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In the past year or so, deeming rates shifted from being an arcane concept few people knew or cared about, to a hot button issue for Australian retirees struggling to make ends meet at a time of historically low interest rates.
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 currently earning are likely to be lower than the current deeming rates. Why does this matter? Because it could affect the amount of Age Pension you receive.
Age Pension eligibility
Deeming is a key consideration in the Age Pension income test, which you must pass as one of the requirements to access this government payment. The other requirements are passing the assets test, being age-eligible and qualifying as an Australian resident.
Deeming rules are used by the Department of Social Services (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 investment assets that deeming rates apply to are:
- Account-based superannuation income streams or pensions
- Savings accounts and term deposits
- Shares
- Managed investment such as managed funds and insurance bonds
- Debentures
Why does the Australian government use deeming?
The Department of Social Services published a booklet in 2015 that listed what they see as some of the benefits of deeming:
It’s this last point that has many retirees hot under the collar. While returns from assets such as shares and property have indeed been higher than deeming rates in recent years, there is no guarantee this will continue. By their very nature, higher investment returns also come with a higher risk of price fluctuations and years of negative returns. That’s why many risk averse retirees prefer the safety of capital guaranteed bank deposits to cover their income needs in the short to medium term.
How deemed income is calculated
The deemed income from your investments is determined by multiplying their current value by the relevant deeming rates. Different deeming rates apply depending on:
- Your living arrangements (i.e. whether you live alone or with a partner)
- The value of your investment assets
- Whether or not you (or your partner) currently gets the Age Pension.
Once your deemed income is calculated, the amount is then added to any other actual income that 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?
Under pressure from retirees who faced the double whammy of historically low returns from their bank deposits, 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 for the first time in four years.
Due to the effect of the coronavirus on the economy and investment returns, cuts to the deeming rates were announced on 12 and 22 March 2020.
The deeming rates and thresholds from 1 July 2021 are listed in the table below.
| Situation | Deeming lower rate | Deeming higher rate |
|---|---|---|
| Single | 0.25% on the first $53,600 of your investment assets, plus | 2.25% on your investment assets over the amount of $53,600 |
| Couple | 0.25% on the first $89,000 of your combined investment assets, plus | 2.25% on your investment assets over the amount of $89,000 |
Deeming calculator
Enter your details into our deeming calculator to estimate your annual and fortnightly deemed income.
What is included under ‘financial investments’?
Financial investments include:
- Bank, building society and credit union accounts
- Cash
- Term deposits
- Cheque accounts
- Friendly society bonds
- Managed investments
- Assets held in superannuation and rollover funds
- Listed shares and securities
- Shares in unlisted public companies
- Gold, silver or platinum bullion
- Loans and debentures by you (that is, money owed to you).
The following are not included
- Your home
- Home contents
- Cars, boats and caravans
- Investment properties
- Antiques, stamp or coin collections
It is worth noting that an investment property is not counted as a financial investment, so it is not assumed that it achieves an income at the deeming rate, but any income from investment properties is applied as income in the income test.
Deeming rates are set by the Minister for Social Services. The Department of Social Services monitors the rate to ensure that it is appropriate for market conditions. Any future changes to the deeming rate will coincide with changes to Age Pension rates, which are regularly adjusted based on the consumer price index (CPI), or at any other time if the financial markets fluctuate significantly. The CPI is calculated by the Australian Bureau of Statistics. Any changes to the deeming thresholds are made in July each year in line with changes in the CPI.
Why does the deeming rate increase if you have more investment assets?
The lower deeming rate is applied to the value of your investment assets up to a threshold amount to reflect the fact that you’ll need a range of low-risk, accessible investments (like savings accounts) to meet your day-to-day living expenses. These types of investments provide lower levels of return.
The higher deeming rate is applied to investment asset values above the threshold amounts to reflect the fact that you can diversify your investment portfolio by chasing higher returns on higher-risk assets (like shares).
