Explained: why the deeming rate is 3.25 per cent

Some pensioners are expected to receive interest of 3.25 per cent on their savings.

Why deeming rate is 3.25 per cent

In a bid to reduce the amount of Age Pension that it pays, the Social Services Department expects that recipients who have more than $51,200 in savings or other financial assets should be investing them in such a way as to earn at least 3.25 per cent in interest.

Savings of up to $51,200 are assumed to be earning at least 1.75 per cent.

If you’re a member of a couple and at least one of you receives a pension, the first $85,000 of your combined financial assets is deemed to earn a rate of 1.75 per cent a year. Anything over $85,000 is deemed to earn 3.25 per cent.

If you’re a member of a couple and neither one of you receives a pension, the first $42,500 of each of your own and your share of joint financial assets is deemed to earn 1.75 per cent a year. Anything over $42,500 is deemed to earn 3.25 per cent.

These are the deeming rates the Government uses to assess how much income you should potentially be earning from your financial assets, regardless of what interest you are actually earning.

The rates have been set at these levels based on information the Government collects about how money markets are performing and the potential returns available to savers and investors.

Once the deeming rate has been applied to your finances, the calculated figure is taken into account to work out the amount of Age Pension, if any, that you are entitled to receive.

The financial assets to which deeming is applied include savings accounts, term deposits, managed investments, loans, debentures, listed shares and securities, as well as some income streams and some gifts you make.

The calculated deemed interest is then added to your income and assessed under the income test to work out how much financial support you need.

According to the Human Services Department, the benefits of deeming are to:

  • help keep your payments steady instead of going up and down based on the performance of your financial assets
  • provide an incentive to invest smartly, as any interest rate achieved above the deeming rates doesn’t count as income
  • allow you to choose the best investments for your needs, not how they may affect your payment.

If you happen to earn more interest than the Government deems, the extra amount is not counted as income.

Under some circumstances, recipients may be able to seek an exemption from the deeming rules. If you would like to know if  you qualify for an exemption, call the Government’s Financial Information Service on weekdays between 8am and 5pm on 136 357.

Are you earning the interest on your financial assets that the Government assumes?

Age Pension rules and rates are complex. Let us keep you up-to-date. The RetirePlanner™ tool has all the information you need.

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    COMMENTS

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    MON
    31st Oct 2018
    11:14am
    So the government deems that I should earn 3.25% and to achieve that in today's market it would be necessary to invest and forgo the security of a term deposit, because you can't get 3.25%. Hence the government wants you to risk your investment monies add to that, should Labor be elected at the next federal election, Shorten has already said he will hit you on your franking credits effectively taxing you twice. So much for progressive policy
    maelcolium
    31st Oct 2018
    11:32am
    No he has said that retirees receiving Centrelink benefits will be exempt.

    You are right about the 3.25% though as it is unachievable unless you take on high risk investments. I note the reason given is so pensions don't fluctuate with earnings? Yeah right, that's just a slice of over cooked bullshit (political spin) - the only reason is to minimise payments. Nasty Government!
    Paddington
    31st Oct 2018
    11:48am
    Pensioners and part pensioners will be exempt. If you put in a tax return and you pay tax then you are covered. It is a loophole that needs to be closed as it was never meant to be permanent. Google instead of guessing and assuming!
    MICK
    31st Oct 2018
    11:49am
    I'm working on the Franking credits MON.
    We all need to write to Shorten and many other Labor MPs and tell them to MODIFY the policy by introducing a ceiling ($20,000 in franking credits???) after which they cease to apply. This way the right target, the top end of town, is caught. Not retirees not drawing a pension.
    Sen.Cit.90
    31st Oct 2018
    12:09pm
    Your right MON, I did invest through an adviser when Keating (Labor) brought in deeming
    consequently, I lost 70% of my savings in the downturn of the market. I've never forgiven the Labor party for this tax and no way will I ever trust Labor again.
    GeorgeM
    31st Oct 2018
    3:12pm
    Thanks, SC89, for your comment, as I didn't realise Keating brought this in too! That donkey brought in the Asset Test too, and shut down the Pension Fund instead of re-establishing it on strong footings based on the 7.5% tax being collected for paying Age Pension. Funny how he didn't implement the same Age Pension rules for Politicians!!!

