How deeming might impact you
To figure out how much pension to pay eligible Australians, the government uses a ‘deeming’ system. National Senior’s partner QSuper, now a part of Australian Retirement Trust, explains how it works.
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Key Points
- Deeming rates remain at the reduced rate effective from 1 May 2020. That means the upper deeming rate is 2.25% and the lower deeming rate is 0.25%.
- Your super retirement income account is considered to be a financial investment and the balance will be 'deemed' to earn a certain amount of income based on the balance at 1 July each year.
Deeming rules are used to work out income from your financial assets. Learn more about financial assets here.
If you receive a payment from the Department of Human Services, such as the Age Pension, you should understand how current deeming rates might affect you.
The Australian Government reduced the deeming rates in 2020 as part of a package to address the impacts of the COVID-19 pandemic and market volatility.
The rate of 0.25% currently applies to financial investments up to $53,600 for singles and $89,000 for couples.
For Australians receiving a regular payment from Centrelink (such as Newstart, Disability Support Pension, or Age Pension) or Department of Veteran’s Affairs (such as a Service Pension), the government assesses your financial ability to support yourself so that it can work out how much payment you are entitled to receive. There are two tests that are used to assess that financial ability, the assets test and the income test.
- The assets test looks at the value of the assets you have that you could sell or use to support yourself.
- The income test considers the income you receive from all sources that you can use to live on, including financial assets. This may include interest from term deposits, dividends from shares and payments from a superannuation income stream.
To simplify the calculation of the income test and treat different types of financial assets in the same way, the government sets a tiered rate of return for all financial investments. These are known as the deeming rates.
They assume you are earning income at this fixed rate, regardless of the amount of income you are actually receiving.
The Australian Government reduced the deeming rate effective 1 May 2020. As of that date, the upper deeming rate was 2.25% and the lower deeming rate was 0.25%.
At the time, the government said the reductions reflected the low interest rate environment and its impact on income from savings, and would benefit around 900,000 income support recipients, including around 565,000 people on the Age Pension.
Current deeming rates are:
- Singles: For the first $53,600 of the total value of all financial assets, the deeming rate is 0.25%. For anything over $53,600, the deeming rate is 2.25%.
- Couples where at least one gets a pension: For the first $89,000 of the total value of all financial assets, the deeming rate is 0.25%. For anything over $89,000, the deeming rate is 2.25%.
- Couples if neither get a pension: For the first $44,500 of each of your own and your share of joint financial assets, the deeming rate is 0.25%. Anything over $44,500 is deemed to earn 2.25%.
Your retirement income account is considered to be a financial investment. As such, the balance of your retirement income account will be 'deemed' to earn a certain amount of income based on the balance at 1 July each year. This is irrespective of the actual level of payments you are drawing from your account as income.
Your super accumulation account is not counted as a financial investment until you reach your qualifying Age Pension age (or age 60 if you qualify for a Service Pension).
Services Australia has an explanation of deeming, exemptions, and further information on its website.
Find out more about deeming if you have a QSuper account here.