Under the deeming rates from 1 July 2020, if you’re single and have no other income sources, you can have investment assets worth approximately $252,800 (a deemed income of $4,524) and still be entitled to receive the full Age Pension (provided that you also pass the assets test, are age-eligible and you’re an Australian resident).
If you’re living with your partner and neither of you have other income sources, you can have combined investment assets worth approximately $443,300 (a deemed income of just below $8,216) and still both be entitled to receive the full Age Pension (again, provided that you both also pass the assets test, are age-eligible and you’re an Australian resident).
Example deeming calculations
To illustrate how deeming works, below are single and couple deeming tables that show the deeming amount that will apply at a range of different investment asset values at current deeming rates.
Click each deeming table example name to view.
Deeming table examples – Single
| Investment value | Deemed income at 0.25% | Deemed income at 2.25% | Deemed income total (per year) |
|---|---|---|---|
| $50,000 | $125.00 | $0 | $125 |
| $100,000 | $134.00 | $1,044 | $1,178 |
| $150,000 | $134.00 | $2,169 | $2,303 |
| $200,000 | $134.00 | $3,294 | $3,428 |
| $250,000 | $134.00 | $4,419 | $4,553 |
| $300,000 | $134.00 | $5,544 | $5,678 |
| $350,000 | $134.00 | $6,669 | $6,803 |
| $400,000 | $134.00 | $7,794 | $7,928 |
| $450,000 | $134.00 | $8,919 | $9,053 |
| $500,000 | $134.00 | $10,044 | $10,178 |
| $550,000 | $134.00 | $11,169 | $11,303 |
| $600,000 | $134.00 | $12,294 | $12,428 |
| $650,000 | $134.00 | $13,419 | $13,553 |
| $700,000 | $134.00 | $14,544 | $14,678 |
| $750,000 | $134.00 | $15,669 | $15,803 |
| $800,000 | $134.00 | $16,794 | $16,928 |
Deeming table examples – Couple
| Investment value | Deemed income at 0.25% | Deemed income at 2.25% | Deemed income total (per year) |
|---|---|---|---|
| $50,000 | $125.00 | $0 | $125 |
| $100,000 | $222.50 | $248 | $470 |
| $150,000 | $222.50 | $1,373 | $1,595 |
| $200,000 | $222.50 | $2,498 | $2,720 |
| $250,000 | $222.50 | $3,623 | $3,845 |
| $300,000 | $222.50 | $4,748 | $4,970 |
| $350,000 | $222.50 | $5,873 | $6,095 |
| $400,000 | $222.50 | $6,998 | $7,220 |
| $450,000 | $222.50 | $8,123 | $8,345 |
| $500,000 | $222.50 | $9,248 | $9,470 |
| $550,000 | $222.50 | $10,373 | $10,595 |
| $600,000 | $222.50 | $11,498 | $11,720 |
| $650,000 | $222.50 | $12,623 | $12,845 |
| $700,000 | $222.50 | $13,748 | $13,970 |
| $750,000 | $222.50 | $14,873 | $15,095 |
| $800,000 | $222.50 | $15,998 | $16,220 |
| $850,000 | $222.50 | $17,123 | $17,345 |
| $900,000 | $222.50 | $18,248 | $18,470 |
| $950,000 | $222.50 | $19,373 | $19,595 |
| $1,000,000 | $222.50 | $20,498 | $20,720 |
| $1,050,000 | $222.50 | $21,623 | $21,845 |
| $1,100,000 | $222.50 | $22,748 | $22,970 |
Below we have also included some example calculations to help illustrate how deeming is calculated:
January 2015 changes
A major deeming rule change was introduced on 1 January 2015 when the investment balance of all new account-based superannuation income streams or pensions were first included in the Age Pension income test. As a result, the deeming rate now applies to these super pensions that retirees can receive tax free, provided they are over 60 years of age and meet a superannuation condition of release.
However, the old rules were ‘grandfathered’ for people who were already receiving account-based super pensions and the Age Pension prior to 1 January 2015, which means their super balances will be forever excluded from the Age Pension income test.
Below is an example of how the rule worked before 1 January 2015:
Source: DSS
