The Greater Sydney Commission, which is headed up by Lucy Turnbull, has released its draft district plans outlining targets and priorities across Sydney’s six districts for the next 20 years.
The Greater Sydney Commission has released its draft district plan with a 20-year vision for each of Sydney’s six districts.
The plan sets out how the priorities outlined in the ‘A Plan for Growing Sydney’ report can be achieved in practical terms, and includes a 5-10 per cent affordable rental housing target for low and very low income households in all new residential developments across Sydney.
The plan also outlines a vision for a ‘green grid’, a network of parks, bushland, waterways, green street canopies, and walking and cycling paths across the city.
The Commission’s plan is to transform Sydney’s six districts into three cities: the Eastern City, the Central City and the Western City, with each city liveable and productive in its own right.
The Commission has also launched a Greater Sydney Digital Dashboard, an online tool that will allow better monitoring of the growth and changing face of Sydney with a view to making better planning decisions.
Visitors are able to enter their suburb name into the website, and view their relevant district plan and related documents.
With Sydney forecast to have a population of 6 million by 2036, better urban planning is essential.
“Greater Sydney is a mosaic of great places, and we’ve collaborated with the community, peak interest groups, businesses, and all levels of government to build concrete plans to make those places greater,” said Greater Sydney Commission’s Chief Commissioner, Lucy Turnbull.
Greater Sydney Commission CEO Sarah Hill said, “By early 2018, for the first time in many decades, our aim is that final land use, transport and infrastructure plans will be aligned to provide a strong platform for Greater Sydney.”
The plans will be on display until the end of March 2017. The Commission will be leading a public discussion about the plans until then, and encourages submissions.
The federal government could save about A$1 billion a year by winding back three tax breaks for older Australians that are unduly generous and have no sensible policy rationale, according to our new Grattan Institute report.
The tax-free thresholds for seniors and for younger people have diverged over the last 20 years. Seniors do not pay tax until they earn A$32,279 a year, whereas younger households have an effective tax-free threshold of A$20,542.
These outcomes are hard to justify. A retired couple pay about A$4000 a year in tax on earnings of A$70,000 a year from their assets (assuming assets outside of super worth A$1.4 million). Any extra income they draw from a super account is tax free.
By contrast a working couple with both people earning the minimum wage would have the same income of $70,000 a year but pay tax of about A$7000. Unlike the retired couple, they probably don’t own their own home and have little chance of accumulating $1.4 million in assets, or much super savings, or owning their home before they retire.
These age-based tax breaks help to explain why the proportion of seniors paying tax has almost halved in the last 20 years. Those over 65 pay less tax per household in real terms than seniors did 20 years ago, despite their rising incomes and workforce participation rates.
Age-based tax breaks are badly designed to any justifiable purposes such as increasing workforce participation or preserving adequate retirement incomes for poorer Australians. Tapers that withdraw the offsets for those with higher incomes lead to the tax breaks effectively increase marginal tax rates for many people. And of seniors who lodge a tax return, none of the benefits go to the bottom 40%.
Some may argue that the tax breaks are a fair reward for a lifetime of paying tax. But large tax breaks for seniors are in fact a relatively new invention not provided to previous generations.
And the current generation of seniors also receive much more than their predecessors from government spending, particularly on health. Senior households on average receive A$32,000 a year from government more than they contribute in income and sales taxes. In 2004 they only took out about A$22,000 a year. For now, federal budget deficits are funding the difference.
Very little justification was provided for these tax breaks when they were introduced. But they correlate with electoral dynamics shifting decisively in favour of older voters. From 1995 to 2015, the proportion of eligible voters aged 55 and over grew from 27% to 34%. Because younger Australians enrol less, those aged 55 and over are now 38% of enrolled voters.
These tax breaks might have been affordable when they were introduced 15 years ago, and budgets moved into surplus. But the federal government has been running large budget deficits for 8 years in a row. It must make tough saving and spending decisions to avoid handing an unsustainable bill to future generations.
Our report proposes winding back SAPTO and the higher Medicare levy threshold. Self-funded retirees should not qualify for SAPTO. Seniors with enough private income that they do not qualify for a full Age Pension should pay some income tax.
