The lower and upper deeming rate will increase by 0.5 per cent on March 20, at the same time as indexation kicks in. (Source: Getty)
Thousands of Age Pension and other Centrelink recipients will see a reduction in their payments following another increase in the deeming rate. Deeming rates are the rates people are assumed to earn on financial assets and they impact calculations for Centrelink payments.
From March 20, the lower deeming rate will be increased from 0.75 per cent to 1.25 per cent. The higher deeming rate will increase from 2.75 per cent to 3.25 per cent.
The lower rate applies to all financial assets held by singles up to $64,200 and couples up to $106,200. The higher rate applies to balances above these thresholds.
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Financial adviser Nick Bruining said the 0.5 per cent rise in deeming rates would result in a “double whack” for age pension recipients, with thousands of income-tested part pensioners facing having their pension cut off and many full pensioners seeing their payments docked.
“A single age pensioner this time last year could have about $308,000 in financial assets without losing any pension. From March, even with the expected pension increase, that figure drops to about $215,000,” he wrote in a column for The West Australian.
“Above this limit and the pension would be reduced by the effects of the income means test because deemed income would exceed the allowed $218 a fortnight.”
Commonwealth Seniors Health Card holders will also be impacted by the change, with deeming rates used to determine eligibility for the concession card.
Centrelink takes adjusted taxable income from all sources and adds the deemed income on income stream investments, such as account-based pensions. The actual payments from an account-based pension are ignored.
“A single, self-funded retiree with $1 million in an ABP would see the deemed income rise from the current level of $26,216 to $31,216 a year, and a couple with $1 million each from $52,876 to a combined amount of $62,876 a year,” Bruining explained.
This is the second time deeming rates have increased in the last six months, following the September increase.
Deeming rates were previously frozen at lows during the pandemic, with the government confirming last year it would gradually increase rates to better reflect current rates of return.
“The change is consistent with the Government’s commitment that any deeming rate movements will be gradual,” a statement released by Social Services Minister Tanya Plibersek said.
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This is the first time the government outsources the deeming rate recommendation to the Australian Government Actuary. Previously, deeming rates were effectively set at the discretion of the Minister.
“The new rates are still well below historical averages and the AGA advises they are achievable through investments like readily available savings accounts at a major bank,” the government said.
The rates are still below the official cash rate of 3.85 per cent. To put things into perspective, last time the cash rate was 3.75 per cent in May 2012, the deeming rates were at 3 and 4.5 per cent.
National Seniors Australia has labelled the increase a “measured” and “modest”, noting the upper rate is below the cash rate and well below returns on investments like superannuation and term deposits.
“While the increase will have some impact on pensioners, it could have been worse given interest rates remain stubbornly high,” National Seniors Australia CEO Chris Grice said.
“We have said consistently and still maintain – any upward change to deeming rates needs to be measured, incremental, and transparent to protect older people.
“If interest rates continue to rise and government reverts quickly to the old method to set deeming rates, there could be significant financial impacts, with lower pensions and higher aged care co-contributions.”
COTA CEO Patricia Sparrow said changes to deeming rates would impact many older people, but a gradual increase rather than a sudden adjustment was a sensible move.
“A measured ‘step up’ reduces the risk of sudden impacts on pension payments and provides greater certainty for older Australians managing tight budgets,” she said.
Sparrow noted the actuary assumes access to higher-interest products like online savings accounts, but the group’s research found around one in seven pensioners were not confident using online services like online banking.
The changes will coincide with increases to payments as part of the government’s twice-yearly indexation.
The government expects people receiving the full single rate of age pension, along with the Disability Support Pension and Carer Payment, will likely see a $22.20 boost to their fortnightly payment.
JobSeeker, Commonwealth Rent Assistance, ABSTUDY and the Parenting Payment will also be indexed.
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