Deeming rates 1 July:
Here come higher thresholds
Last week we alerted you to changes in income and assets thresholds for Age Pension eligibility, starting 1 July. We also noted that there would be an important change to the thresholds for deeming rates. This change offers a good opportunity for a refresher on deeming rates – what they are and how they can affect your retirement income.
What are deeming rates?
Deeming rates are used by Centrelink as part of their assessment as to how much, if any, Age Pension you can receive. They are a universal, shortcut rate used by Centrelink to calculate earnings on financial (e.g. income earning) assets. These assets include, but are not limited to, superannuation balances, Account-Based Pension amounts, bank balances, shares and managed funds.
The deeming rate is used on all ‘deemed’ assets, as working through actual earnings for each eligible retiree, across a range of investments, would be an impossible task. So Centrelink uses an upper and lower deeming rate to work out what you might be earning in order to determine Age Pension eligibility and calculate fortnightly payments. Essentially Centrelink “deems” that you have earned a certain amount but you could actually earn more or less than this amount.
The current rates are:
- Singles 0.25% on assets up to $56,400 and 2.25% on assets above that amount
- Couples (combined) 0.25% on assets up to $98,600 and 2.25% on assets above that amount
These percentage rates are frozen until 30 June 30 2024 as part of the Federal government’s response to the uncertainty of the economy during the Covid pandemic. This attempt to give some certainty to retirees means that, considering cash interest rates of around 4%, many retirees are receiving far higher returns than the current deeming rates. And this is likely to continue until July 2024. It makes a nice change from the situation three years ago where most retirees were very unlikely to be earning nearly as much on their cash deposits as Centrelink deemed.
What is about to change?
It is the thresholds which will increase on 1 July this year. And the increase will mean more of your financial assets are deemed at the lower 0.25% rate.
They will move to:
- Singles 0.25% on assets up to $60,400 and 2.25% on assets above that amount – an increase of $4000
- Couples (combined) 0.25% on assets up to $100,200 and 2.25% on assets above that amount – an increase of $6600
Here’s an example of the change in income deemed for singles and couples, using total deemed assets of $185,000.
(from 1 July)
|Couple combined |
(from 1 July)
|Total financial assets||$185,000||$185,000||$185,000||$185,000|
Whilst the above example shows small decreases in the amounts that are calculated to be deemed using the new rates, any decrease in income can translate into a higher fortnightly part-Age Pension payment, or perhaps becoming eligible if you were ‘borderline’ previously.
Deeming rates thresholds will be reviewed again on 1 July 2024, at the same time that the rates will be ‘unfrozen’. Depending upon the economic climate the rates of 0.25% and 2.25% could be increased.
If you are wondering how deeming will affect your own payments or eligibility, you don’t need to do all the maths yourself. Retirement Essentials Age Pension Eligibility Calculator has deeming rates built in to all calculations. We have now added the new deeming rates for 1 July, so that you can use this free calculator anytime you wish to check your own eligibility.
And should you need further support to understand your situation, an entitlements consultation is just a click away.
if you have any pressing concerns about Age Pension eligibility or other Centrelink rules, you can book an entitlements consultation today.
Are these new thresholds fair?
What are your thoughts on deeming rate changes? Are they fair? Or would you suggest different amounts?