The proposed changes are fair. Seniors would pay either the same or less tax than younger Australians. They would have little effect on the 40% of seniors who receive a full Age Pension. They would mostly affect seniors who are wealthy enough to receive no pension or just a part pension.
These changes would save the federal budget about A$700 million a year. Reducing the private health insurance rebate so that seniors get the same rebate as younger Australians would save another A$250 million.
To put that A$1 billion of budget repair in context, the government’s recent omnibus bill improved the bottom line by A$2 billion a year, and the super package by less than A$1 billion. With deficits running at about A$40 billion a year, there is a long way to go, and reforming age-based tax breaks would help.
Author: John Daley, Chief Executive Officer, Grattan Institute; Brendan Coates, Fellow, Grattan Institute; William Young, Associate, Grattan Institute
The Australian Competition and Consumer Commission’s new report into potentially unfair contract terms details its review of 46 contracts across seven industries, which resulted in a range of businesses making changes to their small business standard form contracts.
The ACCC will begin enforcing the new law this week [Nov 12], when consumer protections against unfair contract terms are extended to include up to 2 million Australian small businesses.
The report, Unfair terms in small business contracts, provides an industry-by-industry breakdown of the common terms of concern identified by the ACCC following its engagement with businesses in seven industries, including advertising, telecommunications, retail leasing, independent contracting, franchising, waste management, and agriculture.
“Businesses should be aware that from Saturday the ACCC is moving from its education phase to an enforcement approach where we will be targeting unfair contract terms,” ACCC Deputy Chair Dr Michael Schaper said.
“Positive engagement with the ACCC over the last year has seen businesses such as Australia Post, News Limited, Optus and Scentre Group (Westfield) amend or remove contract terms that may have been problematic when the new law commences.”
“Small businesses sign an average of eight standard form contracts a year and from November 12 these contracts will be covered by a law preventing unfair terms in contracts that are offered on a ‘take-it or leave-it’ basis.”
The ACCC has identified three types of problematic terms as being widespread and likely to cause concern.
“Terms that give one party an unconstrained right to unilaterally vary key aspects of a contract, that unfairly seek to shift liability from the contract provider to the small business or that provide unnecessarily broad termination rights will almost always raise concerns about unfairness. Businesses that rely on these types of terms should be aware that they are leaving themselves open to action by the ACCC or another party,” Dr Schaper said.
“Businesses should consider whether a contract term creates an imbalance of obligations between the parties, whether it is necessary to protect a legitimate business need, and whether it causes detriment to the other party. Businesses should ensure that potentially problematic terms are only as broad as reasonably necessary to protect their legitimate interests, as terms that grant rights beyond this are likely to be unfair.”
The report provides guidance to these industries about these specific concerns, but also serves as general guidance to businesses operating in other industries about the kinds of terms that may be considered unfair from November 12.
Previous research has shown almost two thirds of small businesses claim to have experienced unfairness in contract terms and conditions they have signed, with almost half report experiencing some harm as a result.
The law will apply to a standard form contract entered into or renewed on or after 12 November 2016. If a contract is varied on or after 12 November 2016, the law will apply to the varied terms.
Contracts covered include those between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than a year.
Standard form contracts provide little or no opportunity for the responding party to negotiate the terms – they are offered on a ‘take it or leave it’ basis.
The law sets out examples of contract terms that may be unfair, including:
terms that enable one party (but not another) to avoid or limit their obligations under the contract
terms that enable one party (but not another) to terminate the contract
terms that penalise one party (but not another) for breaching or terminating the contract
terms that enable one party (but not another) to vary the terms of the contract.
Only a court or tribunal (not the ACCC) can decide that a term is unfair. However, if a court or tribunal finds that a term is ‘unfair’, the term will be void – this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.
CBA has highlighted some of the disruptive business models which may impact on the housing market in the future.
Buying a home in Australia may be set for a major makeover in the next 15 years as economic, cultural and demographic trends lead to the emergence of new ways of funding home ownership.
CommBank’s Future Home Insights Series has identified a number of trends that are predicted to significantly influence the Australian housing market from now until 2030 and beyond, including population growth, urban living trends and the rise of multi-unit dwelling construction. The series also found that Australia’s society will encompass a broader collection of social groups, which will influence how Australian property is built and sold.
