Pension rise hit by cash collapse
A pension increase for millions of Australians begins this weekend but it's not enough to cover collapsing cash deposit income for retirees.
Age pension payments have increased almost 30 per cent in the past decade but many seniors' gains have been wiped out by average term deposit interest rates dropping from 6 per cent to 0.6 per cent.
The Reserve Bank doesn't expect its official interest rate to rise before 2024.
Ratecity.com.au research director Sally Tindall said the past 10 years had been "despairing Australians who rely on the interest they earn from their savings".
"It's a frustrating predicament for retirees in particular, many of whom know first-hand what it was like to earn 15 per cent interest on something as simple as a term deposit," Ms Tindall said.
A typical retiree couple holds between $50,000 and $100,000 of non-super assets, according to the recent Retirement Income Review, and for many seniors that money sits mainly in bank deposits.
A couple's combined basic pension has climbed $7400 since 2011, from $26,300 a year to $33,700, and this weekend's pension rise of $8.40 a fortnight for singles and $12.60 a fortnight for couples affects 2.6 million age pensioners, 750,000 people on disability support pensions and 295,000 carer payment recipients.
An average $50,000 term deposit today pays almost $2700 less than it did in 2011, down from $2985 to $310, according to research group Canstar.
The biggest users of term deposits were retirees, said Canstar group executive of financial services Steve Mickenbecker.
"For anyone who is on the pension with a bit tucked away, or a partly self-funded retiree, the income from your bank savings has been decimated," Mr Mickenbecker said.
"In the last 12 months some banks have reduced rates on savings accounts 12 times or so. That's startling."
Mr Mickenbecker suggested searching beyond the big four banks for a better rate because almost all deposits in Australia were government guaranteed.
"You are not going to lose your money just because you don't know the bank," he said.
Seniors group COTA Australia has received many letters from retirees telling it to lobby the Reserve Bank to stop cutting interest rates.
"There's a certain degree of anger," COTA CEO Ian Yates said.
"But the Reserve Bank is not doing it to hurt pensioners. It's doing it for macroeconomic reasons for the whole economy."
Mr Yates said the impact of low rates was mainly hurting those with little financial firepower.
"At the moment quite a lot of part pensioners are doing quite well because of their money in super, managed funds and the stockmarket," he said.
"For some people it's a bit of belt tightening but for other people they were relying on it."
RateCity's Ms Tindall said it was still worth shopping around for a better deal.
"There are still a handful of banks offering ongoing savings rates above 1 per cent - which sounds ridiculously low, but at least they're a fraction ahead of inflation," she said.
Originally published as Pension rise hit by cash collapse