Verante Financial Planning director Liam Shorte also said the RBA cutting the official cash rate to 2.25 per cent is another “kick in the teeth” for conservative SMSF trustees and self-funded retirees.
“I can’t find a six-month term deposit paying above 3.45 per cent and three-year government bond is below 2.0 per cent,” Mr Shorte said.
National Seniors chief executive Michael O’Neill similarly said that seniors living off simple investments such as term deposits will be worst hit.
“Seniors aged over 65 own 45.3 per cent of bank and financial institution term deposits and most of them are on low, fixed incomes,’’ said Mr O’Neil.
Term deposits, he said, are a preferred investment for many pensioners and self-funded retirees in particular because of the security and peace of mind they provide.
“[The] cut simply means less money in the pockets of many, many retirees around Australia,” he said.
CPA Australia chief executive Alex Malley, on the other hand, applauded the decision by the RBA to cut rates, stating it was a positive move for Australian businesses and households.
Mr Malley said the move has signalled to global markets that Australia has the “tools to promote investment and economic activity and is prepared to use them to boost Australia’s global competitiveness”.
“[Yesterday’s] interest rate cut will further support the current downward pressure on the Australian dollar and facilitate business’ ability to sell its products and services to the world, strengthening our terms of trade,” he said.
AMP Capital chief economist Shane Oliver also said the RBA was right to cut the cash rate to 2.25 per cent and said the benefit to debtors will outweigh lost income for those with deposits, with $850 billion currently sitting in bank deposits in Australia but $2050 billion in debt.
Mr Oliver also expects a further cut to the official cash rate.
“Rate moves are like cockroaches, there’s usually more than one so expect another 0.25 per cent rate cut to 2.0 per cent around April,” he said.
All this interest rate increase will do is encourage investers and home owners to borrow even more money and real estate prices will continue to surge as a result.To stimulate the economy govenment should be looking at easing the CGT so that current investors in both property and shares will be encouraged to liquidate their assets thus putting more money back within the economy and spending will flow from that.CGT on any property or other investment held for 15 years or more and then sold should be at a maximum of 20% thus encouraging investors to plan for their own retirement.
Greg , because these are Self Managed Super Finds and they have made a decision to have a portion of their funds in cash and TDs and are very conservative in terms of risk profile. It easy for advisers to say “take on more risk” but some people just do not have the tolerance. We do drip feed clients funds into long term stocks both local and international and bonds and some property funds so that they build confidence and better performing portfolios but you must take in to account the clients past experiences, concerns and cashflow needs. So to answer your question it is because I know my client and their needs.
Why does everyone scream that SMSF pensioners will be suffering when interest rates drop . Any SMSF which has the vast majority of its investments in interest bearing cash deposits should have it’s head read. Why not a mix of relatively capital secure listed investments with only sufficient exposure to cash to enable it to pay its pension benefits. Arguments that listed shares are illiquid no longer apply with internet based trading platforms available to all investors (eg Comsec). Listed shares can be readily converted to cash in most circumstances within 24 hours if needed to supplement any shortfall between the pension and the cash balance during the year.
Accordingly it is the result of the investment decisions of the SMSF that causes these issues. All investments have varying rates of return from year to year yet no-one screams when dividend yeilds change.
Why would you have clients in TDs in the first place?