Dan Huggins, Executive General Manager Home Buying, Commonwealth Bank, said: “We know these trends will significantly impact how Australians live, buy and sell property. At the same time, these trends could change how lenders meet the needs of Australian home buyers in the future.”
CommBank has identified eight existing and emerging pathways to home ownership, including:
Collaborative buying
Co-living arrangements could become more sophisticated with the emergence of collaborative buying/living models. ‘Co-housers’ typically own or rent a smaller-sized dwelling that’s part of a bigger development and contains some communal areas. If residents can share spare rooms, living areas, storage sheds and laundries, then each house can be smaller – and therefore more affordable. Co-housing also reduces the overall physical and environmental footprint per household through more efficient land use.
Group loans
A growing number of people are splitting the costs of buying a home by partnering with a sibling or friend so they can share mortgage repayments with someone they trust. Analysis by CommBank shows that the number of applications with two or more applicants is trending up, from 64 per cent in 2014 to 67 per cent in 2016, while the number of single applicants for mortgages is slowly trending down. This approach coincides with the rise in multi-generational living and provides buying power that comes with two generations contributing to a property.
Communities in common
By 2030, new dwellings will average 119 square metres in size, which is around half the size of the average house in Australia today. To compensate for smaller private living spaces, many developers and architects are designing communities that encourage people to share generous common spaces with like-minded people in their building. Communities in Common also occur when individuals formally band together because they share certain values and lifestyles.
Joint-ventures and syndicates
Pooling funds to gain greater buying power is becoming more common in Australia.
Increasingly, all kinds of people, from siblings to cousins and friends, are coming together to enter the property market as a group. Group development models – where people buy and develop blocks of land collectively – also deliver economies of scale. It can be far cheaper to build several properties at once than one dwelling at a time.
Guarantor Loans
Australians may be familiar with guarantor loans as a way for parents to form joint property ventures with their children. These loans help young people get into the housing market sooner by allowing parents or family members to use their own property as additional security.
Crowd housing
Online crowd housing platforms are connecting homebuyers who share common interests with property developers and architects, giving groups of people more say in the kinds of homes they’d like to see built. For buyers, it means they’re able to express their needs to property developers in real-time; and for developers, it means reducing settlement risk by creating more attractive apartments that specifically meet the needs of buyers.
Staircasing
Moving up the property ladder by buying more shares in an individual property, and hopefully one day attaining full ownership, is known as ‘staircasing’. Instead of buying a house outright, home owners are buying a share in a property and gradually increasing this stake as their savings grow. Whilst this is new to Australia, overseas’ examples include a British government scheme, which allows home owners to pay as much as they can afford – usually between 25 per cent and 75 per cent of the total value of a property – increasing their ownership stake when funds allow.
Guesthousing
Australia is seeing a rise in the variety and frequency of online portals such as Airbnb that connect homeowners looking to monetise their spare bedroom or couch. This works well as it provides additional income for the homeowner to put towards the mortgage and other bills, and it offers the tenant a place to stay whether it be on a short-term or a longer-term arrangement.
We did some specific research for a slot on ABC Radio in South Eastern Regional NSW, covering the regions around Cooma, Bega, Jindabyne, and Batemans Bay. Using data from our surveys we were able to pull out some insights into the property markets in these locations. Given the fixation elsewhere on capital city prices, it is worth remembering that the property market actually consists of a series of micro-markets, with very different characteristics and outcomes. Our research shows this nicely.
So, looking at the four markets, lets start with average home price trends.
At Cooma, the Capital of the Snowy Mountains, prices are on average around $240,000, though they have slipped a bit in the past year, with a fall of around 10%.
Bega, in the rural heartland of the Sapphire Coast, has an average price of around $300,000 with a small fall in the last year of around 3%.
Jindabyne which overlooks Lake Jindabyne near the Snowy Mountains has an average price of $430,000, and has seen a strong rise this year after a small fall last.
Finally, Batemans Bay, in an area surrounded by understated natural beauty, attracting everyone from watercolour artists and rock fishermen, keen surfers and fishing enthusiasts to families on holiday, has an average price of $330,000 up about 3% this year. Units here rose around 1.3% to around $230,000.
