Cost-of-living crisis for Age Pensioners: what you need to know

By Darren Moffatt

March 15

12 comments


Where cost-of-living is highest for Australian Seniors, and ideas for solutions 

The current cost of living crisis for Age Pensioners is driven by several factors, including rising costs of essential goods and services, such as housing, healthcare, and energy. 

According to a 2020 report by the Australian Council of Social Service (ACOSS), the income provided by the Age Pension has not kept pace with the rising cost of living, leaving many pensioners struggling to make ends meet.

The pre-pandemic ACOSS report found that the average cost of living for a single Age Pensioner was around $44,000 per year, while the maximum rate of the Age Pension was just $23,877 per year. 

Today, the cost of living still ranges between $44,000 to $48,000 per year, while the maximum rate of the Age Pension still lags between $20,000 to $28,000 per year. 

With an almost 50% income gap, most Age Pensioners are forced to make difficult choices, such as cutting back on essential items like food and medication, in order to make ends meet.

The cost of living crisis for Age Pensioners is particularly acute for those who are renting, as housing costs have risen significantly in recent years. 

According to the National Seniors Australia, around 40% of single Age Pensioners who rent are living in poverty.

What is the cost of living for Age Pensioners in Australia per state? 

According to the Retirement Standard of the Association of Superannuation Funds of Australia (ASFA), a comfortable retirement lifestyle is one where retirees are able to afford a broad range of leisure and recreational activities, own a reasonable car, travel domestically and internationally, and have access to a range of health services as required.

To achieve this comfortable retirement lifestyle, ASFA estimates that a retired couple in Australia would need a lump sum of around $640,000 or an annual income of approximately $62,000 (in today’s dollars) to support their living expenses throughout their retirement years.

Of course, this estimate may vary depending on factors such as location, housing expenses, and personal spending habits. It’s important to note that while this standard represents a comfortable retirement lifestyle, retirees may choose to live with a higher or lower level of spending depending on their preferences and financial situation.

The cost of living for retirees in Australia varies by state and region. Here is a general overview of the current cost of living for retirees in each state according to Association of Superannuation Funds of Australia (ASFA):

New South Wales

The cost of living for retirees in NSW is generally higher than other states. According to ASFA, a single retiree in NSW needs around $44,223 per year to live a comfortable retirement. For a couple, this figure rises to $62,828 per year.

Victoria

The cost of living for retirees in Victoria is slightly lower than NSW. ASFA estimates that a single retiree in Victoria needs around $43,372 per year for a comfortable retirement, while a couple needs $60,604 per year.

Queensland

The cost of living for retirees in Queensland is generally lower than in NSW and Victoria. ASFA estimates that a single retiree in Queensland needs around $42,861 per year for a comfortable retirement, while a couple needs $60,264 per year.

Western Australia

The cost of living for retirees in Western Australia is generally higher than in Queensland. ASFA estimates that a single retiree in Western Australia needs around $44,128 per year for a comfortable retirement, while a couple needs $62,269 per year.

South Australia

The cost of living for retirees in South Australia is generally lower than in Western Australia. ASFA estimates that a single retiree in South Australia needs around $42,595 per year for a comfortable retirement, while a couple needs $60,049 per year.

Tasmania

The cost of living for retirees in Tasmania is generally lower than in other states. ASFA estimates that a single retiree in Tasmania needs around $40,798 per year for a comfortable retirement, while a couple needs $57,621 per year.

Northern Territory

The cost of living for retirees in the Northern Territory is generally higher than in other states. ASFA estimates that a single retiree in the Northern Territory needs around $46,560 per year for a comfortable retirement, while a couple needs $66,224 per year.

Australian Capital Territory (ACT)

The cost of living for retirees in the ACT is generally higher than in other states. ASFA estimates that a single retiree in the ACT needs around $44,357 per year for a comfortable retirement, while a couple needs $62,515 per year.

It’s important to note that these figures are based on ASFA’s retirement standard, which assumes a comfortable retirement with access to a range of goods and services. The actual cost of living for retirees may vary depending on individual circumstances and lifestyle choices.