    Only sensible solution with the current mess we have is to implement Universal Pension at Age 65 and with 15 years Residency - to take care of the bulk of retired Australians while removing Centrelink harassment for them. All MUST write to their MPs and demand this, else vote them OUT at the next election.
    Old Geezer
    5th Nov 2018
    2:50pm
    Paddington you have very little understanding of franking credits and how they work by that comment. Please don't comment if you don't know as you just make a fool of yourself.
    Old Geezer
    5th Nov 2018
    2:52pm
    The Labor proposal on the non return on franking credits breeches section 51 of our constitution in that it is deeming to be stealing the assets of a person.
    MICK
    31st Oct 2018
    11:46am
    Yes Olga.....but show me where you can get 3.25% on savings. And then explain to victims that the government will tax you and/or come after you some other way.
    Paddington
    31st Oct 2018
    11:52am
    Is it money in the bank? How much money would you have to have for it to be an impact?
    If people have a lot of money maybe they should see a planner to help them organise their money better and smarter. It is a problem that many of us do not have.
    Anonymous
    1st Nov 2018
    6:41pm
    ''... a problem that many of us do not have'', Paddington - which clearly explains why you are so misinformed about franking credits as to suggest that Labor is acting appropriately in demolishing the income and lifestyles of people who honestly and responsibly saved to provide very modestly for themselves in old age, while richly rewarding the spendthrifts and manipulators who bleed the taxpayer in retirement. Yes, part-pensioners with their multi-million dollars houses, who took world cruises and gave hundreds of thousands to their offspring and now have combined pension/investment income of over $60,000 a year are EXEMPT. And the poor struggling SFR in a $400,000 home unit, who has never been overseas and gave nothing to their kids because they were trying to avoid burdening taxpayers IS RIGHT ROYALTY SCREWED. And some of you support that unfairness.
    Jim
    31st Oct 2018
    12:10pm
    It is possible to negotiate with your bank/building society/credit union, although you still won’t get 3.25%, Citi bank did have 3% on offer, they also had 3.8% on offer but there were conditions attached to that, I don’t know if either are still available.
    MICK
    31st Oct 2018
    12:28pm
    Try Ubank. If you have $200 come into the account from a linked Savings account you'll get very close.
    johnp
    31st Oct 2018
    12:46pm
    I thought but could be wrong. The banks etc used to have what they called "Deeming Accounts" which tracked and followed whatever deeming % rate the govt had at any particular time. Do those no longer exist ??
    Jim
    31st Oct 2018
    1:13pm
    Johnp, you are correct most banks had a deeming account which had a return of .5% less than the deeming rate, it would seem as though they don’t exist any more.
    PlanB
    28th Jun 2019
    12:20pm
    The deeming accounts are no longer at the banks and it is the Federal Government that is responsible for the deeming rate --
    floss
    31st Oct 2018
    1:33pm
    Mick you are correct about Shortens franking credit blunder,we are still getting over the Hockey blunder that may force us onto a small part pension a place we just don't want to be.
    Paddington
    31st Oct 2018
    3:48pm
    What are you saying Floss? Do you get any pension now?
    Anonymous
    1st Nov 2018
    6:48pm
    I don't, and my income is low and my TOTAL assets (including family home) less than most part pensioners who, by the way, lived way better than I did and have never experienced the poverty and hardship I lived with for most of my life. But I saved hard to be as independent as possible in retirement. Hockey took 1/4 of my annual income in the disgustingly cruel assets test change. And now that A-hole Short-on-brains is determined to take another 25-30% of it. Well, I'll be forced onto a pension, and I'll damned well take my overseas trips and buy a bigger house and the government will gain $11,000 in franking credit refunds but have to pay my partner and I a $36,000 pension, and I'll have DOUBLE the income I have now.
    ray from Bondi
    31st Oct 2018
    2:53pm
    what a load of crap from the federal government neither of the L brothers whoever happens to be wearing the hat, I am sure labor will not make any changes. it is impossible to find any bank that will pay near what the government claims are possible, they probably have no troubles with their millions to find efficient ways to invest but the rest of us plebs who do not have any power are at the mercy of banks and as we have found out despite liberals saying there is absolutely no problems they have no mercy in the never-ending search of dividends for the rich.
    Old Geezer
    5th Nov 2018
    2:54pm
    It has nothing to do with what a bank will give you in interest at all.
    almost a grey hair
    31st Oct 2018
    3:17pm
    You can exceed 3.5% in any industry super fund in the country, but you need to get off your backsides and take the risk not sit back cap in hand and say woe is me with your hand out------you have total some risk yourself. 3.25 is good for me as earned 9.5% after tax and all fees. Yet the gov is prepared to say I only earned 3.25% deemed, its a good system if you can read and write and prepared to have a go.
    maelcolium
    31st Oct 2018
    4:08pm
    I think you have a reading comprehension problem. The deeming rate under discussion is the rate Centrelink assumes retirees earn on investments (cash or shares) OUTSIDE OF SUPER.

    You are making around 9% because you are in the accumulation phase in your super account at the moment.

    Your comment does not relate to the discussion, so you can quit preening yourself and accept that you don't know what you are talking about.
    McDaddy
    31st Oct 2018
    5:40pm
    almost a grey hair has a point, if you get 9% in Super the gov still deems you only getting 3.25%, very generous. Try and keep up if you can.
    Greg
    1st Nov 2018
    7:50am
    The story is about investments outside super, you know TDs, savings accounts, etc.
    McDaddy
    1st Nov 2018
    10:38pm
    Greg, it's about how the government applies the deeming rates to ALL your financial investments, you know..... all of it. The financial assets to which deeming is applied include savings accounts, term deposits, managed investments, loans, debentures, listed shares and securities, as well as some income streams and some gifts you make." Trust me mate, if you are on the Age Pension your super is included, not just money outside super.
    floss
    31st Oct 2018
    4:48pm
    No Pad,how could you deal with C/L.
    Paddington
    31st Oct 2018
    5:38pm
    Ok, so you have tried but no joy with them. Glad ours was done years ago as the wait seems long now. Also, people are struggling who are near retirement age but out of work and using up all their savings and super to live. It is sure hard for some people.

