For those on Centrelink payments you’ve probably heard the term ‘deeming rates’. This is an important part of the ‘income test’ which determines whether you’re eligible to receive a pension payment.
Instead of using the actual earning rates of your investments, Centrelink deems (or assumes) you’re earning a set rate of return. This is the same for everyone. Your actual income might be higher or lower than the deemed rate, however, it is this statutory ‘deemed’ rate that Centrelink apply for the income test.
There was talk throughout the start of this financial year about reducing the deeming rates as interest rates are at record lows and people aren’t earning as much as previously from bank accounts and term deposits. This has led to a Government revision of the ‘deeming rates’ that, with effect from 1 July 2019, the deeming rates have been reduced. This means that those whose payments were reduced under the income test will have now access to a higher level of pension income.
The updated deeming rates are as follows:
• 1% on the first $51,800 of your financial assets (previously 1.75%), plus
• 3% on all financial assets over $51,800 (previously 3.25%)
• 1% on the first $86,200 of your financial assets (previously 1.75%), plus
• 3% on all financial assets over $86,200 (previously 3.25%)
The deeming rates are applied to all of your financial assets. This includes, but isn’t limited to:
• Bank accounts
• Term deposits
• Superannuation accounts (for those over age pension age)
• Account based pension accounts
• Managed funds
For those receiving an income stream from an Account Based Pension, it’s important to note that Centrelink isn’t interested in the income you’re actually drawing from your pension account. Unless you have an older style pension which is assessed in a different manner, Centrelink will only deem the account balance at the rates mentioned above. Therefore, if your financial assets are earning 5% income, Centrelink is assessing it at 1% for the first portion, and then 3% for the remainder. You are therefore earning more than Centrelink has assumed.
Conversely, if you are invested in a bank account earning 0.25%, Centrelink will still deem it as earning at the rates above. You are therefore being assessed on income you aren’t actually receiving.
Once your deemed income is calculated, the amount is added to other forms of income you receive (e.g. UK Pension). If your total income exceeds the threshold, your pension income will start to reduce until it reaches a point where it stops entirely.
Let’s run through an example of how deeming rates work:
Jane is 72 and is on the single age pension. She has an account based pension worth $160,000 and a bank account with $20,000 in it. Her total financial assets of $180,000 mean she will be deemed as follows:
• 1% x $51,800 = $518
• 3% x ($180,000 – $51,800) = $3,846
This is below the lower threshold and will provide Jane with the full age pension. However, prior to 1 July 2019, with the higher deeming rates, Jane would have had deemed income of $5,073 pa which would have reduced her pension by 40c per fortnight for every dollar over the lower threshold. Due to these changes to the deeming rates, Jane will be approximately $240 per annum better off in regard to her Centrelink payments.
If you would like to review your Centrelink entitlements to see whether this rule change has increased your pension payment, please don’t hesitate to contact us.