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 | $60,400 | 0.25% |
| Singles Above | $60,400 | 2.25% |
| Couples up to | $100,200 | 0.25% |
| Couples Above | $100,200 | 2.25% |
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?
is your car an asset?
Hi Gerald, thanks for the question. Yes, when you apply for the age pension you need to disclose the details of the car you own and include an estimated market value which contributes toward your assessment under the assets test. It has no impact under the income test assessment. Best wishes, Nicole.
I appreciate this explainer, but it would be good to mention those on defined benefit payment as well as super. Thanks.
Hi Russell, thanks for your note. The assessment under the income test for those in receipt of a defined benefit pension can be a little complicated but isn’t impacted by changes in deeming rates (at least the assessment of the defined benefit payment itself isn’t affected, but if other financial assets are held there may be impacts as a result of that). However, if your pension is indexed it likely increases a little of your assessable income each year when the payment increases with CPI (usually July). As to how much of the defined benefit income itself is assessed is where the complexity can come in, as some are allowed concessional treatment and others aren’t. If you are already in receipt of an age pension you should be able to find out how much of your defined benefit pension is classed as ‘assessable’ income through the income and asset details section of your Centrelink MyGov account. All the best, Nicole.
Deem rates should increasing at the inflation rates and should be automatic-
otherwise most pensioners will lose part pensions.
as the assets test massively already advantages home owners, as well as those with some higher-end leisure tools, deeming rates perhaps should remain low for those not in that situation.
We are a couple who do not receive an aged pension but have a concession card. The income limit meant we were just over the threshold.
Over the last years since COVID our com remans similar but our expenses are now much higher than prior to that period.
My husband is now 80 and Iam 79 later this year. We live quite frugally and have not been able to budget for a real holiday since 2016.
Would you advise on whether it is in our interests to reapply?
Hi Sheila, thanks for reaching out. Life has certainly become much more expensive of late. I suggest you start with our free online age pension eligibility calculator to assess your current position, as eligibility changes over time. It is possible you may now be eligible for some support. If you would prefer to discuss your individual situation and what is impacting your assessment with someone, I would recommend the entitlements consultation. It is a 30 minute phone call, costs $75, and you should walk away with a clear understanding of where you stand regarding the age pension and whether you may be eligible to apply. Best wishes, Nicole.
Does your superannuation come into play when you are receiving a pension
Hi Paul, thanks for the question. If you are age pension age then Centrelink will recognise your superannuation money as an asset for the asset test calculation, and the balance will be subject to deeming for the purposes of the income test. Hope this helps, Nicole.
i have an account based pension from which i annually withdraw the minimum amount required by the legislation. My wife is in a similar position but she is 9 years younger at 63 Are both the annual withdrawal income and the pension balance deemed earnings count toward my entitlement for a CSHC?
Hi David, thanks for your question. This is often confusing for people. The balance of your account-based pension is generally subject to deeming for the purposes of income test calculation. The actual amount of income that is drawn each year, be it the minimum or higher, is irrelevant to the calculations for your age pension entitlements (with a few exceptions for pre-2015 accounts which may have different treatment). Best wishes, Nicole.
I am on a part pension and own an investment property. Does Centrelink apply the actual rental income or apply the deeming rate against the value of the property in the income test?
Hi Eric, thanks for your question. The value of your investment property is not subject to deeming if it is held in your personal name/s. They look at the rental income less a few allowable deductions, usually obtained from your tax return. It’s a different story for properties held in SMSF though. Hope this helps, Nicole.
Hi, I currently have a concession health card. And in the next few months will be the beneficiary listed on an insurance bond. Will the capital value of the bond be an asset for deemed income?
Hi David, it’s a tricky one without knowing more details about your situation and the structure of the insurance bond itself. However, for the purposes of the Commonwealth Seniors Health Care Card (if that is what you are referring to), the only assets that are deemed for the income assessment are superannuation accounts in pension phase (i.e. account-based pensions). Hope this helps, Nicole.
.Does my partner qualify us as ‘‘couple’ if she is on Partner Visa?
Hi Graham, thanks for your question. Your marital status is determined by your relationship rather than residency status. If you are in a domestic relationship together then you are a member of a couple and couple thresholds and rates will apply to your potential eligibility calculations, even if your partner would not be eligible for any support. Hope this helps, Nicole.
I am 66. I sold my house in 2021 and banked the money planning to move into a retirement apartment, with deferred management fees. Covid and other delays mean I may move in 2025. How do Centrelink regard this when calculating a pension? I will be 67 by then.
Hi Ken, thanks for reaching out. Proceeds from the sale of your property are only exempt for up to 2 years while you are waiting to purchase a new home so you won’t be eligible for an exemption on the amounts you are intending to spend at purchase time (assuming you have not paid for apartment yet). However, you may still be eligible for some age pension entitlements, it all depends on how much is there and what other assets you have. Initially non-homeowner asset thresholds may apply. I recommend an entitlements consultation if you want to talk through your situation in detail with someone, which you can book by clicking here. All the best, Nicole.
Could you please tell me why full pension earners will not be affected even if deeming rate goes up ?
Thanks
Hi Dipakkumar, thanks for reaching out. A percentage could possibly be. Higher deeming rates result in higher assessable income. If previously income was below the income free threshold and the increased deemed income pushes them above then they will see a decrease. How many people this could impact and how significantly? Well, we will have to wait until next year to see what happens. The reference to full pensioners not having any impact in the article was acknowledging the decision to keep deeming rates on hold for now, so no impact on full pensions at the moment. All the best, Nicole.
I am turning 67 in August this year whilst my wife will be turning 65 in August. We are both retired. Our superannuations are both in accumulation mode and I am considering depositing funds to my spouse as I have excess in my superannuation account to claim part the age pension. Is this legal and should I consider transferring my superannuation from accumulation mode to the minimum 5% withdrawal pension mode even though I really don’t require these funds at the moment.
It is common for some couples to consider moving assets into the superannuation of the younger spouse to potentially assist with entitlements. It is important that you are very clear on what you can move each financial year as this will depend on age, existing balance and previous contributions. However, it is perfectly legal as long as the contributions are made within the contributions caps. As to whether you should consider an income stream if you don’t need it yet, that’s much more complicated for this forum. I would recommend a strategy consultation so we can work through your thoughts around the contributions to your spouse super, work out whether improvements in age pension make it worth your while considering there are some downsides, and then help you to understand the pros/cons of considering an income stream at the moment. The Strategy consultation is a 55 minute video meeting, costs $330, and you will walk away with very clear answers to all your questions and how the rules apply to your specific situation. You can book a strategy consultation by clicking here. All the best, Nicole.
Hi Nicole,
My husband turns 65 and he is retiring at the end of the year , I will be 67 in sept next year, I want to then take my long service leave on half pay and then retire. We will downsize and move in our investment property which becomes our home I would like to know what is the cut off point in assets for which you can be eligible for the pension I was also told I could do not have to access my super and get the pension. We are receiving the required amount from our super as a transition into retirement every fortnight
Hi Mary, we actually wrote an article on the thresholds (HERE) as they are about to change on 1st July. The new threshold applicable to you and your husband as home-owners will be $1,031,000.
This is the first time I have heard of cars, boats and caravans not included in assets test.
So why do we have to include a value.
Hi James, thanks for your question. They are absolutely included in the assets test, but they don’t produce assessable income under the income test. So changes to the values of cars boats and caravans do not change your income test assessment as they aren’t subject to deeming. Hope this helps, Nicole.