In what may well rank as the worst in a series of stupid recent decisions, this federal government has cut funding to the National Information Centre on Retirement Investments Inc (NICRI). Consequently NICRI will close on late Feb 2015.
I am frankly appalled at this decision. Wendy Schilg and team at NICRI have done much good work over the years for retirees in general, and also for many Seniors First customers. I think the closure of NICRI is a serious blow for seniors finances, and it seems both COTA and TARS agree.
NICRI is an important source of ‘independent’ information for seniors on superannuation, retirement investments, financial advice, financial planners, estate planning, equity release finance and more.
I and the team at Seniors First have regularly referred pensioners & retirees who were considering home equity release to NICRI. This service was especially useful for would-be borrowers who were nervous and wanted reassurance that reverse mortgages were safe, and indeed were regulated by government.
The foolhardy policy decision by the government to cease funding this body will almost certainly result in some retirees making poor financial decisions that could otherwise have been avoided.
We always have that picture in our mind—the day when we finally stop working and spend the rest of our lives in beachfront houses with the love of our life, walking in the sand and watching sunset together. But according to a director of Retirement Research Alicia Munnel, this idea is far from what is going to happen in the future. “The idea that people can retire at 62 and walk around holding hands on the beach, it’s not realistic,” she said.
In her book “Falling Short: The Coming Retirement Crisis and What to Do About It” that will be released on Dec. 12, she mentioned that retirement in the 21st century would mean “working longer, saving more, and passing fewer assets on to heirs.” Although the research is U.S based, it applies to most western democracies, and certainly to Australia.
The inconvenient truth
More and more people will realise that as soon as they retire, they will have few savings in their bank accounts and yet, they are often too old for work and there are few options for improving income. Economic and demographic factors have affected our support system and things are changing before our eyes. The decline in birth rate means less people paying tax and increase in ageing population means more people running to government for support. There have been new set of reforms to address this issue, but as early as now, these reforms are being criticised to work only for rich individuals.
“People are not going to have enough money when they stop working,” warns Munnel. According to her, we need to fix this while we have time because this is really important and it determines the quality of life we will have in our twilight years.
While trying to be in the workforce as long as we can gives us a good leverage, it is often difficult to find work in our 60’s and 70’s. This is unfair, but the reality that many people face. But there’s no need to lose hope as other options can be available. Though reverse mortgages have developed a mixed reputation since they were introduced a decade ago, latest research articles combined in “Journal of Financial Planning” verified the importance of reverse mortgage and how it helps improve the retirement sustainability of individuals.
Here are five reasons why reverse mortgage fits modern-day Australian retirement planning:
For questions or inquiries, Seniors First reverse mortgage brokers in Australia are always here to help you. Call 1 300 745 745 today for a free initial consultation.
As you may be aware a reverse mortgage allows you to borrow money against the value of your home. In Australia, people often use the equity released via a reverse mortgage as ‘income’ to fund their retirement. Reverse mortgage continues to grow in popularity among seniors as the retirement funding shortfall for baby boomers starts to really bite in the community.
Although few Australians are aware of it, the government has a kind of ‘reverse mortgage scheme’ that has many advantages not offered by the private sector. The Centrelink and Department of Veterans Affairs have a Pension Loan Scheme wherein people who are on a part age pension can get a loan against their home or investment property. Just like any reverse mortgage, the loan is repaid once the property is sold. The loan serves as an additional income stream that when combined with the part-pension, gives them the benefit of maximum level of pension. The interest rate is also lower than the usual variable interest rates offered by reverse mortgage providers. The government reverse mortgage has a fixed interest rate currently of 5.25%.
Recently the Australia Institute argued though that the government scheme is available only for the wealthy retirees. Why is this so? Those retirees who own their homes, but are considered poor enough to be on full age pension, cannot access this government scheme. In short, only those Australian retirees who don’t have access to full age pension (because their wealth and income makes them ineligible) are able to enjoy and benefit from the government reverse mortgage scheme. In addition, those self-funded retirees who own property and ineligible for the age pension (because of income test or asset test) can also access the scheme. However, if they are ineligible for age pension under both tests, they won’t be able to access the scheme.
Therefore it’s perhaps no surprise the Australian Institute said that the government scheme is only available for those who need it the least. This compels most aged pensioners to use private reverse mortgage providers instead. After all, unlike the government scheme that is only limited and capped to the aged pension rate, retirees can borrow from a private sector reverse mortgage lender and take it as a lump sum – this is a major advantage. This gives borrowing power to a huge class of retirees who are on their full age pension and cannot access the government scheme. Read this for a full list of PROs & CONs to both the pension loans scheme and reverse mortgages that should be carefully considered.
The Australian Institute suggests that the government scheme should be available for every one of pension age. This should not be limited to rich people who are in the first place, ineligible for the full age pension because of their income or assets. If the scheme is made available for everyone, this will allow retirees who own property to potentially double their retirement income and live the rest of their lives to the fullest.
According to Australian Institute, this would not have a significant effect on the government’s budget if they open the scheme for everyone. What do you think? Do you think Centrelink should make the pension loans scheme available to every retiree? Tell us in the comments!
The day is finally here: I’m really excited to announce the official re-launch of Seniors First!
I can’t quite believe it, but it’s been eight whole years since we first started helping Australian seniors with reverse mortgage and equity release finance. Where did the time go??
It feels just like yesterday, but since 2006 we’ve helped thousands of people, won industry awards, and developed a reputation I’m really proud of. If you’re interested, check out our history page (yes, I’ve aged!)
What’s Our ‘Re-launch’ All About?
Well it’s my view that all good organisations never stand still for long. To be successful over the long-term companies must constantly listen, adapt and develop over time so that the needs of customers always met. The world changes fast, and we must change with it to keep up. Our re-launch is a conscious way to demonstrate to you, staff and partners that we are positioning for the future of reverse mortgages. And that future is online.
To this end, we’ve refreshed the Seniors First brand identity with an updated logo.
And we’ve worked with my other business to build this amazing new website. Our objective was to create a leading online resource for reverse mortgage and senior’s home equity release in Australia. We want this site to become THE destination for retirees, pensioners, and families who are considering reverse mortgage finance so we’ve packed it full or really useful information and tools:
Why Are We Re-launching Now?
The GFC of 2008/2009 was very hard on the reverse mortgage market in Australia. Essentially the number of lenders shrank from over twenty to just a handful. This was bad for consumers and the lack of product choice resulted in many borrowers missing out, or perhaps paying more in interest and fees that they otherwise might have. A lack of competition is never healthy for any market.
However I’m pleased to report that (five years later!) new lenders and products are once again emerging. As this rate of innovation of product choice increases, senior borrowers will need a specialist finance broker more than ever before.
In addition, there are signs of ‘shifting sands’ in public policy that are worrying many pensioners and self-funded retirees. The Government is increasingly giving signals that aged pension funding, health card concessions, and tax breaks that favour seniors are under review and may be reduced, or cut. In this environment – and with the vast majority of household wealth stored in property – the ability to release equity from the home safely and easily may become crucial for many Australians.
In the near future, it’s very possible that government policy will push more of the retirement funding burden to individuals and thereby increase the demand for reverse mortgages. With our new website, extra staff, and investment in online technology, I’m pleased to say this is a challenge that Seniors First is ready to meet.