Newstart, older age unemployment and deeming rates are top of the agenda for tomorrow’s meeting in Canberra between Federal Social Services Minister Anne Ruston and National Seniors Australia.
Setting the scene for the meeting, Chief Advocate Ian Henschke told the Australian Financial Review (AFR) that unless there is movement on these issues, the government is in for a long fight with older Australians … all the way to the next election.
Ian said changes to the upper deeming rate announced a month ago were inadequate and failed to reflect the actual interest people were earning on cash deposits.
"This will become a major issue in the run-up to the next election. They're balancing the budget on the backs of pensioners,'' he said.
The deeming rate is the interest rate the government deems pensioners earn on financial assets. Their pensions are then adjusted based on how much interest they are deemed to earn.
Last month, the government dropped the rate, which had not been adjusted since March 2015 -despite five interest rate reductions since then, for a total cut of 1.25 per cent.
The deeming rate on the first $51,800 of a single pensioner's financial investments – and the first $86,200 of a couple's dropped from 1.75 per cent to 1 per cent. The deeming rate for balances above those amounts would fall from 3.25 per cent down to 3 per cent.
Ian said the upper rate was still too high given almost 40 per cent of pensioners kept their money in cash, whereas the bulk of the remainder used a combination of cash and shares.
National Seniors Australia wants the rate fixed to the cash rate, as it once was, or set by an independent body.
Ian said deeming was never meant to be a way of punishing pensioners.
"It was meant to be a way of assisting them with coping with the pension.''
Ian told the AFR: "This will become a major issue in the run-up to the next election and National Seniors will not sit by and say this has been a common sense approach and we are happy with a 0.25 per cent [cut to the upper rate].''
In the same article, Ian Yates, Chief Executive of Councils on the Ageing Australia, was more circumspect.
He said the deeming rate and how it was set warranted further examination, but that should be part of the planned review into retirement incomes.
The vast bulk of people hit with the 3 per cent rate did not have their money in term deposits but in super and other investment vehicles that had higher returns than the top 3 per cent deeming rate, Mr Yates said.
"Or to yields on ASX 200 stocks, which are averaging about 4.5 per cent. So going through the proper process, we think that this is a good outcome."