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Half a million age pensioners to get a raise this month

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More than half a million age pensioners will receive an extra $324 a year and more older Australians will now qualify for the pension after the government cut deeming rates.

The deeming rates used for age pension recipients, disability support, and senior healthcare card holders and JobSeeker payments have been reduced as part of the COVID response.

This reduction - the second in five years - means rates are now at their lowest since they came into force in 1996.

changes to deeming rates your pension

The new rates, which came in to effect on May 1, 2020, are 0.25% for the first $51,800 in financial assets for a single pensioner or $86,200 for a couple and 2.25% for financial assets above those figures.

This represents a cut of 0.75% of both the lower and upper tier of 0.75%.

According to the Government, the change will benefit around 900,000 income support recipients, including around 565,000 age pensioners who will, on average receive around $324 more in the first full year the reduced rates apply.

Deeming rates are used to assess income by assuming a certain rate of income on investments, regardless of actual income earned.

With interest rates falling consistently for the past two years, many pensioners have found themselves unable to earn the income on investments that they had been deemed to earn.

For anyone earning more than the assumed levels, they reap a bonus, while those earning less are penalised.

According to BT's head of financial literacy, Bryan Ashenden, it's usually been to people's advantage because dividends on shares, and interest from bank accounts have been higher than the rates.

"Now all of a sudden you have people truly earning less than what is being deemed," he says.

"If you are an income-tested recipient then you were starting to be at a disadvantage because the rules were saying you were earning more than your actual earnings and your aged pension was affected and subsequently lower."

Ashenden says any future increase of deeming rates will depend on interest rates.

"If you think it will be a while before interest rates go up, then this will likely follow," he says.

Story Wealth financial adviser Anne Graham says a large number of her clients are affected by the changes in the deeming rates.

"It's a continuous discussion with clients around deeming rates, and most clients don't understand the concept of it. They'll say, 'My income this year was $20k according to my statement', but that's irrelevant for Centrelink purposes," Graham says.

"Until they reduced those deeming amounts you might have money in a bank account and wouldn't be receiving anything in income, but you'd be assessed as earning 1% or 3%, now it's more reasonable.

"The lowering was a long time coming, they're always lagging, and I think the proposed reduction was in the pipeline pre-COVID, but it's been a good win for pensioners."

Graham says she has some clients who were previously ineligible for the age pension but may now qualify under the lower rates.

Case study

Leslie and Brian are a couple on the age pension. They have $550,000 worth of financial assets. They hold $300,000 in shares and $130,000 in a term deposit.

Under the previous rates of 1% and 3%, they were deemed to earn $568 a fortnight from their investments. Under the new rates, their expected fortnightly income is $410.

This would have seen Leslie and Brian's age pension reduced by $65 each fortnight under the old rules and $32 under the new deeming rates, putting an extra $33 a fortnight in their pocket.

The government has also halved the superannuation minimum drawdown rates as a temporary measure during 2019/20 and 2020/21 financial years.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Julia Newbould is a financial writer and commentator with a background in journalism. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance, which will be out in April. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.
Comments
Annie Newling
May 14, 2020 11.44am

When will this payment appear in my pension

Peter Foureur
May 14, 2020 12.19pm

Could buy the grand kids a present on that

elly elliott
May 14, 2020 8.37am

wow, $4 a week extra! Really pushed the boat out for us hey?

Lorraine Lindsay
May 14, 2020 12.49pm

Go to work. Cut pension. No rent assistance

Don't work and don't want to work get paid double and still get rent assistance

PLEASE !!!

Sandra Hope
May 14, 2020 8.55pm

Yes i agree $4 how the hell do ill that b benefit us. Its ridiculous an insult. Eeve worked all our lives and this is what we get!!!! We live under the poverty line and struggle every week to make ends meet. Why dont you try living as one of us for a few months. I dont you would even try and would not survive. How about treating us with a bit of a respect so we can hold our heads up and for once feel good about ourselves. Think about it. How would you feel. Increase the pension to a living amount for all of us and stop helping the rich.

Angie Bott
May 15, 2020 9.12am

Why does the govt even consider helping by buying a failing airline losing millions each week and don't support pensioners.. I bought a cheaper home after selling my home and have just over $51,000 And the house needs a lot of repairs and I have no super...so does the Govt want to reduce my pension even though I have never claimed a rental assistance or a carer and why would I work to make money and then lose more pension.

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