The Federal Government has announced a second increase to deeming rates, which may affect your eligibility for the age pension.
This follows the first increase to deeming rates in five years, which came into effect on 20 September last year.
The lower deeming rate will rise from 0.75% to 1.25% for financial assets under $64,200 for single pensioners and $106,200 for couples.
The upper deeming rate will be increased from 2.75% to 3.25% for financial assets above these amounts.
The new deeming rates remain well below the typical interest rate on basic savings accounts.
However, they may affect your pension eligibility if the higher rates push your income above the income test thresholds.
You may also receive a lesser pension as a result of higher deemed investment income.
Deeming rates explained
Deeming is the method used to estimate a pensioner’s investment income each year.
Instead of asking pensioners to report their actual returns, the government assumes a ‘deemed’ rate of return.
The relevant deeming rate is applied to the total value of your assets to work out your deemed investment income per year.
That investment income, along with any other income, determines whether you’ll get the age pension, and if so, how much you’ll receive.
Some assets, such as investment property, are not subject to deeming rules. Pensioners have to report actual net rental income received.
For most other assets, including ASX shares, international shares, bonds, and cash in savings accounts, the deeming rates apply.
Minister for Social Services, Tanya Plibersek, said:
To make sure our social security system delivers value for taxpayers it must be grounded in fairness, which is why we have made responsible adjustments to deeming rates.
Minister Plibersek said the upcoming changes were in line with the government’s commitment to gradual changes to deeming rates.
Deeming rates were frozen during the COVID pandemic and remained static for five years until September last year.
Pension boost
At the same time as announcing the new deeming rates, the minister gave an estimate as to how much the age pension payment would increase next month.
Minister Plibersek said she expected the full single rate of age pension to go up by $22.20 per fortnight in the next lot of indexation changes, effective from 20 March.
The Department of Social Services will confirm the exact amount next month.
The post Pensioners’ investment deeming rates to rise for the second time in 6 months appeared first on The Motley Fool Australia.
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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.