Explained: why the deeming rate is 3.25 per cent

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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?

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Written by Olga Galacho

42 Comments

Total Comments: 42
  1. 0
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    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

    • 0
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      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!

    • 0
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      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!

    • 0
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      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.

    • 0
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      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.

    • 0
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      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.

    • 0
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      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.

    • 0
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      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.

  2. 0
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    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.

    • 0
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      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.

    • 0
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      ”… 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.

  3. 0
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    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.

    • 0
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      Try Ubank. If you have $200 come into the account from a linked Savings account you’ll get very close.

    • 0
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      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 ??

    • 0
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      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.

    • 0
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      The deeming accounts are no longer at the banks and it is the Federal Government that is responsible for the deeming rate —

  4. 0
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    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.

    • 0
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      What are you saying Floss? Do you get any pension now?

    • 0
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      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.

  5. 0
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    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.

  6. 0
    0

    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.

    • 0
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      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.

    • 0
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      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.

    • 0
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      The story is about investments outside super, you know TDs, savings accounts, etc.

    • 0
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      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.

  7. 0
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    No Pad,how could you deal with C/L.

    • 0
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      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.

  8. 0
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    Trust the government (particularly the current Lieberal vermin) to dud pensioners.

    • 0
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      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

  9. 0
    0

    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.

  10. 0
    0

    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.

    • 0
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      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!

    • 0
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      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.

    • 0
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      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.

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