Time for the Government to step up on deeming rates: Labor

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It’s no secret that retirees are suffering from the repeated interest rate cuts, and many face the prospect of negative returns on term deposits when taking into account earnings versus the rate of inflation.

After last week’s Reserve Bank of Australia (RBA) interest rate cut to a record low one per cent, and with interest rates on term deposits at their lowest levels since the 1950s, the Government is again facing accusations of “balancing the budget on the backs of pensioners”.

“The Government understands that reductions in the official cash rate impacts on older Australians on fixed incomes,” Social Services Minister Anne Ruston told The Australian.

The current deeming rate for singles is 3.25 per cent for assets over $51,200 and 1.75 per cent for those under that level. These rates have not changed since 2015, even though the Reserve Bank has cut official rates by 1.25 per cent over that time.

Deeming rates work on the assumption that pensioners earn a specified return on their investments, but when the deemed rate is higher than this actual rate of returns – which it currently is –pensioners lose out.

Canstar data shows that 22 per cent of 12-month term deposits currently offer a rate under two per cent. After the RBA’s rate cut last month, the average term deposit rate was also cut by 0.27 per cent – more than the central bank’s 25-percentage point reduction. The inflation rate is currently 1.8 per cent and forecast to rise to two per cent next year, so more retirees with money in the bank will have negative returns.

Little wonder then that Labor and seniors groups are demanding an urgent reduction in the deeming rate to help those who have been punished by interest rate cuts.

“Up to 627,000 age pensioners, who are on a part-pension because of the income test, are impacted by the government’s refusal to reduce deeming rates,” said Opposition social services spokeswoman Linda Burney.

“How does Scott Morrison expect pensioners to find term deposits or other secure investments that pay anything like 3.25 per cent?”

Labor analysis reveals that if the Government cut deeming rates by that same 1.25 per cent, a single homeowner on a part pension would be up to $63 better off per fortnight or up to $1628 better off a year, with single non-homeowners potentially being able to gain up to $3125 a year. Couple homeowners could also have an extra $1850 and couple non-homeowners could be up to $3875 better off.

These amounts, which could be going to more than 600,000 retirees, instead line the Government’s coffers.

There have been reports that the Coalition will announce deeming rates reductions as early as this week, with Federal Treasurer Josh Frydenberg telling The Sydney Morning Herald to “watch this space” while cautioning that any deeming rate cut might not match the RBA cash rate cuts.

Should any deeming rate cut match the cash rate cut? Are you suffering as a result of the RBA cuts?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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111 Comments

Total Comments: 111
  1. 0
    0

    I think I read somewhere that the majority of Pensioners are asset tested, so changes to deeming won’t matter at all for them.

    • 0
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      You are right McDaddy, most pensioners are accessed under the assets test. Only a small percentage of pensioners would be accessed under the income testing that incorporates the deeming testing.
      The pensioner that has few assets but some savings in the bank are the ones that are affected by Deeming

    • 0
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      Deeming DOES come into affect with any assets that incur interest.

    • 0
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      You are right O & W but even so a single Pensioner with no other source of Income can have $174k in savings and still get full Pension, $286k for couples. These figures will increase if deeming rates lowered.

    • 0
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      This is a critical issue for 25% of pensioners who are income tested.

    • 0
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      Depends Sundays, not all of the 25% will have their funds in savings accounts or term deposits, so even a smaller % impacted.

    • 0
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      Your comments are right, McDaddy. Also, they are confident the disgustingly altered Assets test will stop too many part-pensioners from availing of the benefits from lowering the Deeming rates. Both Liberals and Labor (Keating having put both Deeming and Assets tests in place) love these tests and work as a Tag Team against Retirees.

  2. 0
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    Think you are right McDaddy deeming rate reduction doesn’t help me as my part pension is calculated on assets (mainly super in my case)

    • 0
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      Always thought that super was part of the deeming regime. Money in super and money on term deposits I thought of one and the same. Anyone can set me right?

