Social Services Minister Scott Morrison has announced a $200 million ‘boost’ to pensions, thanks to a cut in deeming rates. In announcing the ‘boost’ Minister Morrison says it's because the government understood the pressure faced by pensioners with the rising costs of living.
The change in rates will add an extra $80 per annum to the income of more than 700,000 part pensioners. But the change in rates is not a gift. To understand how this works, it is useful to quote the Centrelink website on the definition of deeming rates:
“The deeming rules assume your financial assets are earning a certain amount of income, regardless of the income they actually earn. Deeming encourages you to earn more income from your investments and reduces the extent that your payments may vary.”
Deeming is used to calculate income for pension, benefit and allowance payments.
These rates are routinely reviewed and changed. They are not a bonus bestowed by governments, but an obligation – as official interest rates are lowered and economic conditions result in lower returns on bank deposits, so the interest earned on such deposits must be reviewed and ‘deemed’ to be lower than it was. And this is what has occurred. Interest rates are down, so deeming rates need to be adjusted downwards. And the result is a somewhat paltry $3 per week for those who have such investments. The lower deeming rate will fall from 2 per cent to 1.75 per cent for investments of up to $48,000 for single pensioners and allowees, while for investments exceeding this amount, the upper deeming rate will fall by 0.25 to 3.25 per cent.
On ABC Radio’s AM program on Monday, Mr. Morrison noted that
"It's modest, but you can't go around with unfunded empathy here…the Government does understand the pressures facing pensioners and cost-of-living increases."
Opposition Treasurer Chris Bowen described Scott Morrison’s claims as "outrageous".
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Some days it’s difficult not to be skeptical. Yesterday was one, when a pension entitlement was sold as an $80 per annum ‘boost’. Really, Mr Morrison? You have to be kidding. The economy is tanking, interest rates are falling lower than we have seen for decades and you take credit for making a required, regular adjustment to deeming rates? You do have to be kidding, don’t you?
And this $3 per week ‘boost’ pales into insignificance when compared to the potential $80 per week Age Pension cut that may result from changed proposed in the May 2014 budget – and remains on the table to be pushed through the Senate as soon as Mr Morrison can pressure the necessary crossbenchers to support it. Let’s not fool ourselves with boosts, bonuses and cuts. Let’s grasp the facts. The deeming rates – under this government and all previous – are routinely reviewed and changed in line with economic conditions and current interest rates. End of story.
So a change to deeming interest rates is not a gift from a government which demonstrates ‘empathy’. It is an entitlement. Full stop. As are the scheduled, indexation increases which will be delivered in March and September – definitely not a gift.
What do you think? Is the $80 per annum deeming rate cut indeed a display of empathy by the Federal Government? Or is this an expected entitlement in the wake of falling interest rates? What do you think of he new Social Services Minister Scott Morrison performance in his first two months in the role?
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