Lower rates are eroding the retirement savings of many Australians, writes Chris Zappone.
The Reserve Bank's recent rate cuts are benefiting young people at the expense of the old, retirees say.
For John Logan, a 66-year-old Melbourne mainframe computer programmer preparing for his retirement, a slide in interest rates has eroded the growth of his term deposits and he is unmoved by complaints of younger mortgage payers.
"I put up with 18 per cent interest rates when I was their age," he said.
Mr Logan holds little hope that rates rates will be nudged up to protect the savings and cash holdings in his self-managed super fund.
His frustration is felt by a generation of people at or near retirement age who shifted funds out of shares to avoid the losses seen in the past few years, only to watch in dismay as the banks whittle away their returns in response to lower official rates.
With the ASX 200 index trading 40 per cent below its 2007 highs, the wobbles on global markets have pushed the Reserve Bank to cut 125 basis points from the cash rate in the past eight months alone, trimming more than a full percentage point from three-month term deposits, according to RateCity.com.au data.
A Canberra retiree said his monthly income had dropped by more than $100. With the shares contained in his allocated pension also slipping in value, he and his wife have no choice but to cut back on expenses.
"We can't cut much more," said the 71-year-old father of five, who volunteers in his spare time. "We're not much into drinking, neither of us smoke and we don't gamble at all."
The share of cash in allocated pensions has risen from 3.7 per cent in 2008 to 12.1 per cent this year, the superannuation tracking group SuperRatings said. Allocations to balanced investment options in allocated pensions sank from 56.2 per cent to 40.6 per cent in the same period.
A similar shift has occurred with self-managed super funds. Holdings in cash and term deposits in self-managed super funds have soared 40 per cent to $114.9 billion, nearly double the pace of the increase in listed shares, which grew 20 per cent to $122 billion.
"If you're 75, you've seen the GFC [global financial crisis] and you're really stung," said Warren Chant, the director of superannuation research group Chant West.
"Many have gotten out of superannuation environment and just invest their money in term deposits. They're the ones who are hurting."
Amelia Christie, a research policy officer at the Combined Pensioners and Superannuants Association of NSW, said many of her group's 30,000 members were tightening their belts because of lower rates on term deposits.
"They definitely struggle with that because they've got a fixed income effectively, so it does affect the amount of interest they receive," Ms Christie said.