The types of families vary across the region. For example, Jindabyne has many younger families, including those with growing kids, whereas Batemans Bay has an older population including many edging towards, or in retirement. Households in Bega and Cooma tend to be in the middle, with an average age of 51.
So now we look at the mortgage metrics for these areas. The loan to value ratio is highest in Cooma at 84%, reflecting some price falls, and larger mortgages. But the loan to income and debt servicing ratios are quite healthy, so there is little mortgage stress at current interest rates. It rates were to rise, that could change. Many of the properties here have been held for several years, so some capital value has been locked in, but capital growth remains limited.
Compare this with Batemans Bay. Here the LVR is significantly lower, at around 51%, but the DSR and LTI are higher. This reflects the more limited incomes many older households now have, despite the fact they still have an outstanding mortgage. There is more sensitivity to rising rates. There have been more recent property transfers, and loan refinances. We also see growth in the number of apartments in the region.
Households in Jindabyne have a higher debt service ratio, reflecting the larger mortgages required to purchase here compared with incomes. Again there is sensitivity to rising rates. The loan to income ratio is 4.7 on average.
We also found that demand along the coast is being supported by those from the cities buying a second property for holiday, or investment purposes, including the scenario where they grab equity from an existing Sydney property to fund the purchase. This illustrates the spillover effects of high Sydney prices.
So overall, property momentum in these regions does not mirror the growth rates in Greater Sydney, though there are some spillover effects. Property on the coast is in greater demand, including from investors, and many prospective local buyers are being priced out of the market. Some mortgage holders have quite a high debt burden, in terms of meeting repayments, and would be sensitive to rising rates.
Great cities and neighbourhoods always have a particular kind of urban intensity – what we might call the “character”, “buzz” or “atmosphere” that emerges over time. While unique in many ways, great cities also have certain things in common. One way to understand these properties is to think about a city’s “urban DMA” – its density, mix and access.
We’re still in the early days of understanding how cities work. But we do know that creative, healthy, low-carbon and productive cities all depend on intensive synergies of density, mix and access.
When we talk about “urban DMA”, we’re talking about the density of a city’s buildings, the way people and activities are mixed together, and the access, or transport networks that we use to navigate through them.
Like biological DNA, urban DMA doesn’t determine outcomes, but establishes what is possible. A low density, largely mono-functional cul-de-sac (such as a shopping mall or a gated enclave) is an anti-urban form. Minimum levels of concentration, co-functioning and connectivity are necessary for any kind of urban life.
The concept of urban DMA can be traced to the work of the late Jane Jacobs, whose book “The Death and Life of Great American Cities” was written in the mid-20th century, when many great cities were being surrendered to cars and poor urban design.
Jacobs wrote of the need for “concentration”, “mixed primary uses”, “old buildings” and “short blocks”. We recognise this as urban DMA – “concentration” is density; “mixed use” and “old buildings” are the conditions for a formal, functional and social mix; and “short blocks” means “walkability” at a neighbourhood scale.
Jacobs’ key contribution was to focus on the city as a set of interconnections and synergies rather than things in themselves – a focus on the city as an assemblage, rather than a set of parts. While the language has evolved, our understanding of these vital synergies needs to be taken much further.
Access
Access is about how we get around in the city. How do we make connections between where we are and where we want or need to be? What are the access routes – are they organised in closed or open networks? How fast are they at different scales and for different modes of transport? How far can we get with a given time frame and with what mix of walking, cycling, car, bus, tram or train?
At a neighbourhood scale access is primarily about “walkability”; at larger scales we depend on a mix of cars, cycling and public transport. But access means nothing if there is nowhere to go – the synergy with density and mix is everything.
Kim Dovey, Author provided
Mix
Mix is about the differences and juxtapositions between activities, attractions and people. It’s not about diversity as spectacle, but a means of enabling encounters and flows between different categories of people, buildings and functions. Mix is about the alliances and synergies between home, work and play; between production, exchange and consumption.
Like density, mix can be uncomfortable; it means proximity to different kinds of people and practices. It means a layering of old and new buildings, of large and small buildings, and of large and small organisations.
Mix is not an unmitigated benefit. Urban planning was largely invented to stop mixing – to prevent living with noise, smells and activities we don’t like. It means keeping where we live away from where we work and shop.
