- Pensioner deeming rates will lift by 0.50% on 20 March
- The new rates will be 1.25% and 3.25%
- The rates remain under market interest rates on many deposit products
The new deeming rates will come into effect on 20 March, updated to:
- 1.25% for financial assets under $64,200 for singles and $106,200 for couples (combined)
- 3.25% for financial assets over these amounts
Both will see a 0.50% lift on the current rates of 0.75% and 2.75% respectively while the asset thresholds will remain unchanged.
The rates are the benchmark that the federal government 'deems' pensioners are earning as interest on their assets when calculating pension entitlements.
'Gradual' deeming changes
It's the second time the rates will be lifted after being frozen at historic lows during the COVID-19 pandemic.
Despite interest rates climbing in the post-pandemic period, deeming rates remained at 0.25% and 2.25% until September 2025.
At that time, they increased 0.50% to their current level of 0.75% and 2.75%.
It was widely seen as a modest adjustment given many term deposit and savings account rates were returning comfortably above the 4% benchmark at the time.
How do the latest changes sit in the market?
Even with the 20 March deeming rate increase to 1.25% and 3.25%, many market interest rates on deposit products are paying interest around the mid-to-high fours.
These have been boosted in recent weeks on the back of the Reserve Bank of Australia increase to the official cash rate on 3 February.
A couple of ADIs are currently offering 5.00% p.a. interest rates for five-year term deposits , namely Judo Bank and Rabobank (although Rabo's is for amounts over $500,000).
See also : Long term deposit rates for 2, 3 & 5 years
Term deposit products are popular with pensioners and retirees as they can provide regular fixed income payments on nest egg funds.
Some of the market's more competitive savings account products are also offering rates around the mid-4s.
The government said next month's change is consistent with its commitment that "any deeming rate movements will be gradual".
What is deeming for?
Deeming was introduced in Australia more than 30 years ago, providing a benchmark as to how much income people are earning on their financial assets.
It was designed by the Hawke-Keating government after concerns were raised that some pensioners were deliberately earning low interest on their funds in a bid to maximise their pension entitlements.
In effect, it means pensioners are deemed to earn a minimum set interest rate on their funds.
Not only does it effectively encourage them to put their financial assets into higher-earning products, it also simplifies the process of assessing how much income people can earn in pension entitlement calculations.
The federal government sets deeming rates but the 20 March increase will mark the first time the government will act on a recommendation from the Australian Government Actuary (AGA).
The AGA will continue to assess and advise on deeming rates, the federal government said.
What else is changing on 20 March?
The deeming changes will come into effect alongside regular indexation changes to social security payments, rates, and limits.
Indexation is applied to government payments twice a year - in March and September - to keep step with cost-of-living increases.
The federal government expects people receiving the full single rate of age or disability support pension, or carer payment will see a $22.20 boost to their fortnightly payments.
People receiving Commonwealth rent assistance, JobSeeker, ABSTUDY (aged 22 and over) and Parenting Payment will also see increases.
Indexation rates are yet to be officially confirmed but will be in the coming weeks once final data is available.
Advertisement
Want to earn a fixed interest rate on your cash? The table below features term deposits with some of the highest interest rates on the market for a six-month term.
| Bank | Term Deposit | Interest Rate | Interest Frequency | Term | Automatic Rollover | Maturity Alert | Early Withdrawal Available | Minimum Deposit | Maximum Deposit | Notice Period to Withdraw | Account Keeping Fee | Online Application | Joint Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.35% p.a. | At Maturity | 6 months | $5,000 | $19,999 | – | – | |||||||||||||
5.20% p.a. | At Maturity | 6 months | $10,000 | $5,000,000 | – | – | |||||||||||||
5.15% p.a. | At Maturity | 6 months | $1,000 | $1,000,000 | – | – |
