Deeming is back in the news with a further increase to the deeming rates from March 20, in parallel with the automatic indexation of the pension.

Deeming is a major issue for retirees – it doesn’t just affect income-tested pensioners, it also determines eligibility for the Commonwealth Seniors Health Card and plays a major role in calculating aged care fees.

Deeming began in 1990 to discourage pensioners from using low-interest accounts to dodge the income test.

It was later extended to most financial investments, though never property. In theory, rates track the cash rate, but over the years they dropped below it.

The government is now playing catch-up by increasing the deeming rates at the same time as pensioners receive their automatic increase due to inflation.

From March 20 the lower deeming rate lifts to 1.25 per cent and the upper from 2.25 per cent to 3.25 per cent.

For singles, the lower rate applies to the first $64,200 of financial assets, with the higher rate on the balance. For couples, it applies to the first $106,200 combined, with the higher rate on the remainder.

At the same time, singles gain an extra $22 a fortnight, bringing the full fortnightly pension to $1,200.90, or $31,223 a year. Couples gain $33.40 combined, lifting their full combined pension to $47,070 a year.

As assets increase and deemed income increases accordingly, the pension will reduce at the rate of 50 cents for each additional dollar deemed to be earned.

It’s a brutal reduction rate, and as ever, it hits the poorest pensioners hardest.

Here’s how.

Harry is single, with $300,000 in financial investments and $20,000 in household contents.

Before the changes, he was getting a fortnightly pension of $1,153.70. From March 20, due to the increase in deeming rates, his deemed income will jump from $5,646 to $7,186 a year, reducing his fortnightly pension to $1147.09.

The increase in deeming rates more than cancels out the pension rise – he is now $6.61 a fortnight worse off.

It’s a different outcome for the Bradys, who have total assets of $960,000, of which $900,000 is their superannuation. They get the full pension increase and are $33.40 a fortnight better off.

I’m often asked if the pension you draw from your superannuation fund is assessed as income for the income test. It is not.

Your superannuation is given a deemed income for the income test, and the account value of your superannuation fund is the amount assessed under the assets test. And remember, if your superannuation fund drops in value at any time, you are at liberty to advise Centrelink immediately.

To see how the changes affect your own personal situation just go to my website, www.noelwhittaker.com.au, to download the new pension charts and play with the age pension calculator and the deeming calculator, all of which have been updated with the new numbers.

Aged Care Guru, Rachel Lane, says it’s a mistake to assume changes to deeming rates only affect the Age Pension.

In reality, deeming also applies across the aged care system — whether you’re receiving care at home through the Support at Home program or living in residential aged care.

The shift in aged care means testing last November has also changed who feels the impact.

Under the old rules, it was largely self-funded retirees who were hit hardest. For example, someone with around $3 million in assets would quickly reach maximum home care fees, while in residential care, a retiree with about $1.4 million in investments and a $500,000 refundable accommodation deposit would hit the annual cap.

Today, the pressure is moving down the wealth spectrum. The biggest impact is now likely to fall on part pensioners — the classic “sensible savers” who have built modest wealth through super and investments. Once assets move beyond roughly $215,000, many are pushed into part pension territory, where the system becomes far less forgiving.

For this group, higher deeming rates deliver a double blow: a reduction in pension entitlements and an increase in aged care fees. For those who are tipped into part pension status as a result, it can come as a nasty surprise.

A small rise in deeming rates may sound minor, but for older Australians in care it may mean thousands more in fees.