2024 deeming rates freeze

The biggest win for retirees in this year’s Federal Budget was the decision to freeze deeming rates until 30 June 2025. We reported on this in our Budget 2024-25 wrap, but wanted to take time to further explain this for those who are not quite sure how deeming rates work or those who have yet to encounter them in their retirement journey. This brief explainer has been prepared to bring you up to speed as quickly and easily as possible.

What are deeming rates?

Deeming rates are used to calculate the money that Centrelink assumes you earn on your financial assets. Remember, the means test for the Age Pension is based upon both an income and an assets test. If you have financial assets (this excludes the family home, car, caravans and boats etc) they will be deemed to earn income. In the real world (i.e. investment market returns) you may currently be earning 5% on money invested in a fixed term bank account. But Centrelink cannot input and manage every separate earning rate for every retiree. So it has a ‘deemed’ rate that is applied across the board to the financial assets of those seeking an Age Pension or perhaps a Commonwealth Seniors Health Card. The current deeming rate is applied to all financial assets and the resulting earnings are then added to any other income you may receive in order to calculate your eligibility.

Current deeming rates

The current deeming rates are:

Singles up to$60,4000.25%
Singles Above$60,4002.25%
Couples up to$100,2000.25%
Couples Above$100,2002.25%

How long have they been so low?

For many years retirees were concerned that deeming rates were too high – far higher than the returns they actually received on their investments. As interest rates declined, so too deeming rates were reduced until they reached the current, historic, lows. Then along came the Covid pandemic and the Morrison Government took the view that in such uncertain economic times, retirees needed to be able to plan and depend upon social security benefits. For this reason, deeming rates were frozen in May 2020 until 30 June 2022. This freeze was then extended to June 30 2024. And, as we have seen, they will now remain frozen for a further 12 months. 

What difference does this make?

A lot. If deeming rates had been increased to a rate similar to that of say the Reserve Bank cash rate (4.35%) they would have nearly doubled. This means a lot more people who are currently receiving an Age Pension would now be deemed to earn more than the income limit and so they would automatically lose their entitlement. Deeming rates can be the difference between eligibility and not – including the very valuable Pension Concession Card that is automatically given to all who qualify for the Age Pension. 

Why is this extended freeze a win?

If the government assumes that you are earning at about half the rate you actually are, this means that your entitlements are higher than they could be if a market rate was applied. 

Does this affect you?

If you are on a full Age Pension then you are within the limits anyway. If you are on a part-Age pension you are probably receiving higher fortnightly payments as the lower deeming rates assume you are earning much less than you actually are.

It may be that you are not sure if you have been assessed to receive the Age Pension on the assets test or the income test. It’s smart to check this so you better understand how your entitlement actually works. Using the free Retirement Essentials Age Pension Entitlement Calculator is a quick and easy way to do this.

Regardless of your current (or future) eligibility, you can often maximise your entitlements by learning more about the rules that apply in your individual case. A one on one consultation with one of Retirement Essentials experienced advisers can help you understand your full range of Centrelink options.

Were you relieved when the Treasurer announced that the deeming rate freeze was to continue?
Or do you feel it should be increased to be closer to the actual market rate?