Living off bank account generated income and the age pension became a whole lot more difficult this week.
The Reserve Bank eased monetary policy for the third time in four months on Tuesday, dropping the key rate by 0.25 per cent to an historic low of 0.75 per cent.
It is even worse news for age pensioners who rely on bank account income, because Tuesday’s decision all but wipes away any gain from the federal government’s decision to ease deeming rates back in July.
The upper deeming rate, by which the government assumes how much pensioners make from their savings investments, remains at 3 per cent and will be almost double the typical return a pensioner can expect on their cash savings.
The higher the deeming rate, the less pension you receive. The lower the bank deposit rate, the less income you receive. Making matters worse, by remaining the same, the deeming rate assumes bank accounts are earning more than they can and thus cut into the pension.
National Seniors says it's time the government stopped crowing about its previous inadequate deeming rate cut as a ‘bonus’ for pensioners. There is no bonus now because returns on savings are going to be even less, yet the government still deems anyone with a balance over $51,800 to be getting a return of 3 per cent.
National Seniors Government Affairs Advisor Craig Sullivan said, “I challenge anyone to find a bank willing to offer a 3 per cent return on a term deposit.”
It’s now time to further cut the deeming rate to reflect the impact of plummeting interest rates and help stabilise pensioners’ incomes.
“If the government wants to inject some life into the sluggish economy, then cutting the deeming rate would act as a stimulus and help millions of pensioners who will be doing it even tougher now with this interest rate cut,” Mr Sullivan said.
In addition, the upper deeming rate needs to be linked to the RBA cash rate as it was under previous governments in the interest of fairness for pensioners.