But that separation ceases to be helpful when the result is people living in suburbs with no shops, or working in suburbs with no transport. Great cities will have many different kinds of mix – a “mix of mixes” – each geared in turn to density and access.
There are dangers in an excess of some kinds of density, like the overcrowding of populations and the loss of light and air that comes with excessive building. There are many different kinds of densities – of residents, jobs, buildings, houses and street life. They interconnect, and they all matter.
The big question about density is: how much activity, how many people and how many buildings can be concentrated into one urban area? How close can we live to where we work or need to be? How many urban amenities, places and jobs can we walk or commute to?
Density is not one thing but many and it is the mix that matters.Elek Pafka, Author provided
Urbanity
What is at stake here is the future of this great cauldron of productivity and creativity we call urban life. The 19th century British economist Alfred Marshall famously suggested that there was “something in the air” of a city that made it more economically productive – a phrase that is suggestive of an “atmosphere” and a “buzz” of urban intensity.
Much more than a simple clustering of people and buildings, urbanity is a concentration of intensive encounters and interconnections. And its benefits are much more than economic – they’re social, environmental and aesthetic.
If we want to build great cities, we shouldn’t develop formulae or copies of “best practice” from other cities. We should turn to our existing cities and ask three simple questions:
How dense can we get yet remain liveable?
How mixed can we get while remaining safe and civil? And,
How easily can we get around in a healthy and sustainable way?
Urban planning enables and constrains these dimensions of urban life. And unlike human DNA, urban DMA can be redesigned. If we want a healthy, creative, productive and low-carbon city – if we want “the buzz” – we need to reshape the urban DMA.
Authors: Kim Dove, Professor of Architecture and Urban Design, University of Melbourne; Elek Pafk, Lecturer in Urban Planning and Urban Design, University of Melbourne
The Commonwealth Bank has long been active in the space of financial literacy – that is, educating young people about the importance of managing money effectively.
Just recently it announced an overhaul to its “Start Smart” financial literacy programs, which aim to teach children about money.
The catch phrase seems progressive but is loaded with assumptions about women, men, their relationships, and their financial choices. This downplays the economic and social reasons why women’s financial opportunities and experiences tend to differ from men’s.
Pay gap in the workplace
It’s a bold ambition when you consider the broader context. According to the Workplace Gender Equality Agency, the highest gender pay gap actually occurs in the financial and insurance services industry, where senior management positions continue to be male dominated and the difference between women’s and men’s earnings is 30.2%.
Further, when comparing Indigenous females to non-Indigenous male workers with median incomes, the reported superannuation gap is 39%.
Such programs, like the one Commonwealth Bank is offering, are based on the assumption that a combination of guest speakers visiting schools and downloadable resources hold the key to improving financial literacy teaching and learning.
Why are banks getting involved?
The federal government has invested millions of dollars and entrusted the Australian Securities and Investments Commission (ASIC) to lead initiatives intended to help children understand finance.
We also have consecutive National Financial Literacy Strategies led by ASIC, that are intended to drive improvements in the way financial literacy is taught and learned in schools.
Consumer and financial literacy has an elevated status across the Australian curriculum, signalling opportunities for interdisciplinary approaches, particularly in mathematics and economics and business.
Financial literacy projects are big business for consultancies. And for banks, manoeuvring under the guises of corporate social responsibility serves to position brands favourably.
The ANZ bank, for example, conducts its Survey of Adult Financial Literacy every three years. This is considered the leading measure of adult financial literacy in Australia.
These strategies are important to them since their houses are not in order. The recent parliamentary inquiry confirmed that the big four banks are troubled by bad behaviour and more effective regulation is needed.
How do children learn about money management?
Children tend to learn about money within their homes in different ways – and those teaching around this area need to be sensitively attuned to this learning.
Children become socialised and oriented to consumer, economic and financial issues through a series of conversations, observations, and experiences – consciously and unconsciously.
Even primary-aged students make surprising, insightful comments that show mature understandings about earning, spending, saving, and sharing money. This is particularly true in disadvantaged communities.
How is financial literacy taught?
Research into financial literacy education in schools – how it is taught and learned – is an emerging field, typically characterised by program trials and evaluations.
