Retirees are taking a double hit to their income due to government inaction.
The latest Reserve Bank of Australia (RBA) rate cut coupled with the Government’s reluctance to change Age Pension deeming rates means around a million Australian retirees are effectively being short-changed by the Morrison Government, according to a Fairfax report.
Pensioner bodies have accused the Government of again using retirees as a cash cow by sticking with a 2015 decision that assumes high returns on investments such as term deposits. Yet, those returns have been reduced due to a steady string of RBA cuts since 2015.
Pensioners and those on various welfare payments can receive up to $168 a fortnight in income from investments before their payments are reduced.
The Government assesses this income with deeming rates. Currently, the deeming rate for singles is 3.25 per cent for assets over $51,200 and 1.75 per cent for those under that level. The Government assumes certain returns based on the RBA rate, which has fallen from 2.25 per cent in 2015 to 1.25 per cent today. The RBA has indicated that this rate will fall even further in the near future.
Many retirees with money in term deposits and savings accounts now have their income deemed higher than the actual rate of interest paid.
“For retirees with savings of $100,000, which is quite modest, the difference in rates is about one per cent and this can mean a reduction of $20 per week on the Age Pension – an amount that many retirees on a fixed income simply can’t afford to lose,” YourLifeChoices member Betty told us in 2016.
“Why are deeming rates set at 3.25 per cent when the best interest on term deposits is no more than about 2.8 per cent and that may be cut soon. It seems like a steal and something the Government – whoever we end up with – should revise,” she told us again in May this year.
Yet the Government seemingly remains firm in its decision to keep the deeming rates as they stand, saying any reduction would lead to increased pension payments that would cost the economy around $200 million a year.
Franking credits – a hot topic during the federal election campaign and a Labor policy blamed for the Coalition’s shock return – affect only a small portion of the retirement population, but deeming rates affect the majority, and pensioners are taking a double hit to their incomes – one from falling interest rates and the second from reduced pension payments based on outdated calculations.
It has been suggested that responsibility for setting the deeming rates should be given to the RBA rather than to the Government, as the RBA has no vested interest in keeping deeming rates high. Peak bodies say deeming rates should be reassessed every three months.
Social Services Minister Anne Ruston is reportedly considering a rate adjustment, however, any move would not be made until September at the earliest.
Treasurer Josh Frydenberg said that although interest rates had fallen, affecting millions of retirees’ income, the Government had to take into account other assets that might be bringing in more money than term deposits – even though most part-pensioners hold money in term deposits or at-call accounts.
Would you like to see deeming rates adjusted? Are you tired of being used to bolster the bottom line? Is the Government’s reluctance to change deeming rates another example of looking after big earners instead of the average retiree?
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