    1st Nov 2018
    8:12am
    Trust the government (particularly the current Lieberal vermin) to dud pensioners.
    Anonymous
    4th Nov 2018
    5:00pm
    Deeming was introduced by labor

    Asset tests was introduced by labor

    Pension eligibility age to 67 was introduced by labor

    Taking franking credits away from pensioners and self funded retirees is about to be introduced by labor
    leek
    1st Nov 2018
    8:23am
    Pensioners are not exempt from this as people are suggesting. But pensioners are allowed to earn up to $172 a fortnight before losing any of the pension, which is $4472 a year. So if you earn more than $172 a fortnight by deeming you then start to lose the pension. I went to a Centrelink retirement presentation last year and they explained it really well. They have these lectures all over australia, if you want to go to them.
    MacI
    1st Nov 2018
    10:35am
    Most people commenting on this forum seem to have the view that cash in the bank, term deposits etc, is the way to mitigate against risk. However the reality for many, if not most retirees is the greater risk of running out of money in retirement because they are too conservative in their approach to investing their money. Centrelink deems a return of 1.75% on the first $85000 held for a couple and $51200 for a single. I can easily get greater than 1.75% from my bank.

    I don't think it is unreasonable to assume at least 3.75% return on assets above these thresholds. The conservative investment portfolios offered by good Industry Super Funds provide good returns with minimal risk. The conservative option offered by my fund returned 6.5%, 6.9%, 6.8%, 6.1%, and 6.6% for 10, 7, 5, 3 , and 1 year respectively after fees. This particular option which I have been tracking for 14 years has had one negative return in that time (-4.8% in 2008) which is consistent with the assessed risk measure of 1 to less than 2 negative years in 20.
    Anonymous
    1st Nov 2018
    6:42pm
    Lucky you. So all the poor buggers who didn't have the same opportunity to invest is a super fund that is paying well should be persecuted, because SOME people can get more than 3.75%. What a selfish attitude!
    MacI
    3rd Nov 2018
    10:35am
    Hi Rainey, Thanks for the reminder of why I rarely choose to comment on this forum. I'm all for a healthy discussion and a rebuttal of my point of view but why the personal attack? I fail to see how my comments warrant being labelled with a selfish attitude. I assume your attack is in regard to my thinking that a return of at least 3.75% above the thresholds is reasonable. I remind you that it is the government that sets the deeming rates and thresholds, not me. That's the rules as they stand and I am merely arguing that it is entirely reasonable to earn greater than 3.75% without taking an inordinate amount of risk.

    There are many retirees who fail to consider that too conservative an approach to how they invest their money in retirement may put them at greater financial risk. I merely put forward an argument for people to think about out of genuine concern and maybe prompt some to seek financial advice if they feel so inclined. Everyone's situation is different and so I acknowledge that my argument won't be relevant to everyone.
    Old Geezer
    5th Nov 2018
    2:48pm
    I agree the worst investment a retiree can have is cash in the bank. The purchasing power of the dollar outstrips the returns after tax and inflation by miles.

    You don't have to have super as the same funds are available to anyone outside super as well.

    OGR attacks anyone who doesn't agree with them.

    1st Nov 2018
    6:50pm
    Seems both the government and the privileged commenters here ignore the fact that the most disadvantaged - the poorly educated, risk averse due to past hardship, those who had little or no super or were in a poorly performing fund - are the people who CAN'T get 3.25% on their savings. The privileged are over-indulged - allowed to get higher returns and not be assessed on them - but stuff the poor buggers who have done it tough and are still really struggling.
    johnfroe
    1st Nov 2018
    8:16pm
    a problem that many of us do not have'', Paddington - which clearly explains why you are so misinformed about franking credits as to suggest that Labor is acting appropriately in demolishing the income and lifestyles of people
    Eddy
    1st Nov 2018
    11:27pm
    Lets get a few facts straight. The national Welfare fund was established during WW2. In 1949 PM Menzies incorporated the NWF into consolidated revenue. In 1973 PM Whitlam abolished income test for all over age 70. In 1976 PM Fraser cancelled the Whitlam legislation. In 1977 PM Fraser transferred about $470M from the NWF account into consolidated revenue. In 1985 the Labor Government repealed the acts for the NWF.
    Old Geezer
    5th Nov 2018
    2:44pm
    Good thing too as there would not have been enough for a cup of coffee per person in it anyway.
    Cheezil61
    3rd Nov 2018
    9:46pm
    Comments wont submit on other article about high super fees. .anyone know why?

    4th Nov 2018
    4:59pm
    The deeming rate is modest and very fair .
    You should get an average return of aver 7% for that money if held in super and its not taxed in pension mode
    Thats a clear 100% or more extra income you get on top of your super
    PlanB
    28th Jun 2019
    12:09pm
    I have just written yet another email to Anne Rustin about these deeming rates -- will see IF there is a reply this time -- when I have written b4 in 2017/2018 never got a reply except to say they had received the email