In response to a series of cuts to official interest rates by the Reserve Bank of Australia and the government’s response to the coronavirus pandemic, deeming rates have been lowered significantly, the last of these cuts coming into effect on 1 May 2020.
From May, the lower deeming rate is 0.25 per cent for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples, and the upper deeming rate is 2.25 per cent for balances over those amounts.
What does this mean?
If you have previously been ruled ineligible for an Age Pension because you were deemed to earn too much income, your situation may now have changed.
Also, if you are on a part pension and are assessed under the income test, you may have noticed that your payments increased last month as a result of the change.
Centrelink determines Age Pension payments and eligibility by assessing income and assets under each of the means tests. Income deemed by Centrelink to be received from financial assets is taken into account.
Financial assets to which the Centrelink deeming rate is applied include:
• term deposits
• accounts at financial institutions, such as banks and credit unions
• friendly society bonds
• managed investments
• loans, debentures and managed investments
• account-based income streams commenced after 1 January 2015
• superannuation and rollover fund assets if over Age Pension age.
• gifts (if invested in income-bearing products)
• securities and listed shares
• unlisted public company shares
• gold, silver or platinum.
Why are deeming rates used?
By using Centrelink deeming rates rather than actual returns, the process of assessment is streamlined, with Centrelink being able to request less paperwork from customers and ascertain payment rates more quickly.
Even if the actual return on investments is greater than the deemed amount, the additional income is not assessed.
How are Centrelink deeming rates set?
Centrelink deeming rates are set by the minister for social services and are monitored regularly to ensure that they reflect the returns on a wide range of investments available in the market.
This means that they can be raised or lowered depending on the average market returns and to reflect the interest rates (or cash rate) set by the Reserve Bank of Australia (RBA).
However, although the returns and interest rates are regularly monitored, the reality is that Centrelink deeming rates are not commonly amended. And although they can be amended at any time, to minimise disruption, any changes usually coincide with the indexation of Age Pension payment rates or income and asset thresholds.
The thresholds are also indexed annually, on 1 July, in line with the consumer price index (CPI).
If I don’t receive an Age Pension, do Centrelink deeming rates matter?
Even if you do not receive an Age Pension, Centrelink deeming rates may still be applied to your financial investments to ascertain your income and, therefore, your eligibility for a Commonwealth Seniors Health Card (CSHC).
Can I be excluded from Centrelink deeming rates?
Under certain circumstances the minister for social services can grant an exemption to deeming rates and will decide when the exemption will commence. These circumstances are:
- when a financial investment has failed
- certain superannuation investments where funds are fully preserved or inaccessible
- accounts that only contains funds paid to participants for a funded package of support through the National Disability Insurance Scheme
Once an exemption from the Centrelink deeming rates has been granted, the actual return on your investments is what is used to determine your Age Pension eligibility and payment. Deeming exemptions do not apply to the assessable asset value of any financial investment.
Has the change to deeming rates made you eligible for an Age Pension payment?
If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.