Five years after being slashed to historical lows as a pandemic cost-of-living measure, deeming rates have increased again.<\/p>\n
Deeming is part of the income test for Centrelink payments, and the rate affects how much a recipient’s income from assets reduces their fortnightly payments.<\/p>\n
Pensioners are the largest group affected by changes to deeming rates \u2014 meaning some retirees may see a decrease in their next pension payment.<\/p>\n
Let’s unpack what the new changes mean.<\/p>\n
When did the changes happen?<\/p>\n
The new deeming rates came into effect on Saturday, alongside the indexation of other Centrelink payments, including the age pension<\/a>.<\/p>\n So recipients should see the changes in their next payment.<\/p>\n The federal government announced these changes back in August<\/a>.<\/p>\n What is deeming?<\/p>\n Deeming is a set of rules the government uses to work out how much income people earn from their financial assets \u2014 things like shares, superannuation, and bank accounts.<\/p>\n It assumes people receive a set income from the interest on those investments, whether they actually get that much or not.<\/p>\n But here’s the kicker: if your investment return is higher than the deemed rate, the government doesn’t count that extra money as part of your income.<\/p>\n That means anything you earn above that rate isn’t counted in the income test for the age pension.<\/p>\n And this means the lower the deeming rate, the more people can earn from their investments without it affecting their pension payments.<\/p>\n So if you’re an age pensioner \u2014 or a recipient of another payment \u2014 earning income from financial assets, you benefit from a lower deeming rate.<\/p>\n What are the new deeming rates?<\/p>\n As of Saturday, deeming rates increased by 0.5 percentage points to:<\/p>\n The lower deeming rate: 0.75 per centThe upper deeming rate: 2.75 per cent<\/p>\n That’s after five years of the lower rate being 0.25 per cent and the upper rate being 2.25 per cent.<\/p>\n The rates were slashed in 2020 during the COVID-19 pandemic as a way of helping retirees during the economic crisis \u2014 before that, the lower rate was 1 per cent and the higher rate was 3 per cent.<\/p>\n Who is affected by this?<\/p>\n Anyone on an income support payment who earns income from financial assets.<\/p>\n But the main group of people affected will be retirees who receive part-pension payments.<\/p>\n “Age pensioners comprise around 60 per cent of the recipients affected by deeming and tend to experience the largest impact from deeming on their payment rates,” the Department of Social Services said in a draft impact analysis paper.<\/p>\n “This is because age pensioners tend to hold more financial assets than people receiving other income support payments.<\/p>\n “There are several reasons for this, including that people of age pension age have had longer to accumulate financial assets, and their superannuation balances are assessable.”<\/p>\n How will it impact pensioners?<\/p>\n Nearly 70,000 pensioners will see a drop in their fortnightly payments, according to Department of Social Services estimates in the draft impact analysis.<\/p>\n But this is speaking quite broadly, so keep in mind that individual circumstances will change the impact.<\/p>\n Here’s the example Services Australia gives on its deeming website for pensioners<\/a>:<\/p>\n If you’re a single age pensioner: The first $64,200 of your financial assets has the deemed rate of 0.75 per cent applied. Everything over that is deemed to earn 2.75 per cent interest.If you’re in a couple and at least one of you receives the age pension: The first $106,200 of your combined financial assets has the deemed rate of 0.75 per cent applied. Everything over that is deemed to earn 2.75 per cent.<\/p>\n There are currently more than 2.6 million people on the age pension, with 457,300 affected by deeming at the previous rate.<\/p>\n But the Department of Social Services estimated only 69,500 of those age pensioners will see a decrease in their payments.<\/p>\n That’s because it’s being applied at the same time as regular indexation of welfare support like the age pension, and increased payments.<\/p>\n The analysis said the median decrease was an estimated $6.70 a fortnight.<\/p>\n Keep in mind that’s the median, which is the number that falls exactly in the middle of an ordered data set and is generally used instead of a more common measure for averages called the mean, when higher incomes can skew the data.<\/p>\n So from that estimated median, we can deduce that, of the affected pensioners, half may see their payments go down by less than $6.70, while the other half may see their payments decrease by more than $6.70.<\/p>\n However, this is all according to the department’s draft impact analysis<\/a>, which wasn’t finalised or assessed by the federal Office of Impact Analysis before the government announced the changes in August<\/a>.<\/p>\n Will deeming rates go up again?<\/p>\n Potentially.<\/p>\n At the moment, they’re still 0.25 percentage points lower than they were before the pandemic.<\/p>\n