Interest rates fell last week, with many self funded retirees suffering financially as a result if they were invested in cash-related investments. This week, many have stopped to realise that the deeming rates being imposed by Centrelink to cap or limit their pensions are in fact being calculated at a higher rate than many can achieve in the cash-based investment market, the place where pensioners feel most safe parking their money. This has many pensioners in uproar, as the government can now seen to be penalising them for money they cannot earn through traditionally safe investment types.
The government, when it set up deeming is in fact trying to encourage pensioners to earn more income from their savings. But the fact is, that is becoming increasingly hard in the current market environment.
Deeming rates were last revised by the Government on the 1 July 2014 and is used to vary how your pension, benefit and allowance payments should vary. The most important calculations are based on these tenements:
- if you are single and getting either a pension or allowance, the first $48,000 of your financial investments is deemed to earn income at 2% per annum and any amount over that is deemed to earn income at 3.5% per annum
- if you are a member of a couple:
- if at least 1 of you is getting a pension, the first $79,600 of your and your partner’s financial investments is deemed to earn income at 2% per annum and any amount over that is deemed to earn income at 3.5% per annum, or
- if neither of you is getting a pension, the first $39,800 for each of your and your share of jointly owned financial investments is deemed to earn income at 2% per annum and any amount over that is deemed to earn income at 3.5% per annum.
That means, if you have $100,000 in a term deposit, the Government is assuming you are able to earn a 2% return on the first $48k then it is penalising you to the tune of 3.5% for the remainder of your savings over and above $48k.
Interest rates coming down means however that a term deposit on $100,000 is achieving an income of less that 3.5% over the period of a year at this time. In fact on one comparison site, the rates were running at between 3.2% and 2.5% with no rates available at 3.5%.
It used to be that the deeming rates were set at such a low level that pensioners were likely able to receive additional income from investments and have it “not counted” when assessing your rate of pension, benefit or allowance. Now, most pensioners are unable to achieve the returns the Government are penalising them for without stepping into the riskier investment classes of property and equities.
Could it be time for the Government to revise deeming rates significantly? Take our poll below so we know if you are being affected by these high rates of assessment and want them revised. And share your thoughts below.