The Australian
June 25 2018
Robert Gottliebsen
For the last four weeks I have been holidaying in Scotland and Norway, where I encountered a lot of Australians who self fund their retirement.
Once the conversation moved from the latest scenic encounter, I discovered a combination of anger, frustration and a fear of the future—a deep emotion that I have never previously encountered on a widespread basis.
Accordingly, those businesses that rely on the spending of self-funded retirees need to understand that the game has changed.
But first, a thank you to those who congratulated me for receiving the Order of Australia in the Queen’s Birthday honours list. I was humbled.
In recent years spending by self-funded retirees has been strong and been a big contributor to tourism and the support of charities.
A great many retirees are now cutting back and some cruise operators in the up- market areas are reporting a 25 to 30 per cent fall in advance bookings and unheard-of cancellation rates, despite the consequent deposit losses.
Retailers in that sector will also notice the difference. Centrelink pensioners and those enjoying bonanza public service pensions are not affected. It’s those who sacrificed their living standards in past years to put money away for retirement that the politicians are targeting.
Among the self-funded retirees the most deep-seated anger is directed towards the Coalition, which retrospectively savaged retirement planning and broke all the previously established rules of government.
It’s not what the self-funded retirement community expected from the conservative forces in the government.
Having said that, they have adapted, which is why they are travelling overseas. Some are running down their retirement savings to greatly increase their dependence on the government pension. They hate doing it but we have a government that thinks little about the long-term implications of what it did.
Had the ALP said they would make no further changes, the retirement community might have supported them in droves.
Instead the ALP decided that if it was good enough for the Coalition to kick the sector it should join the party, so launched an all-out assault on self-managed fund funds in pension mode with assets roughly between around $400,000 and $800,000, reserving a special kick for retiring small entrepreneurs.
Shadow treasurer Chris Bowen believes there are big sums to be harvested but I don’t think he understands the retirement community and in my view he is simply wrong.
Indeed an angry retirement community is already carefully planning strategies to make sure the ALP does not harvest their franking entitlements.
People I spoke to will bring their children into their fund to take advantage of a planned loophole that has been set up to enable large superannuation funds, including industry funds, to use the taxable income of those fund members NOT in pension mode to offset the franking credits of those in pension mode. If an ALP government tries to block children being incorporated into self-managed funds it will endanger the planned industry fund strategies. Others hope to delegate their Australian equity management to the large funds. It might work.
Yet others will change their investment strategies.
These people are in their 60s and 70s and they planned their retirement decades ago in line with the rules of the day. The self-funded retirees will adapt but it’s much harder for the retiring entrepreneurs who used their accumulated tax-paid profits to fund their business.
When they sell the business, or just close it down, they aimed to pay out the accumulated profits in fully-franked dividends. As they have no other income, Bill Shorten and Bowen have them in a headlock.
And this could be a trigger for a much wider attack on pensioners.
And assuming the ALP wins the next election (and that is not a prediction but merely an assumption), in my view it will soon discover its sums are wrong. To cover the shortfall it may to attack the government pension community.
Perhaps illogically, in the eyes of the retirement community it’s not just the politicians who have them in the gun.
The Reserve Bank has lowered official interest rates to help young people, leaving the elderly relying on bank deposits for income to suffer. That pushed many into bank shares and their high dividends. Now we have a royal commission into the banks. The consequent fall in bank shares (plus Telstra) is another blow.
At the same time medical costs are rising faster than inflation.
It’s true the dwellings of self-funded retirees have increased in value, particularly in Sydney and Melbourne, but there is a shortage of apartments of a reasonable size so many are staying put rather than downsizing to release cash.
Meanwhile those rely on their parents for the education of grandchildren and other handouts are now feeling nervous because of the fear building up among their parents.
One day a group of politicians will decide that there are family votes to be gained. Although the Coalition is tarnished, a solemn promise of no more blows might help, given the ALP is thirsting for more retiree blood. Minor parties are winning votes in Europe. The same thing may happen here.
