Deeming rates are the fixed rates of return the government assumes you earn on financial assets when calculating Age Pension and other income support payments. They are used under the income test, regardless of the actual income your investments generate. This simplifies assessments and ensures all applicants are treated consistently.
Financial assets covered by deeming include bank accounts, shares, managed funds, and superannuation pensions (once accessible). The assumed income is then compared against income test thresholds to determine eligibility and payment rates.
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Deeming rates are set by the Australian Government and may change in response to economic conditions. Two rates apply: a lower rate up to a threshold amount of financial assets, and a higher rate for balances above that threshold. These thresholds differ for singles and couples.
Deeming avoids the need to report exact earnings, reducing administrative complexity. However, when actual returns are lower than deeming assumptions, retirees may feel disadvantaged. Conversely, if real returns are higher, the extra income does not affect Age Pension eligibility. Deeming ensures fairness and predictability but may create mismatches with market performance.
Relevance
- Central to how the Age Pension income test is calculated
- Ensures consistency and fairness in assessing income from assets
- Important for retirement planning and financial advice
Applications
- Calculating Age Pension eligibility for retirees with savings or investments
- Estimating deemed income from bank deposits, shares, and managed funds
- Structuring portfolios to balance income needs and Age Pension entitlements
- Advisers modelling client outcomes under deeming rules
Metrics
- Current lower and higher deeming rates set by government
- Threshold levels for singles and couples
- Number of pensioners affected by deeming rate changes
- Gap between deemed returns and actual market earnings
Issues
- Deeming can overestimate income when interest rates are low
- Can reduce Age Pension payments even if actual earnings are less
- Policy changes may impact retirees’ eligibility and financial planning
- Complexity for individuals without professional advice
Example
A single retiree has $70,000 in bank savings and $100,000 in shares. Under deeming rules, the first portion of assets is assessed at the lower rate, and the remainder at the higher rate. The total deemed income is then used in the income test, regardless of the actual dividends and interest earned.
