Retirees tired of being ‘milked’ call for deeming rates change

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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a double hit to their incomes – one from falling interest rates and the second from reduced pension payments based on outdated calculations.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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Age Pension: Should deeming rates be re-adjusted?

Like many retirees, Karen believes that deeming rates are simply too high.

Are you losing out to deeming rates?

Ray has questioned the method of applying deeming rates to shares.

Deeming rates in detail

Deeming rate thresholds will change from 1 July 2016

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?



Total Comments: 45
  1. 0

    It seems that a government is quite happy to accept when the RBA decides what interest rate is applicable to adjust the speed of the economy although financial institutions do whatever they wish. When governments fix the deeming rate at a figure higher than the RBA, they aren’t assisting with what is being attempted to adjust the speed of the economy. The deeming rate should be in line with what the RBA decides is the rate to assist the nation.

  2. 0

    As long as we see adverts like the Challenger ones (no guarantee of future earnings or even if you get your own money back in short print) offering up to 7% for several years the Govt will be reluctant to adjust the deeming rate. Our money is in term deposits and on-call accounts. Last time the offer was 2.3% for 6 months, sure that the following time I will only get less than 2%.

    • 0

      Many older people will only deal with Bank’s, that’s all they have known. Aren’t interested in share markets, and probably don’t have enough to set up income streams. Most probably wouldn’t because they don’t understand it. My late 70’s aged brother is single, wouldn’t know how to turn on a computer, is financialy illiterate. Has $225,000 in a bank account earning. 75%. He loses a small amount of pension as he is deemed to be earning too much. No way will he change as he simply does not understand or trust what he doesn’t know about. Deeming rate definitely needs reassessment, but with the govt, any govt, too happy to see seniors as a cash cow to milk, doubt things will change.

    • 0

      sunnyOz, it is so frustrating when some oldies won’t get with the times and accept all the amazing things technology has delivered. I know some too and it is like hitting your head on a brick wall trying to get them to get online and use the resources that are there. It would be so much easier to contact them and keep in touch. All they have is a phone and my brother does not even have his own mobile.
      On the other hand, I know 90 year olds who are adept online. It makes life so much easier and allows them to keep up with the times and take control of their own finances.

    • 0

      All of the above are reasons why that idiot Keating should never have introduced Deeming or the Assets test to make it harder for retirees to get a fair pension on retirement. Just one of many nasty things that guy did. If he did want Deeming, it would have been so much easier and logical (no brain, that guy) to have made all Banks set up Deeming Accounts for pensioners / retirees with interest rates exactly matching the Govt’s Deeming rates with oversight from the RBA to ensure it was happening.

  3. 0

    There is nothing to prevent a government agency from automatically adjusting deeming rates, and checking income from working social security recipients and SFRs etc – for immediate and accurate checking of social security entitlements based on real figures and not on guesswork.

    All that is lacking is the will and the desire to actually fix what have been, for a very long time, outmoded and often highly unfair practices.

    There is a reason for that – it’s called keeping the peasants off balance and in a state of insecurity, rather than social security as mandated.

    • 0

      I agree that the practices of various governments have been unfair since deeming rates were introduced in 1991, Bob. I believe that it is a mixture of laziness and ignoring those of us who have reached retirement age. The May election showed government that retirees have a voice as evidenced by supporting Bowen when he told us not to vote for him if we didn’t like his franking credit rubbish. What we need to do is make that voice a bit louder so government can hear us loud and clear. As I posted above, the deeming rate should be in line with the RBA, not a mythical figure devised by bureaucrats.

    • 0

      Yes, Trebor, it is just Govt strategy (both Liberal and Labor) for “..keeping the peasants off balance and in a state of insecurity, rather than social security as mandated”. Also, to help their bottom line and pay for the large tax cuts which the rich, including the politicians, want.
      That strategy has been in action by the Liberal and Labor Tag Teams for many decades (history has been noted severe times in these pages), and yet the foolish Retirees keep voting these anti-Retiree parties back into power.

  4. 0

    Way back in time when Keating introduced Deeming, I fell for the blurb that we should invest in shares. I went to a Finacial Advisor and went into the share market. Dreadful consequences, within 3 months the share market crashed and I lost 90% of my life savings.
    I do not trust the market and only use Term Deposits, therefore, I’m being ripped off by the Government.

  5. 0

    MP,s are getting a generous pay increase
    What about pensioners
    How can pensioners be heard when nobody in the government wants to listen
    How about 50% off power bills ,water rates and council rates

    • 0

      Your last sentence is what I want too. The water bill is ridiculous and the gas in winter is as well. It went down to 1.9 in Victoria last night and is still very cold. We need the heating but have to ration it. At least do something about the winter heating for pensioners and people on low incomes.

  6. 0

    How about if seniors spend some of their capital to make up the $20 lost in deemed interest and the cut to their pensions? Surely the lower balance would eventually increase the pension without any sacrifice to standards of living. The Government is trying to encourage spending rather than saving. Remember, you can’t take it with you

  7. 0

    How about if seniors spend some of their capital to make up the $20 lost in deemed interest and the cut to their pensions? Surely the lower balance would eventually increase the pension without any sacrifice to standards of living. The Government is trying to encourage spending rather than saving. Remember, you can’t take it with you

  8. 0

    What Morrison, Frydenberg and Ruston refuse to acknowldege, is that most pensioners are not in a position to hold “other assets that might be bringing in more money than term deposits”.
    Their views, which are based on their own high income and wealth, are completely out of touch with the harsh reality most pensioners face.

  9. 0

    I’m not interested in first mortgage lending to get a return ,in my opinion I might as well go down to the local one armed bandit and gamble my money that way . I locked in 2.25 for 12 months so it will be interesting to see what that rate will be in 6 months time .

  10. 0

    This government has a fine brew of indecision and ineptitude as the basis of its actions. It is basically saying to the very vulnerable that they should pull their money out of the banks and gamble on shares, or maybe at the TAB, to get up near deeming rates of return. Meanwhile, their mismanagement will lead to recession and thereby devalue any investments we may make.

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