It may be time to reassess your investments with the end of deeming rate freeze

Deeming rates are expected to increase in the next financial year, so what does this mean for older Australians?

Unfortunately, it could mean a massive life change for hundreds of thousands of Australians.

With a predicted increase, many could have their Centrelink payments cut and many may lose eligibility for the Commonwealth Seniors Health Card (CHSC).

Previously, deeming rates were adjusted to reflect the official cash rate but they were frozen in 2022 to support pensioners against the rising cost of living. That all comes to an end on 1 July this year.

The cash rate was 1.35 per cent when the deeming rates were frozen. The cash rate is now 4.35 per cent.

Health card

Even if you didn’t qualify for the Age Pension, many people still qualified for the CHSC. That could all be about to change.

National Seniors Australia chief executive Chris Grice probably best summed up the effect the change would have on older Australians in an interview with the Financial Review.

“Hundreds of thousands of pensioners could have their pensions cut, some of those now eligible for a Commonwealth Seniors Health Card could lose this benefit, and aged care costs will increase for those subject to means testing,” he said. 

It’s estimated 445,000 age pensioners were subject to the deeming rate freeze. 

The Commonwealth Seniors Health Card entitles you to:

• Cheaper medicine under the Pharmaceutical Benefits Scheme
• Bulk-billed doctor visits – this is up to your doctor
• A refund for medical costs when you reach the Medicare Safety Net.

You may also get the Economic Support Payment. If you’re eligible, 

States and territories may also offer discounts on energy bills, property and water rates, healthcare costs including ambulance, dental and eye care and public transport fares.

Investment levels

Currently, if you are single for the first $60,400 of your financial assets Centrelink applies the deemed rate of 0.25 per cent. Anything over $60,400 is deemed to earn 2.25 per cent.

If you are a couple The first $50,100 of each of your own and your share of joint financial assets has a deemed income of 0.25 percent per year. Anything over $50,100 is deemed to earn 2.25 per cent.

This income is taken into account when reporting under the income test, which is a major plank in eligibility for the Age Pension.

There are a few strategies you can take to improve your position. You could cash in some investments or spend cash on hand on renovating your primary residence, which is exempt from the asset test.

Nick Bruining from The West Australian also recommends switching account-based pension money back to the accumulation phase and drag the deemed income under the cut-off thresholds.

“While that might give you access to the CSHC, remember that fund earnings in the accumulation phase are taxed at 15 per cent instead of zero, which applies to super money in the retirement phase,” Mr Bruining said.

Mr Bruining also predicts the government won’t want to spook the horses, so will not be pushing too hard to increase the current levels.

So what exactly are deeming rates?

Deeming rates are used to assess income from financial investments. Deeming assumes financial investments are earning a certain rate of income, regardless of the actual amount of money they are earning.

The good news is, that if your financial investments are earning more than the deeming rates, the extra income is not assessed. This is supposed to motivate people to make sure they have the best return on their investment.

“By treating all financial investments in the same way, the deeming rules encourage people to choose investments on their merit rather than on the effect the investment income may have on the person’s pension entitlement,” a Department of Social Security report states. 

Deeming rates have been simplified over the years to cover all financial assets to streamline assessment for eligibility for Age Pension payments.

Deeming rates cover: 

• Savings accounts and term deposits
• Managed investments, loans and debentures
• Listed shares and securities
• Certain income streams
• Certain gifts you may make
• Any assets held in an SMSF as these are treated as financial assets

Will changes to the deeming rates affect your eligibility for payments or the CHSC? Will you change your investment strategy as a result? Why not share your thoughts in the comments section below?

Also read: How to keep your MyGov account safe