Half a million age pensioners to get a raise this month
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.
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.
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.
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