Are deeming rates too high?

Like many retirees, Betty believes that deeming rates are simply too high, given the returns on term deposits and savings.

Q. Betty
I think that the deeming rate is unfair owing to term deposit rates available.

The rates of 1.75 per cent for balances up to $48.000 and 3.25 per cent for balance over that amount are nowhere near what is being offered by the banks.

For retirees with savings of $100,000, which is quite modest, the different in rates is about one per cent and this can mean a reduction of $20 per week on the Age Pension. An amount that many retirees on a fixed income simply can’t afford to lose.

I wonder how many of your readers think this? Scott Morrison apparently thinks not. Surely the deeming rate should be adjusted.

A. The deeming rate on savings for retirees receiving an Age Pension is indeed unfair. The lowering of the cash rate by the Reserve Bank of Australia (RBA) last week and the continued speculation that it will soon be cut again is a growing concern for those who rely on interest from savings to fund their retirement. The banks are quick enough to cut their rates on term deposits, whereas the Government is less likely to react with a reduction in deeming rates.

The Government will use the argument that deeming rates are not only applied to income from term deposits and savings, but also from shares and other investments, many of which have returns higher than the deeming rates.

However, if this is the case, there could be an argument to have different deeming rates applied to different types of investment income.

Do you agree? Are deeming rates too high? Or is this the best way to average returns on investment income?

Written by Debbie McTaggart


Are deeming rates unfair?

Deeming rates can be higher than actual interest paid.

Deeming rates in detail

Deeming rate thresholds will change from 1 July 2016