Current deeming rates must be reduced following the most recent interest rate reduction, which has placed greater financial stress on retirees not reliant on the pension, according to a group representing self-funded retirees.
Association of Independent Retirees president Wayne Strandquist said the current deeming rate was well above the level it should be in relation to official interest rates, which were reduced to 0.10 per cent by the Reserve Bank of Australia (RBA) on 3 November.
“The 2.25 per cent government deeming rate is over three times the interest rate that can be actually earned today by retirees on a two-year term deposit with the major banks,” Strandquist said.
“To earn returns that exceed the upper deeming rate, retirees are forced to consider riskier investments, including a volatile share market.”
He said the new interest rate would continue to impact fixed interest investments, pushing returns to historically low levels.
“The RBA cash rate reduction will put more downward pressure on term deposit rates, with cash held in bank accounts paying almost zero interest,” he said.
“The reduction in fixed interest by the RBA 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.”
He said the interest rate reduction would further lower the living standards of retirees and push them to take larger drawdowns from their retirement savings, and may force them to rely on the age pension.
“At the end of the day, retirees just want the secure, reliable, adequate income over a longer retirement that was proposed in the government’s Retirement Income Framework in 2016 and we are still waiting,” he said.