Program evaluations tell short term success stories – the rubber really hits the road when students need to apply their learning in the real world down the track.
In 2012, the OECD and Programme for International Student Assessment (PISA) included a Financial Literacy Assessment for 15-year-old students. Australia ranked fifth out of the 18 participating countries and economies.
The findings showed that students in city schools achieved higher scores than students in provincial and remote schools; and non-Indigenous students significantly outperformed their Indigenous counterparts.
Teaching kids about managing money is most effective when classroom tasks are tailored to meet students’ family backgrounds and interests, and occurs at the point of need.
Students enjoy financial problem solving and decision-making experiences that captivate their imagination, challenge them to think, and prepare them for the real world.
Devising financial literacy lessons that create connections between students’ financial literacy learning at home and at school is hard to do without really knowing the local context and students.
Because Australian classrooms are diverse, this stuff rarely comes together “off the shelf”.
Not reaching the most vulnerable communities
The uncomfortable truth is that workshops by so-called finance literacy experts and downloadable teaching and learning resources may not reach and resonate with Australia’s most vulnerable communities.
Planning for financial literacy learning requires an understanding of the school community, interdisciplinary navigation of the Australian Curriculum, and skilful inquiry approaches.
This is what teachers are trained to do, although they need and crave quality professional learning to hone their craft.
When it comes to meeting students’ academic, social and emotional needs on any issue, let’s invest in schools and trust teachers to do what they’re qualified to do.
Authors: Carly Sawatzki, Lecturer, Monash University; Levon Ellen Blue, Research fellow, Griffith University
Although the majority of Australians consider themselves financially responsible when paying bills and sticking to a budget, a quarter of the population (26%) are splashing their cash on things they know they will struggle to repay says Veda.
Millennials are leading the pack, with 36% of people aged under 30 admitting to overspending according to new research from Veda, Australia and New Zealand’s provider of consumer and commercial data and insights and a wholly-owned subsidiary of Equifax.
The Veda Australian Credit Scorecard offers market-leading insights into credit habits and VedaScores. It combines an analysis of more than two million VedaScores with consumer research of 1,000 Australians. A VedaScore provides a snapshot of an individual’s creditworthiness, which is useful to know when applying for credit.
Queensland is the state with the highest default risk of 20 per cent, whilst the Australian Capital Territory scored lowest.
Izzy Silva, Veda’s General Manager, Consumer, said the tendency of younger people to overspend was reflected in their credit scores, revealed in the fourth annual Veda Australian Credit Scorecard.
“Millennials (Gen Y) top the table for the generation at highest risk of default within the next 12 months, with 23% of this group considered at risk, compared to 17% of the total population,” Mr Silva said.
In 2016, Millennials also have the lowest average VedaScore (712) and are the only generational group to have an average score lower than the 2016 national average (757).
The good news is Veda’s data shows that the average VedaScore of 757 for Australians in 2016 is considered a very good score.
“It is clear that Australians are more aware of how their credit score can get them a better deal, with an increase in people accessing their credit score to 23%, compared to only 11% in 2015. However, Australians say they want to ‘live in the now’ and tend to splash the cash without worrying about the future – 32% of consumers admitted to this behaviour (up from 24% last year),” Mr Silva added.
Generally speaking, women are more financially conscious than men with the average VedaScore for women sitting at 768, compared to the average VedaScore for men of 749. This financial conscientiousness is illustrated by the statistic that only 13% of women are likely to overspend because they think they deserve it, compared to 23% of men.
“By maintaining a high VedaScore, consumers demonstrate to lenders that they are in control of their credit and spending habits, which in turn makes them a lower credit risk and more attractive to lenders, thus helping them secure better financial opportunities,” Mr Silva said.
Australian Credit Attitudes
Social researcher Mark McCrindle said that gender and age were just two of a number of factors that influenced an individual’s financial personality.
“Through the research conducted by Veda, we have seen a segmentation of people’s attitudes towards credit and there are four individual archetypes we have identified. These are: Money Masters, Slapdash Strivers, Secure Savers and Financial Fumblers.
“Each of the archetypes is shaped by influences including age, income, gender, and work status. There are distinct attitudes and behaviours exhibited by each archetype group,” Mr McCrindle added.
