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The government has recently reduced the deeming rate. If you receive a payment from the Department of Human Services, you need to understand how changes to deeming rates might affect you.
With Australia’s official cash rate cut to an historic low of 0.25% in March 20201, and market volatility triggered by the coronavirus, the government has recognised that the way they assess the income generated from financial assets should also reduce.
Q: What is deeming?
A: For Australians receiving a regular payment from Centrelink (such as Newstart, Disability Support pension, or Age pension) or Department of Veteran’s Affairs (such as a Service pension) the government assesses your financial ability to support yourself, so that it can work out how much payment you are entitled to receive.
There are two tests that are used to assess the financial ability, the assets test and the income test.
To simplify the calculation of the income test and treat different types of financial assets in the same way, the government sets a tiered rate of return for all financial investments. These are known as the deeming rates. They assume that you are earning income at this fixed rate, regardless of the amount of income you are actually receiving.
Q: What are deeming rates from 1 May 2020?
A: In response to the current low interest rate environment, the government has reduced the deeming rate effective 1 May 2020. The government expects the change to benefit around 900,000 income support recipients, including Age Pensioners.2
From 1 May, deeming rates are:
For couples and at least one of you get a pension:
According to the government, the new, lower deeming rates will mean more money in the pockets of older Australians receiving a part-pension.
Your QSuper Retirement Income account is considered to be a financial investment.3 As such, the balance of your Retirement Income account will be ‘deemed’ to earn a certain amount of income based on the balance at 1 July each year.4 This is irrespective of the actual level of payments that you are drawing from your account as income.
Your QSuper Accumulation account is not counted as a financial investment until you reach your qualifying Age Pension age (or age 60 if you qualify for a Service Pension).
The effect of changes in the deeming rates on your eligibility and entitlements will depend on your personal circumstances.
The Department of Human Services has an explanation of deeming, exemptions and further information on its website.
You can also access the Department’s Financial Information Service if you have any questions about your specific situation.
For information on the change in deeming rates recently announced, you can download the providing support for retirees factsheet from treasury.gov.au.
1. Reserve Bank of Australia cash rate statistics. Accessed March 2020.
2. Joint media release, The Hon. Scott Morrison MP (Prime Minister), The Hon. Josh Frydenberg MP (Treasurer) 22 March 2020
3. There are some exemptions if you commenced your income stream on or after 1 January 2015. See https://www.humanservices.gov.au/individuals/topics/income-streams/27671 for more details.
4. The balance at the commencement of the Retirement Income account will be reported if the account was opened part way through the financial year.
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