They’ve cut deeming rates, but what are they?

Not cutting deeming rates when other rates are falling keeps people off the pension.

Peter Martin, Crawford School of Public Policy, Australian National University

Treasurer Josh Frydenberg has cut the deeming rate for large investments from 3.25% to 3%, and for smaller ones from 1.75% all the way down to 1%, backdated to the start of July.

But what exactly is a deeming rate, and why does it matter so much to about one million Australians on benefits, among them around about 630,000 age pensioners?

It’s a topic I covered in The Conversation mid last week in an explainer that went all the way back to the beginning, or at least the most recent beginning, when treasurer Paul Keating brought deeming rates back to Australia’s benefits system in 1991.

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Read more:
Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?

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Before that, applicants for the pension were able to pass income tests by ensuring that their assets didn’t earn much income, a service banks and other institutions were happy to provide for them.

From 1991, on applicants for the age pension (and later other benefits) were “deemed” to have earned from their financial assets amounts set by the government, whatever they actually earned.

Of late, deeming rates haven’t kept up

For most of the past two decades both the high deeming rate (which at the moment applies to financial assets in excess of A$51,800 for singles and $86,200 for couples) and also the low deeming rate (for lesser assets) have been below the Reserve Bank’s cash rate, benefiting applicants who could earn more than those low rates while continuing to get benefits.

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Deeming rates versus RBA cash rate, July 1996 – July 2019, per cent

Australian government, RBA

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Then, beginning with prime minister Kevin Rudd (who, to be fair to him, in 2009 delivered the biggest ever increase in the pension – $100 a fortnight for singles and $76 for couples) and continuing under his successors Gillard, Abbott, Turnbull and Morrision, the government adjusted the deeming rate more slowly, meaning that as the Reserve Bank’s cash rate fell, both the high and low deeming rates ended up above it.

The new deeming rates: 3% and 1%

The decisions announced by Frydenberg on Sunday go a long way to putting things right.

The lower deeming rate will once more be close to the cash rate (exactly at the cash rate, for as long as the cash rate stays at 1%). The higher deeming rate will not be, but then it probably shouldn’t be.

The higher rate applies to the return on financial assets (including shares) worth more than $51,800. As Frydenberg pointed out on Sunday, many of those assets return much more, not much less, than the deeming rate:

It could apply to superannuation returns, and that’s averaging around 5.5%. Or to yields on ASX 200 stocks, which are averaging about 4.5%

The low deeming rate is on the face of it unfair, because few bank deposits pay 1%. The special retirees accounts offered by ANZ and the Commonwealth pay 0.25%. Many deposit accounts pay nothing.

But the low rate applies to financial assets all the way up to $51,800 ($86,200 for couples), and to all types of assets. Many pension applicants are likely to earn a total return on those assets well above 1%.

Deeming is by design, rough and ready. There will always be complaints, and of late those complaints had force. They are now back broadly where they should be.

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Read more:
Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?

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Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Renters Beware: how the pension and super could leave you behind

Super and the pension treat most retirees well, but not renters.
Shutterstock

Rafal Chomik, UNSW

How we fund retirement in an ageing century ought to worry all of us.

But one group of us should be much more worried than the rest.

In a new set of research briefs published by the Centre of Excellence of Population Ageing Research, we report that most people do well out of our retirement income system and that the living standard of retirees has improved over the past decade.

In international comparisons, our system ranks highly, for good reason.

Most retirees do well

About 60% of older Australians can afford a lifestyle better than that deemed to be “modest” by widely used standards.

Households headed by baby boomers reaching retirement age between 2006 and 2016 did so with incomes 45% higher than those who retired a decade earlier.

Typical boomer households aged in their late 60s earn almost as much as they did when they were still working – only 20% less, that is, with about 80% of their working income maintained.

And their needs are lower. Lower spending in retirement is common because older households need to pay less for transport, less for working clothes, and have more time to cook.

Many continue to save while in retirement.

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Read more:
Please, not another super scheme, Mr Keating. It’s what the pension is for

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And they tend to spend less over time, rather than more over time as benchmarks publicised by the superannuation industry assume.

When we included the value of living rent-free for the 80% or more of retirees who own their own home (about A$10,000 per year on average), we found older Australians live in no more poverty than working age Australians.

But not renters

The living standards of those who rent in retirement are very different. Only about 15% of older renters can afford a lifestyle better than “modest”.

Single renters are particularly badly off.

Among all older people only about 10% fall below the poverty line set at half the median income.

Among older Australians who rent, 40% fall below.

Among older Australians who rent alone, it’s more than 60%.

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https://datawrapper.dwcdn.net/Oyddt/1/

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If that relative poverty measure seems too abstract, an absolute dollar figure might help.

Alarming research aired on the ABC in September found that, on average, aged care homes were spending $6.08 per day on food per resident.

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Our research finds that among pensioners who rent alone, one quarter spend even less than that per day.

And it’s getting worse

The pension has always favoured home owners.

On the one hand it is insufficient for renters and on the other it doesn’t cut pension payments to the owners of very valuable homes, because the value of any home – no matter how big – is excluded from the pension means test.

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Read more:
Let’s talk about the family home … and its exemption from the pension means test

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Rental assistance, introduced to complement the pension in the 1980s, was meant to alleviate this, and to some extent it does.

But it climbs only in line with the consumer price index every six months, which usually fails to keep pace with rents.

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Read more:
Life as an older renter, and what it tells us about the urgent need for tenancy reform

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Sydney rents have doubled over the past two decades. The consumer price index has climbed 68%.

As a result, rental assistance is less effective in reducing financial stress than it was when it was introduced, and is set to become even less effective if rents continue to climb more quickly than the price index.

