Deeming rates have been frozen until June 30, 2025, but the Australian Government has been coy about what will happen after that date.
During the COVID-19 pandemic, the deeming rates used to assess people’s eligibility for income support payments were frozen. The rates were initially only set to be frozen until 30 June 2024, but the Australian Government opted to delay the freeze by a year to assist with cost-of-living pressures. Now that year is almost up, but the Government has not said whether it will increase the rates once the freeze is over, or by how much.
What are deeming rates?
When someone applies for an income support payment, their income and assets are assessed to ensure that they are eligible. For a single person applying for the full rate of the Age Pension, the income limit is currently $212 per fortnight, while the asset limit is $314,000 for a homeowner and $566,000 for a non-homeowner. Work Bonus can also increase this income limit further.
Beyond these limits, someone can still receive a payment, but it will be reduced depending on how far above these limits their income or assets may be.
However, many older people may not earn any income from work, but may instead receive income from shares, high-interest savings accounts or superannuation funds. These rates of income can fluctuate depending on interest rates and share markets, which would make it very difficult for someone to accurately report their income to Centrelink.
To avoid this, Services Australia ‘deems’ that these financial assets produce a certain income, regardless of the income they actually produce.
Currently, the first $62,600 of a single person’s financial assets are ‘deemed’ to earn income at a rate of 0.25% while any assets over $62,600 are deemed to earn at a rate of 2.25%. These rates have remained the same since 1 May 2020. Any income that someone receives from financial assets over these levels is not included in the income test.
While the rates themselves have remained unchanged in this period, the income thresholds are regularly indexed. From 1 July 2025, these thresholds will increase so that the 0.25% rate will apply to a single person’s assets up to $64,200 and a couple’s combined assets up to $106,200.
Why were they introduced?
Prior to their introduction in August 1990, people would often keep a chunk of their assets in no interest bank accounts to prevent any interest from pushing them over the income threshold. This not only meant that some people received the pension who otherwise would not have been eligible (or received a higher rate than they would have otherwise), it also meant that their money was not being productively invested into the Australian economy.
The introduction of deeming rates simplified the assessment of incomes for the age pension while also encouraging people to invest their money in assets that would yield a higher rate of income than the deeming rate as anything over this level would not affect their payments.
While rates have historically been set reasonably close to the Reserve Bank’s interest rate, the pandemic era freeze kept the deeming rate low while the interest rate crept higher and higher. This has been a boon for part payment recipients with larger financial assets who have reaped the benefits of the high interest rate without seeing their pension decrease. However, for payment recipients with little to no savings or assets, the deeming freeze has done nothing to ease the cost-of-living.
What will happen on 30 June?
Even though deeming rates are set to be ‘unfrozen’ on 30 June, the Australian Government will still need to decide if it wants to raise them. Deeming rates do not change automatically, they are set by the Minister for Social Services. While extending the freeze would continue to help the approximately 900,000 Australians who benefit from the system, a better option might be to raise the base rate of all income support payments to ensure that everyone, not just those people with financial assets, are given some relief.
During the COVID-19 pandemic, the deeming rates used to assess people’s eligibility for income support payments were frozen. The rates were initially only set to be frozen until 30 June 2024, but the Australian Government opted to delay the freeze by a year to assist with cost-of-living pressures. Now that year is almost up, but the Government has not said whether it will increase the rates once the freeze is over, or by how much.
What are deeming rates?
When someone applies for an income support payment, their income and assets are assessed to ensure that they are eligible. For a single person applying for the full rate of the Age Pension, the income limit is currently $212 per fortnight, while the asset limit is $314,000 for a homeowner and $566,000 for a non-homeowner. Work Bonus can also increase this income limit further.
Beyond these limits, someone can still receive a payment, but it will be reduced depending on how far above these limits their income or assets may be.
However, many older people may not earn any income from work, but may instead receive income from shares, high-interest savings accounts or superannuation funds. These rates of income can fluctuate depending on interest rates and share markets, which would make it very difficult for someone to accurately report their income to Centrelink.
To avoid this, Services Australia ‘deems’ that these financial assets produce a certain income, regardless of the income they actually produce.
Currently, the first $62,600 of a single person’s financial assets are ‘deemed’ to earn income at a rate of 0.25% while any assets over $62,600 are deemed to earn at a rate of 2.25%. These rates have remained the same since 1 May 2020. Any income that someone receives from financial assets over these levels is not included in the income test.
While the rates themselves have remained unchanged in this period, the income thresholds are regularly indexed. From 1 July 2025, these thresholds will increase so that the 0.25% rate will apply to a single person’s assets up to $64,200 and a couple’s combined assets up to $106,200.
Why were they introduced?
Prior to their introduction in August 1990, people would often keep a chunk of their assets in no interest bank accounts to prevent any interest from pushing them over the income threshold. This not only meant that some people received the pension who otherwise would not have been eligible (or received a higher rate than they would have otherwise), it also meant that their money was not being productively invested into the Australian economy.
The introduction of deeming rates simplified the assessment of incomes for the age pension while also encouraging people to invest their money in assets that would yield a higher rate of income than the deeming rate as anything over this level would not affect their payments.
While rates have historically been set reasonably close to the Reserve Bank’s interest rate, the pandemic era freeze kept the deeming rate low while the interest rate crept higher and higher. This has been a boon for part payment recipients with larger financial assets who have reaped the benefits of the high interest rate without seeing their pension decrease. However, for payment recipients with little to no savings or assets, the deeming freeze has done nothing to ease the cost-of-living.
What will happen on 30 June?
Even though deeming rates are set to be ‘unfrozen’ on 30 June, the Australian Government will still need to decide if it wants to raise them. Deeming rates do not change automatically, they are set by the Minister for Social Services. While extending the freeze would continue to help the approximately 900,000 Australians who benefit from the system, a better option might be to raise the base rate of all income support payments to ensure that everyone, not just those people with financial assets, are given some relief.
