Centrelink payments to rise in September, but some pensioners may not get full benefit

Federal Social Services Minister Tanya Plibersek announced the latest round of payment indexation for next month.

Welfare payments are automatically increased on 20 March and 20 September each year in line with CPI indexing.

From 20 September, pensioners are set to receive up to $36.80 extra to $1,237.70 a fortnight for singles, while pensioner couples will get an additional $55.60 to $1,866.00. 

However, at the same time as payments rise, the government is lifting deeming rates that could potentially reduce Age Pension entitlements for pensioners.

How much Centrelink payments are increasing

The September indexation package will deliver an estimated $4 billion in additional support across the social security system. 

Key increases include: 

Maximum payments and thresholds under the Commonwealth Rent Assistance will also increase from 20 September. 

Other payments including Youth Allowance, ABSTUDY and utilities and telephone allowances will also be lifted.

COTA Australia chief executive Patricia Sparrow said the increase would provide welcome relief for many older Australians facing ongoing pressure from rising living costs. 

"An extra $36.80 a fortnight may not dramatically change someone’s circumstances, but when household budgets are stretched this tightly, every dollar counts," she said. 

READ MORE: High-interest savings accounts in Australia right now

Deeming rates are rising too

Deeming rates for calculating how much pensioners are earning on their assets will also lift by 0.50% next month. 

From 20 September, pensioners with financial assets valued up to $66,800 for singles or $110,600 for couples will see their deeming rates increase to 1.75%.

Balances above those thresholds will be deemed at a rate of 3.75%, up from the current rate of 3.25%. 

Deeming rates are the benchmark returns the government assumes pensioners earn from assets like savings accounts, term deposits and shares, regardless of their actual earnings. 

Ms Plibersek said the increase follows the government’s acceptance of advice from the Australian Government Actuary (AGA) to gradually lift social security deeming rates. 

The upcoming increase will be the third time deeming rates will be lifted after they were frozen during the pandemic. 

Could your pension be affected?

For pensioners with limited savings, the September increase is likely to flow straight into their fortnightly payments. 

However, those with larger balances in savings and other financial assets may find part of the gain offset by higher deemed income. 

Consider two single pensioners who both currently receive the same Age Pension payment, but one has $20,000 in savings and the other has $200,000 in savings and investments. 

When deeming rates rise on 20 September, the pensioner with fewer financial assets is likely to receive the full $36.80 fortnightly increase, while the pensioner with larger savings could see some of that gain offset.

The exact impact depends on overall circumstances and whether they are assessed under the income or assets test.  

Pensioners concerned about the impact of the changes can contact Centrelink or seek professional financial advice.

Comparing deeming rates to market interest rates

Even with the 20 September deeming rate increase to 1.75% and 3.75%, interest rates on deposit products are generally paying significantly higher rates. 

Many banks are currently offering savings accounts with max interest rates of above 5.00% p.a. (may be subject to introductory promotions and/or conditions). 

ING for instance, currently offers up to 6.00% p.a. intro rate for four months, then 5.40% p.a.

Term deposit products are also currently offering rates from high fours-to-mid fives.

Judo Bank is currently offering 5.25% p.a. through its 11-month term deposits. 

READ MORE: Top term deposit offers in Australia right now

COTA Australia has backed the government’s decision, saying the gradual increase is a "sensible" approach, but argues banks must ensure pensioners are earning at least as much as the government assumes. 

"[Banks] should be proactively alerting customers when their savings are earning below the relevant deeming rate and helping them understand what better options are available," Ms Sparrow said. 

She also urged older Australians to review their savings and term deposit rates before the changes take effect.

"If the Government assumes your money is earning a certain amount, you should make sure your bank is paying you at least that much."

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