The Investment and Financial Services Association has calculated that by the middle of 2008 Australians had a retirement ‘’savings gap” of $695 billion, a dramatic increase on the $452 billion gap when the group last assessed super contributions.

The latest numbers do not include the worst of the global financial crisis, so the gap is likely to have grown. More recent data was not available. The figures mean the average savings gap is $73,000 a person, an increase of $26,000 over the previous four years.

Reverse mortgages and equity release products are a natural part of the solution to this, but the sharp reduction in lenders and product choice arising from the global financial crisis will impair the ability of some pensioners and retirees to find a solution.   

This means that of all households in America that are eligible, more than 2 per cent have now established a reverse mortgage to help fund their retirement. By comparison in Australia, where our reverse mortgage industry has been active for much less time, the ‘penetration rate’ (or take-up rate) of reverse mortgages is still only about 1 per cent.

Given the huge shortfall in retirement savings and the growing numbers of ‘baby-boomers’, it will only be a matter of time before Australia too exceeds a 2 per cent take-up rate of reverse mortgages amongst eligible households. 

What were the reasons behind this decision?

Over the last 18 months, many lenders who previously offered reverse mortgages from 60 years of age have exited the market. Consequently RBS was the only lender left to cater to the 60-63 year market, and it’s likely they received too much of this business for their liking, and have mitigated this by raising their minimum age to 65.  

For information on the remaining lender who offers reverse mortgages from 63 years, enquire here.

According to the report by Deloitte Actuaries and Consultants, the local reverse mortgage market grew by 13 per cent over the last financial year, measured by outstanding balances after 4,950 new borrowers entered the market.

The average age of the reverse mortgage borrower is 74, the report said.

The report also found that the main reason for taking out a reverse mortgage was to receive a regular income stream in retirement, followed by debt repayment and home improvement.

SEQUAL chief executive Kevin Conlon said the average borrower took out about 70 per cent of what was available to them, showing senior Australians were showing constraint.

“They’re making informed decisions, they’re mapping their requirements and they’re borrowing what they need rather than what they desire or what’s made available to them,” Mr Conlon said.

The study also showed that 10 per cent of borrowers voluntarily repay their reverse mortgage each year.

“This is an important finding as it shows that such borrowers are only being exposed to reverse mortgage compound interest for a relatively short period of time,” Mr Hickey said.

NSW and other states will raise public housing rents for single aged-care pensioners in tandem with their $30-a-week pension increase.

It means that, from September next year, hundreds of thousands of pensioners will lose a quarter of their pension boost - and while that is only $7.50 a week, it represents about 10 per cent of their typical food budget.

The single pensioner rate will increase by $65 per fortnight. The pension for couples will also increase by $20.30 per fortnight combined.

The income test and ‘taper rate’ has also changed: the rate at which excess income affects the pension will change from 40 cents in the dollar to 50 cents in the dollar for singles. For couples, it will change from 20 cents each in the dollar to 25 cents each in the dollar.

The pension income test ‘free area’ is currently $142 a fortnight for singles and $248 for couples combined. Pensioners with private income below these amounts will not be affected by these changes.

For more government information on pensions go here.

Full comment from Seniors First can be read here. 

This follows their nomination as a finalist in both the 2007 and 2008 Australian Mortgage Awards. 

(Disclosure: the editor of this site is also the MD of Seniors First) 

According to an analysis of Bureau of Statistics data, the SMH found that the proportion of people over 55 who own their home outright has fallen from 74 per cent in 2000, to 67 per cent in 2009. The slump in outright home ownership among over-55s reflects a wider decline across all age groups, but is slightly more pronounced.

This will have implications for the coming generations of retirees, who will either have to work longer to pay down these debts, or use reverse mortgage and equity release products to refinance the remainder of their home loans prior to full retirement. Recent SEQUAL data on reverse mortgages indicates that this already happening, with the percentage of new reverse mortgages being used to refinance existing home loans on the increase.  

This story was a golden opportunity to educate seniors on the pros and cons of reverse mortgages and how to release equity safely. Instead the program chose to scaremonger and portray reverse mortgages in an overwhelmingly negative way that will do little to help seniors currently struggling in the wake of the global financial crisis. The closing assertion by presenter Matt White that borrowing just 15 per cent of the property could erode all of the borrower’s equity in ten years, was spurious at best. It relies on assumptions, not disclosed in the program, of zero property growth and 12 per cent interest rates for the entire ten year period.

 Such a scenario has never occurred in Australia’s history. Given that the average property growth over the last 25 years has been 6 per cent, and that the Reserve Bank officially aims to keep interest rates in the range of 6 to 8 per cent, the example used on the show was impractical in the extreme, and of no real use to senior consumers. 

The real pity is that this sensationalist, poor journalism will put off some consumers who need it most.

Where was the fact that a senior borrower can draw as little as $300 per month to supplement their pension? Where was the fact that monthly fees charged by some lenders are to be avoided where ever possible as these themselves attract interest?  A good specialist adviser, such as Seniors First, can properly educate senior borrowers about these issues, and more.    It is true that senior borrowers must be careful when establishing a reverse mortgage, but there is much, much more to consider than what was shown in the Today Tonight segment. It was an opportunity squandered.

Members of the public who want to properly understand reverse mortgages can obtain a free copy of the Seniors First consumer report by download at www.seniorsfirst.com.au or by calling their office on 1300 745 745.