Leslie Massey
Deeming rates are used to estimate the income generated from a pensioner's financial assets in Australia. This income estimate is then used to determine their eligibility for the pension and other benefits. Deeming rates are beneficial for pensioners as they keep pension payments steady and provide an incentive to invest in different products without worrying about the impact on pension payments. The current deeming rate for a single person is 0.25% for every dollar of assets below $53,600 to $62,600, with financial assets above this threshold deemed to earn 2.25%. For pensioner couples, the threshold is between $89,000 and $103,800.
| Characteristics | Values |
|---|---|
| Deeming rate for a single person | 0.25% for every dollar of assets below $53,600 to $60,400; 2.25% for assets above $60,400 |
| Deeming rate for a couple | 0.25% for assets below $89,000 to $100,200; 2.25% for assets above $100,200 |
| Deeming rate for home sales proceeds | 0.25% if proceeds are used for a new principal home; regular deeming rates if proceeds are held in a financial asset |
| Cash rate | 4.35% |
| Top deeming rate | 2.25% |
| Deeming rules | Used to estimate income from financial assets, which is then used to determine pension eligibility and payment rate |
| Deeming benefits | Keeps pension payments steady; provides an incentive to invest without worrying about how it affects pension payments |
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What You'll Learn
Deeming rate for single pensioners
Deeming rates are used to estimate the income generated by a pensioner's financial assets. This estimated income is then used to determine their eligibility for the pension and other benefits. The Australian government uses deeming rules to calculate income for the Age Pension under the income test. Deeming rates are beneficial for pensioners as they keep pension payments steady and do not fluctuate with the performance of financial assets.
For single pensioners, the current deeming rate is 0.25% for financial investments up to $53,600. Any financial assets above this threshold are deemed to earn 2.25%. This means that the first $53,600 of a single pensioner's financial assets will be multiplied by the lower deeming rate of 0.25%, resulting in a deemed income that is added to their actual income for the Age Pension income test.
The deeming rates for single pensioners have been subject to changes in recent years. In 2019, the lower deeming rate was 1%, and it was reduced to 0.25% in 2020. The upper deeming rate was 3% during that period. As of 2024, the cash rate has increased to 4.35%, while the top deeming rate remains frozen at 2.25%, benefiting retirees.
The deeming rules provide an incentive for single pensioners to invest in various financial products without worrying about the impact on their pension payments. It allows them to choose investments that best suit their needs, as any interest rate achieved above the deeming rates is not considered income for the income test. This flexibility helps single pensioners manage their finances and maintain a steady income, especially with the current freeze on deeming rates until 2024, providing short-term certainty.
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Deeming rate for pensioner couples
Deeming rates are used to estimate the income generated by a pensioner couple's financial assets. This is used to determine their eligibility for the pension and other benefits. The deeming rate for pensioner couples is currently 0.25% for financial investments up to $89,000. For the first $103,800 of combined financial assets, the deemed rate is 0.25%, and anything over $103,800 is deemed to earn 2.25%.
The deeming rate for pensioner couples is different from that of single pensioners, who have a threshold of $53,600 for the lower deeming rate of 0.25%. The deeming rate for pensioner couples is also applied when determining the means-tested contribution for residential aged care. This is calculated by multiplying the current value of their investments by the relevant deeming rates.
Deeming rates are beneficial for part-pensioners as they may receive a higher pension amount than if their actual income amounts were taken into account. For example, a single pensioner with $200,000 in deemed assets and $150,000 in non-deemed assets (with a real return of 5%) would receive a fortnightly pension of $951 under the current deeming rules, compared to $781 a fortnight if deeming didn't apply.
The deeming rates have been frozen at the current levels until 2024, providing short-term certainty for pensioners. This means that pensioners may benefit from earning additional interest on their deposit accounts as interest rates rise, without a reduction in their Age Pension payment rate.
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Deeming and the income test
Deeming is used to estimate the income you earn on your financial assets. This income estimate is then used to determine your eligibility for the pension and other support from Centrelink, such as the Commonwealth Seniors Health Card. Deeming is used as a more stable means of estimating income for the income test, keeping your pension payment steady instead of fluctuating with the performance of your financial assets. It also provides an incentive to invest in different products without worrying about how this will affect your pension payment.
