at a record low.
The difficulties self-funded retirees face in low interest rate environments is the flip side to the benefits those of us with homes loans get from lower rates for borrowing.
Lower interest rates has become a way of life, but the prospects of rates surging north again anytime soon seems unlikely. Even if it does happen, it will only be in conjunction with inflation, which erodes spending power at the same time.
On the policy front, there isn’t much there for self-funded retirees to cushion the blow. While Jobseeker and JobKeeper are doling out tens of billions of taxpayers dollars to keep working age Australians in jobs or at least above the poverty line, self-funded retirees are getting no such support.
Even pensioners have received a boost to their pensions to help them get through these tough times. But the self-funded retirees who voted en-masse against Bill Shorten and his franking credits policy have become the forgotten people among Coalition supporters.
Their loyalty hasn’t translated into being looked after now. And because Labor is still licking its wounds from last year’s May election defeat, it hasn’t exactly been inclined to highlight their plight and put pressure on the government to do something to help this large voting cohort.
Rather, Labor has focused its attention on the plight of many casuals who are missing out on JobKeeper, and the university sector which isn’t eligible for the payments. Or childcare users who would benefit from free childcare continuing for longer. Or workers for foreign companies ineligible for JobKeeper. Or indeed anyone who might benefit from Newstart not returning to the low levels it was pegged at previously.
What about self-funded retirees? They truly are the forgotten people in this crisis. Taken for granted by a government that would not have won the last election had it not been for their support. Forgotten by an opposition that has written them off politically.
While I have long been critical of the unsustainable tax breaks for many older Australians, especially those with very large savings, the self-funded retirees who only just miss out on a part pension and concession card benefits are the ones caught in the middle right now.
As Ian Henschke from National Seniors has pointed out, some self-funded retirees — because of this crisis — are now drawing on an annual payout from their investments lower than the annual pension. To survive they would need to draw down their savings right at a time when their value has been halved. He wants to see discussion about legislating a universal pension in the wake of this crisis to ensure that can’t happen.
Whether that is a long-term solution or not is debatable — indeed whether it is fiscally viable is highly debatable. But there is little doubt this cohort of senior Australians deserves more than the cold shoulder.
Especially from a Coalition government.
Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.