The Federal Government has announced the first change to deeming rates since they were frozen five years ago due to the pandemic.
This may affect your eligibility for the age pension if the higher rates push your income above what is acceptable under the income test.
Alternatively, you may receive a lower pension amount as a result of higher deemed investment income.
Let's investigate further.
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Higher deeming rates from 20 September
From 20 September, a deeming rate of 0.75%, up from 0.25%, will apply to financial assets worth less than $64,200 for singles and less than $106,200 combined for couples on the pension.
Assets worth more than these amounts will be subject to a new deeming rate of 2.75%, up from 2.25%.
This will impact many senior Australians because deeming rates help determine eligibility for the pension and how much they receive.
Deeming is the method that the government uses to estimate the investment income that pensioners earn from their assets each year.
Instead of calculating actual returns received by individual pensioners, the government assumes everyone earns a set rate of return.
This is called the 'deemed' rate.
It's applied to the total value of your assets to work out your 'deemed' investment income each year.
The investment income is then added to your other income, and the income test is applied to work out if you are eligible for a pension, and if so, how much.
Financial assets subject to the set deemed rates of return include ASX shares, international shares, bonds, cash in savings accounts, and some superannuation income streams (only relevant if you're older than the pension age).
Some financial assets are not subject to deeming rules.
One example is an investment property. Landlords are required to report their specific net rental income each year.
Will higher deeming rates affect your pension?
The higher deeming rates will impact your pension eligibility, and also, how much pension you are entitled to receive.
According to a media release from the Minister for Social Services, Tanya Plibersek:
Some recipients with financial assets, including part-rate pensioners, can expect to see changes to their payments from changes to deeming rates.
The freezing of deeming rates in 2020 led to social security recipients saving about $1.8 billion, the department said.
But the party is over.
The department argues that the new deeming rates are still below historical pre-COVID averages.
According to the media release:
As Australians begin to feel the positive impacts of inflation easing, the Government will now gradually return deeming rates to pre-pandemic settings – that is, to reflect rates of return that pensioners and other payment recipients can reasonably access on their investments.
In line with stakeholder feedback, changes to deeming rates will happen at the same time as the indexation of payments, and increases will be staged. This will produce fairer outcomes by ensuring the rate reflects current economic conditions.
The indexation of social security payments occurs twice per year in March and September.
The latest round of indexation changes for several social security payments, including the pension, have just been announced.
Among the indexation changes are increases to the upper value limits of the income and assets tests for a part-pension.
These higher value limits will help keep more Australians on a part-pension after the new deeming rates become effective.
Pension payments will also increase from 20 September. Find out how much extra you'll receive from next month here.
Need more information?
There is a Centrelink hotline dedicated to helping older Australians with their questions about the pension or other matters: 132 300.
