Pension deeming rates will be increased next month, which may affect your eligibility for the pension or reduce how much you receive.
This will be the first change to pension deeming rates in five years.
They were frozen during the pandemic, and successive governments then extended them.
The changes to the pension deeming rates will come into effect on 20 September.
Let's recap what deeming is before discussing the new rates.
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What is deeming?
Deeming is the method that the government uses to estimate a pensioner's annual investment income.
Instead of asking pensioners to report their actual investment returns each year, the government sets two tiers of 'deemed' rates of return for everyone.
The government then applies the deeming rates to the total value of your assets to work out your assumed investment income.
They add your deemed investment income to your other income, then apply the income test to check your eligibility for the age pension.
You may be eligible for the full pension or a part-pension, depending on the outcome. (And assuming you also pass the assets test.)
Financial assets captured under deeming rates include ASX shares, international shares, bonds, cash at the bank, and some superannuation income streams.
Some financial assets, such as investment properties, are excluded. Landlords must report their net rental income each year.
Benefits of deeming
Services Australia explains that deeming helps keep your pensioner payment steady.
Otherwise, your payment would rise and fall each year depending on the performance of your investments.
If your assets give you a higher rate of return than the deeming rates, you don't have to report that. (Bonus!)
Deeming also provides an incentive to invest.
This is important because many of us choose to invest decades before we reach pension age.
Deeming means you can choose the right investments for you, without worrying about how they might impact your pension later on.
Here are the new pension deeming rates
From 20 September, the lower deeming rate will increase from 0.25% to 0.75%.
The lower deeming rate will apply to the first $64,200 of assets owned by single pensioners and the first $106,200 owned by couples.
The upper deeming rate will rise from 2.25% to 2.75%. That will apply to the balance of your assets above $64,200 or $106,200.
The higher rates will naturally increase the deemed investment income attributed to you each year.
This may impact your eligibility for the age pension or reduce how much you receive.
According to a statement from the Social Services Minister, 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 pension is going up, too
The age pension and many other social security payments are adjusted twice per year to keep them in line with inflation.
From 20 September, single pensioners will receive an extra $29.70 per fortnight.
Couples on the pension will receive an extra $22.40 per person, per fortnight.
Got questions about deeming rates or the pension?
There is a Centrelink hotline dedicated to helping senior Australians with their questions about the pension or other matters: 132 300.
