- Deeming rates to assess eligibility for pensions and other government payments will rise for the first time in five years
- The lift will be the first of a series of phased increases to see deeming rates gradually return to pre-pandemic levels
- The government said age pensioners had saved around $1.8 billion from low deeming rates frozen during the pandemic
Deeming rates for pension and welfare recipients are set to rise to better reflect current rates of return on investments.
Federal Social Services minister Tanya Plibersek made the announcement on Wednesday, signalling the end of the government freeze on deeming rates implemented at the onset of the pandemic.
From 20 September, the lower deeming rate of 0.25% will lift to 0.75% while the upper rate will rise to 2.75% – also up 0.50% from its current 2.25%.
What are deeming rates?
Deeming rates are those the government deems people are earning on their financial assets when assessing their eligibility for pensions and other welfare payments.
They were introduced in 1991 to subvert pensioners who were deliberately keeping their assets in low-returning investments to qualify for government payments.
Rates were generally linked to the Reserve Bank cash rate but also took into account other economic factors.
Deeming rates have remained frozen at pandemic-era lows since 2020 in an effort to shield pensioners from the double blow of inflation and higher interest rates ballooning returns on some asset classes.
Ms Plibersek noted the freeze had seen age pensioners effectively save around $1.8 billion.
"As Australians begin to feel the positive impacts of inflation easing, the government will now gradually return deeming rates to pre-pandemic settings," she said.
See also: How does the age pension work?
How do deeming rates work?
The new deeming rate of 0.75% will apply to up to $64,200 worth of assets for singles, with anything over that deemed to be returning 2.75%.
For couples where at least one person is receiving a pension, the lower rate of 0.75% will apply to the first $106,200 of their combined assets before the higher rate kicks in.
Applicable assets include superannuation, shares, bank accounts, term deposits, and more.
Deeming calculations are used in means testing for government welfare payments, including the age pension, JobSeeker, parenting payments, as well as access to the Commonwealth Seniors' Health Card.
What are the other changes to deeming?
Next month's lift will be the first in a series of phased increases intended to return deeming rates to pre-pandemic levels, Ms Plibersek said.
After 20 September, rates will be set by the Australian Government Actuary, although the government will retain power to make adjustments if considered necessary.
20 September is also the date of scheduled welfare payment indexation for all Centrelink payments in line with cost-of-living measures.
This will raise the age pension, disability, and carer payments by almost $30 a fortnight for a single person.
Couples on a full pension will each see an increase of $22.40 a fortnight.
What do pensioners think of the deeming changes?
Lobby group COTA [Council on the Ageing] said upcoming changes to deeming rates will come as a shock to some older Australians.
COTA CEO Patricia Sparrow said any reduction in fixed incomes is difficult for people to manage.
"However, staging the changes and coupling the introduction with one of the largest pension increases in the past 60 years should offset the impact for many pensioners," she said.
"Older people have told us they want the visibility of the government's intentions to give them the opportunity to forecast and plan ahead.
"The staged approach to the deeming changes and the announcement ahead of its impact shows the minister has been listening."
Ms Sparrow said the organisation will be watching closely to ensure the government's methodology for setting future deeming rates works for all older Australians, including those not digitally connected to higher-interest online savings accounts.
"Deeming rates must reflect what people can actually get from their bank, not just headline online rates, and we look forward to engaging with the Actuary to ensure real over the counter banking products are properly represented," she said.
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