In this guide
- Age Pension eligibility
- How deeming affects means testing for residential aged care
- How deemed income is calculated
- What are the current deeming rates?
- Deeming calculator
- Example deeming calculations
- Why does the Australian government use deeming?
- Why does the deeming rate increase if you have more investment assets?
- January 2015 changes
In its May 2024 Budget, the federal government announced another 12-month extension of the freeze on deeming rates until 30 June 2025.
Until then, the lower deeming rate remains at 0.25% and the higher rate at 2.25%.
In recent years, deeming rates shifted from being an arcane concept few people knew or cared about, to a hot button issue for retirees struggling to make ends meet at a time of rising interest rates and cost-of-living pressures.
The reason is this.
Under the deeming rules, you are ‘deemed’ to earn a certain annual rate of return on your financial assets, regardless of the rate of return you actually earn. Your returns could be higher or lower than the deeming rates. In the case of bank deposits, the returns you are earning may be lower than the current deeming rates while returns from superannuation have been higher. Why does this matter? Because it could affect the amount of Age Pension you receive and the amount you pay for residential aged care.
Age Pension eligibility
Deeming is used to determine your eligibility for the Age Pension under the income test. The other requirements are passing the assets test, reaching Age Pension age and qualifying as an Australian resident.
Deeming rules are used by Services Australia (via Centrelink) for income test calculation purposes. Centrelink also applies the same deeming rates and thresholds when assessing eligibility for the Commonwealth Seniors Health Card (CSHC).
Common types of financial assets that deeming rates apply to include:
- Account-based super pensions
- Savings accounts and term deposits
- Shares
- Managed investment such as managed funds and insurance bonds
- Debentures
Deeming doesn’t apply to the family home and other property assets.
How deeming affects means testing for residential aged care
Deeming rates don’t just affect income-tested Age Pensioners. For anyone entering residential aged care, deeming is used to calculate any means-tested contribution they may be required to pay.
Read more about the cost of residential aged care
Visit the government’s myagedcare for an explanation of how deeming applies to aged care means testing.
How deemed income is calculated
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)
- The value of your investment assets
- Whether or not you (or your partner) currently get 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 cuts off completely.
What are the current deeming rates?
The deeming rates and thresholds that apply to 30 June 2025 are listed in the table below.
| Situation | Deeming lower rate | Deeming higher rate |
|---|---|---|
| Single | 0.25% on the first $62,600 of your investment assets, plus | 2.25% on your investment assets over the amount of $62,600 |
| Couple | 0.25% on the first $103,800 of your combined investment assets, plus | 2.25% on your investment assets over the amount of $103,800 |
Note
The 0.25% and 2.25% deeming percentage rates were frozen from 1 May 2020 (although the thresholds change each financial year).
While deeming rates are meant to rise and fall in line with market interest rates, in practice there has often been a lag.
Under pressure from retirees who faced the double whammy of historically low returns from their bank deposits at the time, and a reduction in their Age Pension entitlements due to deeming rates that were higher than they were actually earning, the federal government cut deeming rates in mid-2019 and again in 2020.
- The percentage rates applying from 1 July 2019 to 30 April 2020 were 1% (lower rate) and 3% (upper rate).
- Prior to 1 July 2019 the percentage rates were 1.75% (lower rate) and 3.25% (upper rate).
These rates compare with a cash rate of 1% in 2019 and 0.25% a year later.
Fast forward to 2024 and the cash rate is 4.35% at the time of writing, while the top deeming rate is frozen at 2.25%. In other words, today’s retirees are winning the deeming rate game.
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