The income test helps work out how much income support can be paid. Most types of income count in the income test, and the test is used alongside the assets test to assess eligibility and calculate the rate of payment. The assets test takes into account all asset types, including property and possessions owned in full or in part, or where there is an interest in them.
Deeming rules are used by Services Australia (via Centrelink) for income test calculation purposes. The deemed income from your investments is calculated by multiplying their current value by the relevant deeming rates. Different deeming rates apply depending on your living arrangements (whether you live alone or with a partner) and whether you currently receive the Age Pension. Once your deemed income is calculated, it is then added to any other income earned from all other sources as part of the Age Pension income test. If your income exceeds the income test thresholds, your Age Pension entitlement will progressively reduce until it cuts off completely.
The deeming rate for a single person is 0.25% for every dollar of assets below $60,400, with financial assets above $60,400 deemed as earning 2.25% (for a couple, the threshold is $100,200). As of 2024, the cash rate is 4.35%, while the top deeming rate is frozen at 2.25%.
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Deeming and the assets test
Deeming is a set of rules used to calculate the income generated from an individual's financial assets. It assumes that these assets earn a set rate of income, regardless of the actual income. This is used to determine eligibility for the Age Pension under the income test. The income test helps calculate the amount of income support provided by the government. Deeming is also used to calculate any means-tested contributions an individual may be required to pay when entering residential aged care.
The income estimate is calculated by multiplying the current value of an individual's investments by the relevant deeming rates. These rates depend on living arrangements and whether the individual or their partner currently receives the Age Pension. Once the deemed income is calculated, it is added to any other income earned from all other sources as part of the Age Pension income test. If the total income exceeds the income test thresholds, the Age Pension entitlement will be reduced until it is cut off completely.
Deeming rates are beneficial for part-pensioners who come under the income test. For example, a single pensioner with $200,000 in deemed assets and $150,000 in non-deemed assets (with a real return of 5%) would receive a fortnightly pension of $951 under the current deeming rules, compared to $781 a fortnight if deeming didn't apply. This individual is $170 better off per fortnight due to the current low deeming rate.
In May 2024, the federal government announced a 12-month extension of the freeze on deeming rates until 30 June 2025. The lower deeming rate remains at 0.25%, and the higher rate is 2.25%. The first $62,600 of an individual's financial assets has the lower rate applied, while assets over this amount are deemed to earn the higher rate.
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Deeming and aged care means testing
Deeming rates are used to estimate the income earned on a pensioner's financial assets. This estimated income is then used to determine eligibility for the pension and other benefits. Deeming rules are used by Services Australia (via Centrelink) for income test calculation purposes. The income test for the Age Pension considers both income and assets to determine contributions to aged care costs.
The deemed income from your investments is calculated by multiplying their current value by the relevant deeming rates. Different deeming rates apply depending on your living arrangements (whether you live alone or with a partner) and whether or not you (or your partner) currently receive the Age Pension. Once your deemed income is calculated, the amount is then added to any other income you’ve earned from all other sources as part of the Age Pension income test. If your income exceeds the income test thresholds, your Age Pension entitlement will progressively reduce until it is completely cut off.
Deeming rates are beneficial for part-pensioners who come under the income test because, without them, they would receive a much lower pension. For example, a single pensioner with $200,000 in deemed assets and $150,000 in non-deemed assets (earning a real return of 5%) would get a fortnightly pension worth $951 under the current deeming rules compared to $781 a fortnight if deeming didn’t apply and their true income was taken into account.
The Australian Government may contribute to the cost of aged care services, but individuals are expected to contribute if they can afford to. To find out how much you will pay for a Home Care Package or permanent care in an aged care home, you will need an income or means assessment.
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Frequently asked questions
The current deeming rate in Australia is 0.25% for financial investments up to $53,600 for single pensioners and $89,000 for pensioner couples. The rate of 0.25% also applies to the first $62,600 of a pensioner's financial assets.
Assets above the lower threshold are deemed to earn 2.25%.
Deeming is a set of rules used to estimate income from financial assets to determine eligibility for the pension. It assumes that these assets earn a set rate of income, regardless of the actual rate of return.
