Centrelink: Lower deeming rates for pensioners

Despite the number of interest rate cuts we have had from the Reserve Bank of Australia, Centrelink have only started to reduce the deeming rates. Jenny Macklin, the Minister for Families, Community Services and Indigenous Affairs, announced recently a reduction in the pension deeming rates, effective 20 March 2013.

What Is a Deeming Rate?

For those approaching age 65, it might be worth explaining what the deeming rate means. Under our means-tested Age Pension system, a person or a couple’s eligibility for a pension is determined by an assets test and an income test, with the former measuring the level of assets that a person/couple holds, and the latter measuring the level of income that someone receives from their cash, investments and any employment.

Check Centrelink’s website for more details on deeming rates.

Deeming rates for a single person

Investment value Current deeming rate Deeming rate from 20/3/13
The first $45,400 3.00% pa 2.50% pa
Over $45,400 4.50% pa 4.00% pa

Deeming rates for a couple

Investment value Current deeming rate Deeming rate from 20/3/13
The first $75,600 3.00% pa 2.50% pa
Over $75,600 4.50% pa 4.00% pa

Payments affected by the deeming rate include most means-tested payments, such as the Age Pension, Service Pension, Disability Support Pension and Carer Payment, income support allowances, and supplements such as the Parenting Payment and Newstart.

So what will a lower deeming rate mean to the average pensioner?

For those on a full pension it may not have any effect, but the reduction in deeming rates provides an average increase of $6.80 per fortnight to those on a part Age Pension. In this day and age, any improvement is welcome for part-pensioners.

In addition, from the same date, pensioners and some income support recipients will receive both the indexation increase and the new Clean Energy Supplement.

The key for those wanting to maximise the bang for their buck is to ensure that the rate they earn on their money is better than the deeming rate, as they can keep the excess and it does not affect their pension. This is where not accepting the banks basic everyday accounts or even their special “deeming accounts” may be appropriate.

The trap is for those who have their money invested in a bank account that matches the deeming rate. On 20 March, the lower interest will be applied to their bank account interest rate and could more than offset the pension increase if they have a large balance in those accounts.

The lost interest could amount to about $19 less per fortnight on a $100,000 left in one of those deeming accounts and even more for those who leave their money in a cheque account.

Now if you are a single person dependant on regular income to meet living expenses, then the net fall of approximate $12 per fortnight after allowing for the $6.80 improvement in the pension due to the lower deeming can make a significant difference.

So don’t just accept the rates offered by your bank or building society, and shop around for better terms. Online and telephone accounts via ING Direct and Rabodirect, as well as NAB’s Ubank, offer terms for at-call and term deposit accounts up to 0.5 percent or more higher than the big four banks’ main operations. Bank of Queensland and some building societies also offer walk-in customers better terms.

In times of low interest you have to make the most of every cent.