    • 0
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      I suspect it depends how much super you have. If over the asset limit, it’s effectively ‘deemed’ at 7.8%+, but if it’s under the limit I think it then depends on the income it generates and also when the super pension began – because I believe some older superannuation pensions are exempt from some forms of testing. It’s all way too complicated! Even Centrelink advisers get confused.

    • 0
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      the OAP is calculated using both Asset & income testing & super is used under the asset calculations & also what income it is forecasted to generate under the Deeming rates.
      Centrelink will pay you the lesser of the 2 calculations.

  3. 0
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    If you are asset tested, you might find your savings effectively deemed at a massive 7.8%, or even much more depending on pensioner concession eligibility. The deeming rates on savings are not at all harsh by comparison, though they most likely create more hardship given that they impact those with low asset balances.

    • 0
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      The small amount that we have in savings investment doesn’t even yield us $1000 a year now with the very low interest that we receive. The thing is, when we were paying off our home mortgage, we were paying something like 17 or 18 percent interest, so there was no such thing as savings for us. At least we do fully own our home now, so no mortgage to repay, at least helps a bit.

  4. 0
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    Given that my wife and I are already on the full OAP, even with the higher deeming rate, any reduction in the rate won’t change a thing for us. We’ve really noticed how we’ve had to be careful about paying for the cost of living over the past 3+ years, with the tiny increases to the pension. We really need an increase, as almost everything that we have to buy has gone up much more than the pension.

  5. 0
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    Deeming rates will help those on a Government Aged Pension or part pension but it does nothing for self funded retirees.
    We have to draw down 4% up to age 65, 5% at age 65 etc.
    When investment returns are so low it means that we are going backwards at an even faster rate.
    Surely the minimum draw down rates have to be looked at if Govt. wants us to continue to self-fund.
    If not, then please bring on the ‘universal’ pensions that many have advocated for.
    Cheers

    • 0
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      That doesn’t affect us, two cents worth, but I agree with you that if the rate of return drops below the draw down rate then the lower rate should apply. That’s running a parallel argument with the ridiculous deeming rate.

    • 0
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      Well, if you are self funded you would have the finance to fund your retirement. When you have spent enough you will become eligible for a part age pension once you reach the appropriate age. Remember you cannot take it with you and to save every shilling for the next generation should not be your priority. To be self funded to the extent of the age pension amount you will have to possess quite a fortune.

    • 0
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      I agree totally with you, bring on universal pensions as most self funded retirees have
      been paying taxes all of their working lives and are still paying in retirement.

    • 0
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      Self funded retirees will be able to get the health care card with a lot more assets under a lower deeming rate.

    • 0
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      Yes, two cents worth, with the Age Pension system broken on many fronts, and an inept and massively expensive Centrelink breathing down old pensioners necks adding to health costs, the only viable solution now is to scrap the system altogether and implement Universal Age Pension with NO tests for all on reaching Age 65 years and say 15 years Residency.

      This reform of Age Pensions should have been of far greater priority and urgency than the 3rd stage tax cuts which will hand out $11,640 tax cuts to all on $200K+ income.

      Labor has a massive opportunity to step in and offer this, if only they can see beyond their personal greed as all Federal MPs will get the $11,640 tax cuts.

  6. 0
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    When Keating first brought in the deeming rate, the interest rates were very high with some home loans being charged 18% and investment rates also paying quite high rates. The deeming rates back then were negligible but there was no allowance in the legislation for automatic adjustments.

    Today we see interest rates that were never expected to be levied and deeming rates have become a problem. The time has come for the deeming rates to be on a parity with the rates announced by the RBA. We live in the computer age where adjustments can be made very simply in a matter of minutes so all it takes is a government to make a decision that is long overdue.

    • 0
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      Hi Old Man, The point you make re interest rates at the time is correct. I still condemn ALP Keating for bringing it in. He also brought in other rules causing pensioners to seek the advice of Financial Advisers. I’ve forgotten they were but I did seek advice which within a very short time cost me about 90% of my life’s savings.

    • 0
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      OM, I agree “We live in the computer age where adjustments can be made very simply in a matter of minutes so all it takes is a government to make a decision that is long overdue.” All they have to do is link it to the RBA rates, and preferably, insist on the Banks (esp. the big ones who get Govt guarantee support) to offer such interest rates to seniors accounts. Can’t be simpler!
      However, I did hear the new Minister claim that it was a complex decision!

