Q: I receive a part-Age Pension, in addition to income from investments. I read that the Government has changed the deeming rate. Can you explain how that might affect me?
A: Deeming is a method the government uses to calculate income from financial assets. It assumes that money invested in financial assets earns a particular amount of income regardless of the actual return.
The deeming rate is used for income testing of the Age Pension, service and veterans’ pensions and other Centrelink payments. The rate sets a benchmark of income return from assets, which the Government uses to calculate how much investment assets return over time.
It covers a wide range of assets, including bank accounts, gold, managed investments and loans.
The Government has cut the deeming rate in response to falling interest rates. The lower deeming rate, on assets up to $51,800 for single people and $86,200 for couples, falls from 1.75 per cent to 1 per cent.
The upper deeming rate, on assets above those amounts, falls from 3.25 per cent to 3 per cent.
The change will take effect next month but will be backdated to July 1.
The Minister for Families and Social Services Anne Rushton says 630,000 age pensioners and 350,000 other people receiving payments will benefit. However, a leading seniors group said the government has not done enough.
She says age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples – an extra $1053 a year.
National Seniors Australia says the change is welcome but does not go far enough. It says the new rates remain well above the rate pensioners will earn on bank accounts.
National Seniors chief advocate Ian Henschke says: “What the government is telling pensioners is that they are earning 3 per cent on their investments, when most term deposits are not even returning 2 per cent. How is that fair?”
Canstar finance expert Steve Mickenbecker agrees that that reforms don’t go far enough, as the 3 er cent deeming rate is still higher that what banks are paying interest.