How $314,000 affects Lorraine’s Age Pension
Lorraine is 71, lives in a home she owns outright, and has $314,000 in financial assets. Her savings are carefully invested in a term deposit and an Account-Based Pension (ABP). She lives modestly, doesn’t consider herself wealthy, and assumes she’d qualify for a full Age Pension.
But there’s a catch she didn’t see coming. Despite earning only a small amount in interest, Lorraine’s Age Pension was reduced. Why? Because Centrelink doesn’t assess her actual income from investments. They use deeming instead — an assumed rate of return applied to financial assets, no matter what those assets really earn.
What is deeming and how does it work?
Deeming is Centrelink’s way of simplifying income assessments for the Age Pension. Rather than checking every dividend or interest statement, they apply standard deeming rates to financial assets and assume you earn that amount.
The current deeming rates (frozen until 30 June this year) for singles are:
- The first $62,600 of financial assets is deemed at 0.25%
- Anything above $62,600 is deemed at 2.25%
It doesn’t matter if your money is in a cash account with interest earning 1.8%, or in a superannuation investment option that returned 8.1% last financial year. Centrelink deems the income based on the total balance of your financial assets — and uses that figure to assess your Age Pension eligibility.
How deeming affected Lorraine’s Age Pension
Let’s break down Lorraine’s situation.
She has $314,000 in financial assets, including her Account-Based Pension and term deposits. Here’s how Centrelink calculates her deemed income:
- First $62,600 at 0.25% = $156.50
- Remaining $251,400 at 2.25% = $5,656.50
- Total deemed income = $5,813 per year, or about $223 per fortnight
The income free area for a single person is $212 per fortnight, or $5,512 per year. Every dollar over that reduces the pension by 50 cents.
Lorraine’s deemed income exceeds the threshold by $301 per year. Her Age Pension is reduced by half that amount — $150.50 per year, or about $5.80 per fortnight in reductions. She’ll receive approximately $29,724, which is slightly less than the full Age Pension entitlement of $29,874 for a single home-owner.
It’s not a massive reduction — but it can be frustrating, especially when your real income is lower than what Centrelink assumes. It also highlights how retirees in Lorraine’s situation can be caught out just below the asset threshold but above the income threshold, leading to unexpected cuts to their pension entitlement.
The risk of rising deeming rates: A hidden danger for many
What happens if the freeze on deeming rates is removed on 1 July 2025? Many retirees don’t realise that if the rates increase, it could result in a significant reduction to their Age Pension — even if their actual income remains unchanged.
This issue affects potentially thousands of retirees, and may go unnoticed by many, who might assume their fortnightly Age Pension payments will stay the same even as deeming rates shift. But this shift could make a real difference in how much you actually receive.
Many people think staying under the asset test guarantees a full Age Pension—but if you have significant financial assets, the income test can quietly reduce your payment. For example, a single non-homeowner with $566,000 in savings is right on the lower asset threshold, yet deemed income cuts nearly $3,000 from their annual Age Pension payments. Even (single) homeowners such as Lorraine with $314,000 in financial assets can be affected. The catch? Deeming rules can lower your pension well before you hit the lower asset threshold.
Which assets are deemed?
Centrelink applies deeming to most financial assets, including:
- Bank accounts, term deposits, and cash
- Shares and managed funds
- Superannuation (if you’re over Age Pension age)
- Account-Based Pensions (unless grandfathered under pre-2015 rules)
- Some overseas pensions and private loans
Assets like your family home, car, and household contents are not deemed.
Can anything be done?
In Lorraine’s case, a Retirement Essentials adviser helped her understand the rules and review her options. While she didn’t want to take on more risk in her investments, she was able to slightly restructure her finances. She prepaid some essential home maintenance costs, considered purchasing funeral bonds, and used a portion of her funds to reduce her assessable financial assets.
By doing so, she reduced the amount subject to deeming and improved her Age Pension entitlement — without compromising her long-term security.
These strategies aren’t one-size-fits-all, but they do show that careful planning can make a difference. Even small changes can lift your Age Pension fortnightly payments, and help you get the most from your entitlements and retirement savings.
What’s the right balance for you?
If you’re close to the lower asset threshold for Age Pension eligibility, it’s worthwhile checking if you are affected by the income test. Many people in this bracket are caught off guard by how much their pension is reduced — especially when their actual income is lower than expected.
It’s not about trying to ‘game’ the system. It’s about understanding the rules, planning ahead, and making informed decisions that support your lifestyle.
How to get help to optimise your retirement income
Navigating the deeming rules, income tests, and Age Pension thresholds can feel overwhelming — but you don’t have to go it alone. A Retirement Essentials Advice Consultation can help you understand how your assets and income are assessed and explore your options to improve your entitlements.
Let’s keep the conversation going
Have you reviewed how deeming is affecting your Age Pension?
What changes — if any — have you made to manage your assessable assets?
Confused re your comment that assets such as car and house contents are not deemed. My conversation with Centrelink customer service I was told they are deemed.
Thanks for reaching out Andrew,
Personal assets like your car and home contents aren’t deemed, but financial assets like bank accounts, shares and super in Account-Based Pensions are subject to deeming, which is how Centrelink assumes they earn income.
That means personal assets will affect your Age Pension entitlement under the assets test only. Whereas, financial assets will count under both the assets test based on their value, and the income test as well based on the amount of income they are deemed to earn.
Perhaps that’s the source of confusion for you. You could always check with Centrelink what you have recorded as personal assets vs financial assets to make sure you have everything assessed correctly.
Hope that clears things up!
Car and house assets arnt deemed as they do represent an income. However they do count toward your assets.
Great point, Allan—thanks for the clear explanation! Just to clarify, I believe you meant to say that assets like cars and the family home don’t generate income, so they aren’t subject to deeming rules, though they are considered under the assets test. Easy to miss a word—your overall point is spot on!
Even my Defence Force Retirement and Death Benefits (DFRDB) pension, earned after 20 years in the ADF, is counted in the Income Test and makes it impossible for me to ever get the full pension. The Govt gives with one hand and takes away with the other!
Hi Stephen, Thankyou for your comment and for your service – you’ve raised a very good point. Defined Benefit Pensions are assessed differently to other income streams, and military pensions like DFRDB have their own specific rules. For example the usual 10% cap on deductible amounts doesn’t apply if the pension relates to military service. You can read more about how defined benefit pensions are assessed here
Unless this lady starts spending some money her problem isn’t going to go away , her income from her term dep and ABP will exceed $13,000 Pa, she has to draw down a min 5% pa, which leaves her right back where she started , possiblt with more growth. Sometimes you leave out the little things
Hi Garry, Great point — you’re right that unless she starts spending a bit more, her situation may not change much. That steady income from her term deposit and Account-Based Pension, plus the minimum drawdown rules, can keep her right where she is (or even with more in the bank). We try to keep things simple in the article, but you’re spot on — those little details really can make a big difference.