Money Master – Generally classified as wise and knowledgeable when it comes to managing their own credit, with friends and family members often coming to them for advice in regard to their financial goals. Money Masters tend to be predominantly male, work full-time and have a healthy expendable income which they can invest into financial securities.
Slapdash Striver – Often people who take financial risks without completely understanding the consequences. They also consider themselves financially ambitious and have the potential to reach their financial goals with further knowledge of the credit landscape. Slapdash Strivers tend to work full-time and achieve a higher income than the majority of Australians, with an even split between males and females.
Secure Saver – People who are living comfortably within their financial environment and would prefer not to spend money with credit on unnecessary items as they are well informed about money management. They typically have a strict budget and plan ahead for future uncertainty. People who are classified as Secure Savers tend to be female and from the Baby Boomer generation who either work part-time, or are retired.
Financial Fumbler – Often people who live payday to payday and can get overwhelmed when setting financial goals. They are unaware of the benefits of credit and don’t have the appropriate knowledge to invest their money in the right places. With better planning and knowledge, they can get back on track and head towards a positive future. People who are classified as Financial Fumblers tend to be on the lower end of the income spectrum, such as students and/or under 35 (Millennials or Gen Y).
Despite retaining its third-place ranking behind Denmark and Netherlands in the 2016 Melbourne Mercer Global Pension Index (MMGPI), Australia has sustained a slight drop in the rating of its pension system for the second consecutive year.
Whilst not alarming, narrowly missing out on the Index’s A-grade ranking by receiving a score between 75 and 80 for a sixth consecutive year indicates that despite being superior in many ways, further reform is required to ensure that Australia’s retirement system is considered world class, as is the case for Denmark’s and Netherlands’, which both retained their A-grade rankings.
Measures that were suggested to improve Australia’s system include:
Introducing a requirement for an income stream to comprise part of the retirement benefit;pension age relative to ongoing increases in life expectancy;
Increasing the preservation age;
Continuing to increase labour participation rate at older ages.
Australia’s overall Index Value saw a decline from last year’s 79.6 to this year’s 77.9. Author of the report and Senior Partner at Mercer, Dr. David Knox, attributed this to a “reduction in the net replacement rate”, caused by the federal government’s decision last year to defer the increase of the Superannuation Guarantee from its current 9.5 per cent to the proposed 12.
Despite its deferral affecting this year’s Australian adequacy rating, former Commonwealth Bank CEO and most recent Chairman of the Financial System Inquiry (FSI) Dr. David Murray AO insisted in his interview with Franklin Templeton Managing Director Ms. Maria Wilton, that an increased superannuation guarantee was necessary for a sufficient adequacy, given the tightening of the taxation arrangements around superannuation by the Federal Government.
“The nominal contribution rate [of the current superannuation guarantee] is 9.5 per cent. In effect, this is closer to 8 on an after-tax basis, and in adequacy terms” he believed this was insufficient. “You would have to get at least 11 after tax… on a pre-tax basis, allowing for the contributions tax, that’s around 14-15%”, Dr. Murray explained.
More alarmingly perhaps, Dr. Knox hinted at the fact that Australia’s score could undergo a further decline in future years, due to the Index not yet having taken into consideration the tougher 2017 Age Pension assets test, which will see a reduction in pension payments.
“At the moment, there is no allowance for the new assets test that comes on January 1 next year. I’m expecting our net replacement rate… to fall again”, Dr. Knox stated.
Despite these issues, Dr. Knox confirmed that the positives associated with the Australian pension system far outweighed the negatives, noting that a significant factor in Asian countries such as India, Singapore and Korea being the biggest improvers in the 2016 index ratings, was these countries considering the Australian system an archetypal source of recommendations.
These sentiments were endorsed by Dr. Murray, who deduced that “in a low growth world, with unfunded systems from much of the developed world” a country taking Australia’s third rank was “more likely to come from Asia” than anywhere else.
This year, 27 countries were included in the MMGPI, all of which obtained an index value based on more than 40 indicators, each belonging to one of three sub-indices; adequacy, sustainability and integrity. Covering almost 60% of the global population, one of its primary aims is to highlight the shortcomings in each country’s retirement income system, and suggest possible areas of reform.