      Yes, Sen Cit.90, Keating certainly did a lot of damage by bringing in both Deeming and the Assets Test, besides doing many other things such as the biggest Recession all of us have seen which destroyed wealth in the stock market, sent up property prices, etc. etc, – too many things only an uneducated fool, as he was, could deliver!

  7. 0
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    Most of those on a pension will not benefit anyway as most will be accessed under the assets testing as this will pay the less amount
    Deeming rates should be done away with entirely, same as asset testing & ALL income from investments, interest, super etc taxed the same as all other income earners.
    Also do away with franking credits & negative gearing which are basically rorts set up by the current & previous governments to benefit their rich mates & themselves.

    • 0
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      The facts that emerged after Labor lost the unlosable election surrounding franking credits and negative gearing was that it would have affected those on average incomes and self funded retirees a lot more than the “top end of town”. Shorten and Bowen kept referring to the investor buying their 6th and 7th house when the truth was that the great majority of those using negative gearing owned 1 investment property.

    • 0
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      If franking credits are a rort then so are any tax refunds that people get from the ATO.

      Franking credits are withholding tax the same as PAYE and PAYG and the financial withholding tax if you don’t supply a tax file number.

    • 0
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      If you own 7 houses you can’t afford to negative gear.

    • 0
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      OWS, how many times have you banged on about Franking Credits and how they are a boon for SFR. Now, they are a ‘rort’? Your views seem to change as often as your name does

    • 0
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      Sundays I have seen the light.

    • 0
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      Well you need new glasses OWS as you are seeing it completely wrong now.

    • 0
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      Sundays & OG don’t know what you are on about.

    • 0
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      Well all I’ll say is that my franking credits alone make me more on my investmments than the deeming rates.

    • 0
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      as does my Industry Super Fund with low fees OG

    • 0
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      Fees way too high in an Industry Suoer fund for me. Smaller quote I could find on fees was over $20,000 which has one too many zeros f oir me.

    • 0
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      Ask Anonymous or Whinging Grandma or OGR they will be able to help you

    • 0
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      OG – your franking credits shouldn’t be making you money – they should be part of your gross income and thus liable to tax … if not – you are very poor indeed.. poorer than a pensioner…

      Thank you for pointing out why franked credits should be outlawed – too much cash disappearing down rabbit holes..

    • 0
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      Oh, I dunno, OG – the amount you take out of your gross income as fees and costs must be astronomical… a lot more than a super fund…..

      Any loopholes needing to be closed that you can think of?

    • 0
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      Fees on my super are current 0.14% pa. Find me fund with lower fees and I’ll check it out.

    • 0
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      Fees on my super are current 0.14% pa. Find me fund with lower fees and I’ll check it out.

    • 0
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      All good comments (main comment), OAW, before OG stepped in to divert the discussion as per his usual self-centred rubbish comments.

    • 0
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      Another one that has no understanding of franking credits. No wonder so many people are on welfare today.

    • 0
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      Another stupid reply from a self-interested person. Franking credits should only be allowed to decide whether there is any MORE tax to pay or not (depending on the person’s marginal tax rate), and MUST NOT return any of the Business taxes companies have to pay. Your attempts to confuse Business and Personal Taxes is pathetic. I smell a change is coming and great if it fixes rorters such as you!
      Your 2nd comment is also uninformed, presumptuous and pathetic as you have no idea of my situation or the facts to substantiate what you are saying – good reason why I have to conclude we are dealing with a fool with too much wealth obtained by rorting the system and luck but definitely not matched by brains.

    • 0
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      GeorgeM so you agree that interest should be taxed at 30% and if you don’t get levied enough tax you don’t get a refund.

      Also I have in no way rorted the system but yes I have used the law to make money which does take a few brains. Yes I am fully self funded in retirement and yes I still earn more than I spend.

      If the laws change I just change my investment to adjust.

      Yes if the law changes so people get taxed more then people like me then people will just not make the money in the first place. Why make money with little or no benefit to yourself?