[ Related Video: Cash-strapped retirees turn to reverse mortgages as cost of living rises (7news) ]

 

 

Possible solutions to help pensioners survive the cost-of- living crisis

The Australian government has implemented several measures to address the cost of living crisis for retirees, including the following:

Age Pension increases

The government has increased the Age Pension rate several times in recent years to keep up with the rising cost of living. The Age Pension is indexed twice a year, in March and September, to ensure that pension payments keep pace with inflation.

Energy bill relief

The government provides energy bill relief to eligible pensioners through the Energy Supplement and the Low Income Energy Rebate. These programs provide financial assistance to help retirees with the cost of heating and cooling their homes.

Pharmaceutical Benefits Scheme (PBS)

The PBS provides access to prescription medications at a reduced cost, which can help retirees manage their healthcare expenses.

Seniors Card

The Seniors Card provides discounts on a range of goods and services, including public transport, groceries, and dining. This can help retirees save money on their everyday expenses.

Aged care reforms

The government has implemented a range of aged care reforms, including increasing funding for home care packages, to support older Australians to age in place and live independently for longer.

Senior’s Home Equity Release Options 

Another solution that people over 60 years of age may consider is Senior’s Home Equity Release. This is the process of converting some equity value in the family home, to cash. There are currently several options available.

1. Home Equity Access Scheme (HEAS) 

Formerly known as Pension Loan Scheme (PLS), the HEAS allows retirees who own their own home to borrow against their home equity to supplement their income. This can help retirees who are struggling to make ends meet to better cover their daily expenses.

The most common way to take funds is a fortnightly ‘top up’ to the existing age pension payments. This can be an excellent option for those who just need a bit more cash flow for retirement living.

It’s also possible to borrow a lump sum vai the Home Equity Access Scheme. However the lump sum component is very limited, and is capped at 50% of the maximum pension rate. Those who need a larger lump sum for debt consolidation, or other needs, may find that the HEAS is not suitable. 

It’s important to note that the HEAS is a loan scheme  and that compounding interest applies to any money borrowed. For this reason it is often called the ‘Government Reverse Mortgage’, even though it is not technically a true Reverse Mortgage (it is classified as a government entitlement and is not subject to the same regulations as Reverse Mortgages)

2. Reverse Mortgage Loan (cash reserve or monthly advance options)

A Reverse Mortgage loan is a type of loan that allows seniors to convert some of the equity in their homes into cash, without having to sell or move out of their homes. 

Unlike the government scheme that is only available to Australians who receive a pension, a private Reverse Mortgage loan is typically available to any seniors who own their home. 

Also, the loan proceeds from a Reverse Mortgage loan can be larger than the amount available through HEAS because the amount of the loan is usually based on the the value of the property and the age of the borrower (HEAS has a cap on the amount you can borrow). 

In terms of disbursement, a private home equity loan is more flexible because it also offers lump sum, cash reserve and regular advance options – even a combination of all three. 

(On the downside, the interest rates offered by Reverse Mortgages providers are somewhat higher than the HEAS. So it pays to use a broker like Seniors First to help you find Reverse Mortgage lenders with cheap rates).      

For a cash reserve option, you may be able to set aside a portion of the loan proceeds in a cash reserve account, which can be used later to meet unexpected expenses or to supplement your retirement income. This cash reserve account can grow over time, earning interest or investment returns, and can be drawn upon at any time without any additional fees or penalties.

For the regular advance option, you can receive the loan proceeds as as monthly instalments. The monthly instalment feature will allow you to receive a regular payment from your chosen lender, which can help to supplement your retirement income and cover living expenses.

The amount of the monthly instalment is typically determined by a number of factors, including your age, the value of your home, and the interest rate on the loan. You can choose to receive the monthly instalment for a set period of time, such as 10 or 20 years.

It’s important to note that in a Reverse Mortgage, you will not be required to make any payments on the loan while you continue to stay at home. The loan is only due when you move out of the home, sell the property, or pass away. At that time, the loan must be repaid, typically through the sale of the home.

 

Conclusion

Whether you choose the government scheme, or a loan from a private Reverse Mortgage company, it is crucial that you borrow responsibly and be prudent with the loan proceeds. 

In general, the best practice is to draw the funds as gradually as possible in order to minimise the overall interest charge. 

To learn if you qualify for a Reverse Mortgage loan, you can CHECK YOUR ELIGIBILITY HERE

You may also call Seniors First at 1300 745 745 or post your comments below.

