Lower pension deeming rates now!

Article published 26 June 2019

Lower pension deeming rates now!

WITH one interest rate now announced by the Reserve Bank and another one or two coming, it’s time the Australian Government reviewed the deeming rates used to assess the income pensioners get from their bank accounts and term deposits.

Centrelink does not look at the actual income you make on financial investments, such as shares and bank deposits, but at deemed income. Centrelink uses deeming rates regardless of how much or how little income you make in reality. For this to work, deeming rates can’t be higher than the typical rate of income people actually earn.

Therein lies the problem.

Deeming rates are currently set at 1.75 per cent for the first slice of a pensioner’s savings ($51,200 singles, $85,000 couples) and 3.25 per cent thereafter.

The annual term deposit rate is just marginally higher than the rate of inflation, and the higher deeming rate tracks well above the term deposit rate.

This is a dire situation and it is generally pensioners with modest savings who are affected, as deeming rates are used in the pension income test only. Any pensioner with substantial savings is paid a part Age Pension under the asset test and is not affected by deeming rates.

Deeming rates were last reviewed in March 2015, more than four years ago. The average annual term deposit rate was around 3 per cent then.

Average annual term deposit rates have now dropped to 2 per cent. As the graph on this page shows, unless you have put your money in some riskier investment, you are barely getting enough to beat inflation.

But that’s not the worst of it.

Bank interest in what used to be called a deeming account is about a quarter of a per cent and generally about half a per cent if you have more than $10,000.

620,000 Age Pensioners, 52,000 Carer Payment recipients, and 102,000 disability support pensioners are estimated to be paid their social security benefits under the income test. That’s more than three-quarters of a million people.

It is in the public interest to understand how and when the deeming rates are set. Currently, the deeming rates are set by the Minister with a total lack of transparency.

Even the Reserve Bank of Australia justifies its monthly decision on the cash rate in a keenly anticipated, monthly, publicly available document, but the Minister sets the deeming rates in complete secrecy.

Those whose incomes are affected by deeming rates have a right to know not just how, but also why their income from financial assets is assessed the way it is.

It’s time the Government took action and recognised the hardship imposed on pensioners by a low-interest environment. The Government should stop compounding this hardship through its deeming rates, which are now based on the wrong assumption that pensioners get more interest than they actually do.

Send your comments to CPSA on this issue: voice@cpsa.org.au

 

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