  8. 0
    0

    Would be interesting to see how many pensioners are finally accessed, income testing or asset testing.
    My personal thought is the asset testing would be calculation used by centrelink especially after 1st Jan 2017 when when the pension was affected from $1.50 / $1,000 to $3.00

  9. 0
    0

    I have found a REAL simple easy way to boost pension – think outside the box! I don’t have much super, and own my own home. I love garage sales, and rarely have I not had a win. I have JUST sold a chair that I bought for $40 – all it needed was a little bit of clean, and sold it for $390. Sold some paintings for $165 – bought for $5. I clean an art gallery once a month for $60. People might poo-poo that as saying that isn’t much – but that is $720 for the year, and it pays for my car rego, and half the insurance. I occasionally mind post op dogs for $30-$40 a day. Do the occasional emergency over-night house sit for $50. Every little bit helps and I am free to spend my time as I want.

    • 0
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      I hope you are declaring all of this extra income to centrelink & the ATO.

    • 0
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      I thought that your post was a breath of fresh air in2sunset, a nice positive comment. Didn’t take long for the knockers to spoil the moment.

    • 0
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      Hobbies aren’t paid for… the art gallery (do I know you?) is merely compensating you for petrol and materials….

    • 0
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      Gee OlderandWiser – for someone who acts like a smart-ass, you sure are dumb! Learn about what the difference is between a ‘hobby’ and a ‘business’. I have been doing similar to in2sunset, and have a damn good accountant who advises me. You only need to declare money if you are a business. I also do some ‘bartering’ which helps. Recently helped out a neighbor with her computer, and her son did some much needed electrical work. This is a summary of what she has advised to me –

      There is no single rule to determine when your hobby turns into a business, however the ATO will consider whether:

      •tyou have registered a business name
      •tyou have an Australian Business Number
      •tyour main purpose is to make a profit
      •tyou continually undertake the activity and make repeated sales, for example an occasional market stall to sell your old clothes at a cheaper price than you bought them is more likely to be a hobby compared with selling a type of clothing that you have available in different sizes, colors or styles
      •tyou expect to increase the activity so it becomes a fulltime commitment
      •tyou have a separate bank account
      •tyour online presence looks like a shop, i.e. you have a brand name, you paid fees to set up online, you have a business plan, you have systems and processes in place.
      If you have answered yes to most of these above, then yes, it is more likely you are classed as a business.

      If you’re selling the odd item on eBay, then you’re fine. However, Centrelink does need to know if you’re earning a substantial income from such practices – a sum of $20,000 per annum is what has been advised.
      Good on you in2sunset! Like you, I enjoy keeping busy, the mind and hands active, interacting with people. Some weeks I might not go to a garage sale, other times there might be nothing worth while. I too occasionally mind neighbors sick kid, or dog. Just ignore the stupid comment from knockers – perhaps jealous?

  10. 0
    0

    I totally agree with Daniel Tech. The meagre increases to the Aged Pension no where near compensates for the massive increases in Service charges alone especially when you’re home owners living on Couple Aged Pension. Our land and water Rates have been constantly increasing by large amounts over quite a long time now, yet we have to do more for ourselves. For instance our local Council cut out the free Cleanup we used to get several years ago while at the same time charging to take anything to the Tip. We try to keep up our Private Health fund payments but it is also constantly increasing with the Government’s agreement. We follow all the laws etc and it just seems like we are barely keeping our finances above water. Yet we still never get a mention in all the Governent policies. They have given themselves another Increase and we now read in the news that they also get up to $46000 a year as an expense account and if they don’t use it they get to keep the remainder, then we hear poor Barnaby Joyce telling us “But we have to pay tax on it” well Big Deal, some of us would just like to get that amount alone. I hope he and Joel Fitzgibbon don’t think they are going to get any sympathy for that because they will be sadly mistaken.

    • 0
      0

      Might be our local Council – been after them to do a clean-up day at the local Aboriginal part of town… let ’em know someone cares and that they are worth some effort by Council apart from waving a flag around and talking the usual BS ….

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