Regards,

 

Darren

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  1. The Government states they want to see aged pensioners stay in their own homes but Strata levies are the same for me as someone earning $100K a year Why can’t there be a Government rebate for the thousands in this position?

    1. Hi Laraine,

      Thank you for leaving a comment on our website, you have a very good point.

      We appreciate the time you have taken to respond to us.

      Kind Regards,
      Seniors First

  2. Pensioners who have a mortgage over their residential property should be entitled to extra benefits like pensioner renters. The pension should be increased further as it has not kept up with inflation and cost of living. The assets and pension tests should be increased to allow more people to access the pension. There should also be greater discounts for payments of all utilities, plus phone use etc.

    In order to live on a pension, without any other income, a person cannot have any debts, including
    a mortgage, own their property, and live very frugally. This means no meals out, no hairdresser, and very basic expenditures. It is not really living but more about survival.

    It is way past time that people realized that life can be very difficult for pensioners. Many of them struggle to pay their bills, and some even go without food and/ or medication as they cannot afford same.

    1. Hello Irene,

      Thank you for leaving a comment on our website. I completely understand your concern for pensioners who are struggling to make ends meet. It is important to ensure that the elderly population are able to live with dignity and without financial stress.

      A reverse mortgage can be a way to access the equity in their home to help pay for their living expenses. This can be especially useful for those who do not have significant savings or other assets to draw on.

      One of the main advantages of a reverse mortgage is that it allows pensioners to access the equity in their home without having to sell the property or move out. This means that they can continue to live in their home and maintain their independence and lifestyle.

      Another advantage of a reverse mortgage is that it does not require the borrower to make any repayments until they sell the property, move out or pass away. This means that the pensioner can use the funds to cover their living expenses without having to worry about making regular loan repayments.

      Again, we appreciate the time you have taken to leave a comment.

      Kind Regards,
      Seniors First Team

  3. Seniors are penalised in many ways – a few examples:

    1. After 75 a medical is required annually and this will cost around $70-$100 for a GP consultation to complete the paperwork. This is in addition to the up to $200 fee to renew the licence. This makes having a driver's licence a lot more expensive as you get older. (In UK the licence is free after 70 and there is no requirement for a medical)

    2. After 75 salary sacrifice super payments are no longer permitted. This means that up to $27,500 is taxed at full rate and not the concessional rate. Another added cost for older people who continue working.

  4. I believe that you have overlooked one very important factor in your range of possible solutions.

    If someone is eligible for an age pension and they wish to top this up by continuing to work, that person should not be penalised by having their pension reduced.

    I have continued to work part-time since turning 65 and have my pension adjusted/deducted every fortnight. We have really noticed the difference since the Federal Government "allowed" me to earn a little bit more (since December) without my pension being deducted and it makes life so much easier.

    Otherwise – what is the incentive to remain in the workforce and help reduce the labour shortage?

    Time for the Government to put on the thinking cap, adjust to rapidly changing factors that impact on pensioners and the cost of living crisis and introduce long-term incentives for us older workers to remain in the workforce without being penalised!

    Of course there will need to be some sort of a cap (of high earnings) at which point a pension would be reduced and/or cancelled. However, pension reductions should not apply to a pensioner earning a few hundred dollars a week to maintain a pretty basic lifestyle.

    How long is it since this system of deducting from a pensioners earnings has been reviewed and/or adjusted to reflect the increasers in the cost of living?

    The current government is on track, but if we can afford billions to buy submarines surely we can find a way NOT TO PENALISE PENSIONERS WHO NEED TO CONTINUE TO WORK TO AFFORD A DECENT LIFESTYLE.

    1. Hi John,
      Thank you for leaving a comment, we do appreciate the time you have taken.
      Kind Regards,
      Seniors First

  5. It would be nice if we could get some help on Norfolk Island, where shipping and freight costs increase the cost of living pressures for us all. Why is it no one cares about the pensioners on this island. Nobody seems to offer any support for a reverse mortgage here.

    1. Hi Zed,
      Thank you for leaving a comment on our website.
      I believe you have previously spoken with Angela, and yes that is correct about Norfolk.
      We are terribly sorry we were not able to assist you.
      Kind Regards,
      Seniors First

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