Terry McCrann: Frydenberg deeming to still rip off pensioners

The Treasurer faces a choice between real reform and his current punitive and shyster-friendly path, writes Terry McCrann.

Fail, Treasurer, fail.

And not just a disappointing and rather vicious fail on its specifics.

But at your first opportunity to initiate significant and pro-people reform you just squibbed it, allowing yourself to be snowed by narrow-thinking — and frankly, fundamentally stupid — bureaucrats.

Pensioner income-deeming was established to stop well-off pensioners ripping off taxpayers. It’s become a vicious exercise in the government ripping off vulnerable pensioners.

Josh Frydenberg has now signed up to that continuing on his watch.

Deeming is designed to stop pensioners deliberately minimising income — like, say, lending money interest-free to relatives or leaving it in bank at-call accounts paying zero interest — to get either a full or part-pension or to get access to the pensioner health card.

So you are ‘deemed’ to earn at least a minimum interest rate on your ‘financial assets’ irrespective of what you actually earned, when being assessed under the ‘income test’.

What a lot of people don’t understand is that this scoops up everything — not just bank deposits, cash and loans to relatives, but managed investments, shares in listed and unlisted companies and superannuation, and more.

So people do, wrongly, see the deeming rate only in relation to bank term deposit (TD) rates.

So the previous 3.25 per cent deeming rate (for assets over $51,800 singles/$86,200 couples) seemed unrealistically high compared to the 2-3 per cent that was available on TDs — and was seemingly ‘deeming’ a pensioner earned money that was actually impossible to earn.

And the cut announced over the weekend of just 0.25 per cent, leaving the deeming rate at 3 per cent, seemed not only absurd but vicious — with pensioners now struggling to get even 1.5-2 per cent on TDs.

Treasurer Josh Frydenberg has signed up to the pensioner rip-off continuing. Picture: AAP

They will be deemed to earn money that was impossible to earn, and so will, unfairly, lose some or all of their pension.

The explanation — but also the problem and even more both the challenge to Treasurer Frydenberg and the opportunity to embark on real reform — is that the 3 per cent is aimed at a blend of what is reasonably able to be earned on a portfolio of the sort of assets listed above, not just TDs.

This was entirely reasonable in the world of the 1990s when deeming was established.

Back then you could get not just a reasonable interest rate on a term deposit but, critically, a rate that was not so out of whack with earnings on managed investments and super.

Also, and again even more critically, deeming was reasonably aimed at someone deliberately leaving money either in an interest-free deposit or lending it interest-free to relatives. By in effect, choosing not to earn, specifically, say, 5-8 per cent on TDs.

But in the world of near-zero interest rates almost across the board that we now live in — made, ineptly, by politicians, bankers and other ‘clever’ money men and central bankers — this now works not just unfairly but punitively and perversely.

Deeming now actually punishes you if you do put your money into TDs. Worse, it demands you put some of your money into risky investments.

This is not just bureaucratic-level stupid but deeply offensive. It’s demanding that pensioners who should actually be choosing low-return but low-risk investments like bank deposits and government bonds, must instead risk their money in the shark-pool of ‘risk’ investments.

I would have thought Frydenberg would understand how appalling it is for government to ‘encourage’ a, say, 85-year old to try to chase higher, riskier, returns.

And you wonder why we get the bad practices that we saw in the Hayne royal commission, or at regular intervals the Storm Financials luring unsophisticated pensioners into chasing some sort of return on their pitiful savings, when you get government forcing them to do it.

Treasurer Josh Frydenberg (right) with Reserve Bank governor Philip Lowe, whose cash rate setting means bank term deposit interest ain’t what it used to be. Picture: AAP/The Australian

Josh, if a pensioner wants to leave his or her money in the safety of bank deposits or government bonds they should be fully entitled to do so — and not, putting it frankly, be ripped off by their own government in return.

No, the solution is not to cut the deeming rate to, say 1 or 2 per cent — and leave the door open for both the shysters and pensioners gaming the system.

But to reform — R-E-F-O-R-M + the deeming system.

Broadly, to have two deeming rates. One for exactly TDs, bonds, cash and similar risk-free investments; and a second, higher rate to capture everything else.

Your choice Josh: continue to rip-off pensioners and force them to do silly and dangerous things and make the shysters happy and rich.

Or actually embrace reform that plays fair with pensioners and taxpayers, and limits the opportunities for shysters.

SUPER IS A MORE ‘BENEFICIAL’ RIP-OFF

There’s a similar government-mandated rip-off with compulsory super.

This is more complicated as there have been clear and significant benefits to people forced to save with super — even if it just builds up a pot to be cashed tax-free and splurged on retirement before going on the pension.

MORE: TIME TO BORROW A TRILLION DOLLARS

MORE TERRY McCRANN

But what is crystal clear is the outrageous amounts — running to billions of dollars a year — mandated into the pockets of those managing the money. And not just the for-profit funds but also supposedly ‘purer’ industry funds.

It’s now dubious whether the billions spent will save on future pensions. And there is no way — no way — contributions should now be forced compulsorily higher.

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