THE VERY SIGNIFICANT IMPACT OF AGEING POPULATIONS ON GLOBAL PENSIONS
As well as dealing with annual rankings, this year’s edition of the MMGPI closely inspected the impact of an ageing global population, and how well equipped each country in the Index is to deal with this issue.
It was found that each country has experienced improvements, albeit to varying extents, in life expectancy over the last four decades. As outlined by Dr. Knox, when these projected increases in life expectancies are combined with recent marked decreases in fertility rates, the result is that “many countries are facing a significant [old] age dependency ratio over the next 25 years”.
“[In] 1980, we had almost 6 workers per older person, a couple of years ago, we had 4.7 and by 2040, we will have 2.3”.
It was found that of the countries in the Index, the one best placed to tackle this issue of an ageing population was Indonesia, due to the combined effects of its relatively low projected old age dependency ratio in 2040, and its preferable scoring on a range of mitigating factors, which it was explained by Dr. Knox, were very likely to offset the inevitability of having more aged.
These mitigating factors include:
Labour force participation rate for 55-64
Labour force participation rate for 65+
Amount of increase in the labour force participation rate for 55-64
Projected increase in the retirement period over the following 2 decades;
Pension fund assets as a % of GDP.
Professor Rodney Maddock, Interim Executive Director of the Australian Centre for Financial Studies, who hosted the Index’s official launch, echoed Dr. Knox’s thoughts, noting that an adjustment to both the retirement and pension eligibility age was necessary to ensure the continuing sustainability of Australia’s superannuation system: “Australians are living longer, living larger portions of their life in retirement and spending more in retirement, so we need to be well-placed to ensure fulfilling, adequately-funded retirements.”
From a more global perspective, perhaps in a much more dire state, is a nation such as Japan, which according to Dr. Knox, will have “one retiree for every 1.44 people of working age by 2040”, demonstrating the “alarming” projected old age dependency ratios in some nations.
IF YOU’RE already starting to feel the mortgage pinch, this is bad news. New economic modelling shows mortgage defaults are set to rise over the next 12-18 months, and those who will be most affected will surprise you.
The research conducted by Digital Finance Analytics, based on its extensive household surveys, shows those falling behind in their mortgage repayments will continue to increase thanks to low wage growth and employment changes. This is despite record low interest rates.
“Incomes are just not growing and that is creating considerable difficulties for many households,” Principal of Digital Finance Analytics, Martin North told news.com.au.
“What I’m predicting is that incomes are going to remain static for the next 12-18 months … That means that households are in this difficult situation were they can just about afford their mortgages, but things like the general cost of living, which is going up faster than incomes, is going to create considerable pressure on many households.”
Western Australia and Queensland mining areas will bear the brunt, with New South Wales, Victoria and ACT being the best placed.
WHO IS MOST AT RISK?
First home buyers will unsurprisingly be in the firing line, as they are entering the housing market now when prices are so inflated and going in with the assumption that their income will grow.
However, interestingly, those hit the hardest will be affluent young buyers and wealthy seniors. Disadvantaged households on the edge of cities, and battling urban households are at lower risks of default.
“People with large mortgages, so young affluent buyers who bought in Bondi, for example, are finding it much more difficult to keep that property out of default because their income is not growing. Even in the more affluent areas in the states where there is a greater economic momentum, you still have the hot spots of difficulty,” Mr North told news.com.au.
“Interestingly, it is not necessarily the more stressed households — the ones you would expect out on the fringe. And the reason for that is those households never got the pay rises and they never got the big mortgages because they couldn’t afford to.”
Wealthy seniors who own property will also face more mortgage stress due to a combination of stagnating income and lower returns from deposits and the sharemarket.
Mr North said he is concerned this could spell disaster for the economy.
“The reason is we have never had household debt as high as it is. This is new territory,” he told news.com.au.
“We’ve got this very high level of debt and we’ve got very flat incomes so it could work out in a rather bad way.”
He said retail spending and financial stability are going to take a hit as Australians will not have the discretionary income to spend and the performance of our major banks is heavily reliant on mortgages.
Queensland is the state with the highest default risk of 20 per cent, whilst the Australian Capital Territory scored lowest.
