A cut to deeming rates is expected this week as part of a federal government economic package to stimulate an economy reeling from the effects of the coronavirus and a summer of bushfires.
It would be the second time in less than a year that deeming rates have been cut.
In a keynote address in Sydney today, Prime Minister Scott Morrison is expected to outline a stimulus package that will fast-track assistance to age pensioners and small businesses.
Of particular interest to older Australians, who constantly complain to YourLifeChoices about the disparity between current deeming rates and interest rates on offer, are the mooted changes.
A Meeting Place post from YourLifeChoices member Nev was typical of hundreds of complaints received after the Reserve Bank cut official rates last week to 0.5 per cent. Nev wrote: “Now that the RBA has dropped the cash rate again by 0.25 per cent, surely the government should be dropping the three per cent deeming rate. Our super has just had the entire year’s gains wiped out and retirees can’t sustain this type of loss along with the government gouging from the assets.”
Seniors groups say that more than 600,000 people are being short-changed because the government is overestimating how much they’re earning from their investments.
Deeming rates calculate the amount of income received from a financial asset regardless of the actual return and determine how quickly retirees lose access to the full or part Age Pension.
In July last year, Treasurer Josh Frydenberg cut the deeming rate on the first $51,800 of a single pensioner’s financial investments – and the first $86,200 of a couple’s – from 1.75 per cent to one per cent. The deeming rate for balances above those amounts fell from 3.25 per cent down to three per cent.
It was the first adjustment to deeming rates since March 2015, despite a series of official interest rate cuts by the Reserve Bank.
Social services minister Anne Ruston said: “I suppose it [deeming rates] is a tool that we give people to make their life easier when they’re on pension or payment and they’re receiving income from their financial assets.
“So while, as a secondary effect, I’m sure that any extra money in the pockets of any Australians is going to provide a stimulus, that’s not the underlying reason why we change deeming rates.”
A permanent increase to the Newstart rate would not form part of the stimulus package, Senator Ruston said, warning that was a “separate conversation” to the coronavirus economic response. However, temporary support to help casual workers affected by the coronavirus is expected.
“As the Prime Minister has clearly said, the stimulus package he is looking to deliver to the Australian people is around a short-term, measured and proportionate response,” Senator Ruston said.
“Any long-term structural changes to anything we’re doing will be subject to a separate conversation.”
Will a cut to deeming rates make a big difference to your retirement income? Should deeming rates be reviewed more regularly?
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