And more of us look set to rent

Households headed by Australians aged 35 to 44 are now 10 percentage points less likely to own their own home than were households headed by people of the same age a generation earlier.

They might be merely postponing buying homes until they are older as more of what would have been their income is sequestered into super and they enter the workforce and retire later.

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Read more:
Explainer: what’s really keeping young and first home buyers out of the housing market

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If so, they might end up owning and paying off homes by retirement at the same rate as boomer households did before them.

If not, more and more of them could end up in poverty in retirement.

Rafal Chomik, Senior Research Fellow, ARC Centre of Excellence in Population Ageing Research (CEPAR), UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

COLOMBIA: CHURCH LEADERS UNDER FIRE

One pastor missing, three others reported killed in past month.

COCHABAMBA, Bolivia, November 4 – Christians in Colombia are anxious to learn the fate of pastor William Reyes, missing since Sept. 25, even as three other pastors have gone missing.

Reyes, a minister of the Light and Truth Inter-American Church and member of the Fraternity of Evangelical Pastors of Maicao (FRAMEN, Fraternidad de Ministros Evangélicos de Maicao), left a meeting in Valledupar, Cesar, at 10 a.m. that morning heading home to Maicao, La Guajira. He never arrived.

Family members and fellow ministers fear that Reyes may have been murdered by illegal armed groups operating in northern Colombia. Since March of this year, FRAMEN has received repeated threats from both the leftist Revolutionary Armed Forces of Colombia (FARC) and right-wing paramilitary units.

Abduction is another possibility. Often criminals hold their victims for weeks or months before contacting family members to demand ransom, a tactic designed to maximize the anxiety of the victim’s loved ones before proceeding with ransom negotiations.

In the past month, three other Christian pastors were reportedly killed in separate incidents across the country. According to Pedro Acosta of the Peace Commission of the Evangelical Council of Colombia (CEDECOL, Consejo Evangélico de Colombia), two ministers died in the northern Caribbean region and a third in Buenaventura on the Pacific coast.

At press time, members of the Peace Commission’s Documentation and Advocacy team, which monitors cases of political violence and human rights abuse, were traveling in those areas to verify the identities of the victims and circumstances of the killings.

 

Demand for Action

On Oct. 4, churches organized a public demonstration to protest the disappearance of Reyes. Thousands of marchers filled the streets of Maicao to demand his immediate return to his family. The FRAMEN-sponsored rally featured hymns, sermons and an address from Reyes’s wife, Idia.

Idia Reyes continues to work as secretary of FRAMEN while awaiting news of her husband. The couple has three children, William, 19, Luz Mery, 16, and Estefania, 9.

CEDECOL and Justapaz, a Mennonite Church-based organization that assists violence victims, launched a letter-writing campaign to draw international attention to the case and request government action to help locate Reyes.

“We are grateful for the outpouring of prayer and support from churches in Canada, the United States, Sweden and the United Kingdom,” stated an Oct. 26 open letter from Janna Hunter Bowman of Justapaz and Michael Joseph of CEDECOL’s Peace Commission. “Human rights violations of church people and of the civilian population at large are ongoing in Colombia. Last year the Justapaz Peace Commission program registered the murder of four pastors and 22 additional homicides of lay leaders and church members.”

Some of those killings may have been carried out by members of the Colombian Armed Forces, according to evidence emerging in recent weeks. Prosecutors and human rights groups have released evidence that some military units abduct and murder civilians, dress their bodies in combat fatigues and catalogue them as insurgents killed in battle.

According to an Oct. 29 report in The New York Times, soldiers commit the macabre murders for the two-fold purpose of “social cleansing” – the extrajudicial elimination of criminals, drug users and gang members – and to gain promotions and bonuses.

The scandal prompted President Alvaro Uribe to announce on Wednesday (Oct. 29) that he had dismissed more than two dozen soldiers and officers, among them three generals, implicated in the murders.

Justapaz has documented the murder of at least one evangelical Christian at the hands of Colombian soldiers. José Ulises Martínez served in a counterinsurgency unit until two years ago, but left the army “because what he had to do was not coherent with his religious convictions,” according to his brother, pastor Reinel Martínez.

Martínez was working at a steady job and serving as a leader of young adults in the Christian Crusade Church in Cúcuta on Oct. 29, 2007, when two acquaintances still on active duty convinced him to go with them to Bogotá to request a pension payment from the army. He called his girlfriend the following day to say he had arrived safely in the capital.

That was the last she or his family heard from him.

Two weeks later, Martínez’s parents reported his disappearance to the prosecutor’s office in Cúcuta. The ensuing investigation revealed that on Oct. 1, 2007, armed forces officers had presented photographs of Martinez’s body dressed in camouflage and identified as a guerrilla killed in combat. Later the family learned that Martínez was killed in Gaula, a combat zone 160 kilometers (100 miles) northeast of Bogotá.

Such atrocities threaten to mar the reputation of Colombia’s Armed Forces just as the military is making remarkable gains against the FARC and other insurgent groups. Strategic attacks against guerrilla bases eliminated key members of the FARC high command in 2008. A daring July 2 rescue of one-time presidential candidate Ingrid Betancourt and 14 other high-profile FARC hostages was greeted with jubilation around the world.

Yet in Colombia’s confused and convoluted civil war, Christians are still targeted for their role in softening the resolve of both insurgent and paramilitary fighters.

“I believe preventative security measures must be taken in order to protect victims from this scourge that affects the church,” Acosta said in reference to the ongoing threats to Colombian Christians. “In comparison to information from earlier [years], the cases of violations have increased.”

Report from Compass Direct News