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How the new deeming rates could affect you

In July this year the age pension deeming rates were cut, predominantly off the back of lower interest rates meaning that pensioners would not be receiving as much on their savings.

Most Centrelink benefits in Australia, including the age pension, are subject to both an assets test and an income test and the “worst result” from these tests is the one that’s applied. So the more assets a pensioner has, the less pension they receive, and likewise the less income they receive the lower their pension. As assets and income rises, eventually they reach a point where their entitlement is zero.

Deemed income 

Many pensioners find it a little confusing when the income test assesses their investments, and this is because Centrelink don’t actually consider how much is being earned. Instead they “deem” the asset to earn a certain amount of income, the rate at which they decide at any given time. It makes things a lot simpler for both the Government and the individual because things don’t have to be tracked as closely, i.e. interest on savings, or dividends from shares. You just total the assets and deem them.

The deeming rate is different depending on whether the pensioner is single or in a couple. 

Single pensioner  – A 1% deeming rate is applied to the first $51,800 of financial assets. Any amount over $51,800 is deemed at 3% p.a.

Couple pensioners (if one or both is age pension age) – A 1% deeming rate is applied to the first $86,200 of financial assets and 3% is applied to anything above.

These rates are 0.75% lower than what they were prior to July. It was argued this needed to happen because the reality is that most savings accounts and term deposits are no longer paying the likes or 4% or 5% and even 3% is quite competitive in the current climate.

They have the two different rates because it is generally assumed that those pensioners with quite a high level of investment assets, i.e. a single with more than $52k or a couple with more than $86k, are probably investing in some form of growth asset like shares and property, which tend to have a higher yield than current savings rates (and potential capital growth to boot).

The impact

Taking the example of a single pensioner with $250,000 in investment assets the change in deeming rates would result in an increase in entitlement of $36 a fortnight.

A couple with investment assets of $400,000 – the change in deeming rates would result in an increase in entitlement of $58 a fortnight.

This reduction in deeming rates does NOT correlate with the actual income that investment assets may be returning, so it is just as important as ever to maximise what these investments are yielding so as to potentially benefit from the change and improve one’s situation.

It’s worth noting  that this change will only impact part-pensioners and also only those whereby the income test is the applicable test for them.

It’s possible that under the previous you were just ruled out of age pension entitlement, on the basis of the income test, so if you think that may be you, we recommend you book an appointment with Centrelink as soon as possible to have yourself reassessed. Qualifying for ANY part pension entitles you to the pensioners concession card which is very valuable in itself.

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