Deeming rates are set at 3.25 per cent, but a good interest rate for a long-term deposit would not get near that, says Betty. So why can’t it be changed?
Q. Betty
Why are deeming rates set at 3.25 per cent when the best interest on term deposits is no more than about 2.8 per cent and that may be cut soon. It seems like a steal and something the Government – whoever we end up with – should revise.
A. Deeming is a set of rules used to work out the income from your financial assets.
In a bid to reduce the complexity when assessing Age Pension entitlements, the Social Services Department expects that recipients who have more than $51,200 in savings or other financial assets should be investing them in such a way as to earn at least 3.25 per cent in interest.
Savings of up to $51,200 are assumed to be earning at least 1.75 per cent.
If you’re a member of a couple and at least one of you receives a pension, the first $85,000 of your combined financial assets is deemed to earn a rate of 1.75 per cent a year. Anything over $85,000 is deemed to earn 3.25 per cent.
If you’re a member of a couple and neither one of you receives a pension, the first $42,500 of each of your own and your share of joint financial assets is deemed to earn 1.75 per cent a year. Anything over $42,500 is deemed to earn 3.25 per cent.
These are the deeming rates the Government uses to assess how much income you should potentially be earning from your financial assets, regardless of what interest you are actually earning.
The current Centrelink deeming rates and thresholds, as of 1 July 2018, are as follows:
|
Family situation |
Assets threshold |
Rate of deemed income |
|
Single |
$0 – $51,200 |
1.75% |
|
Above $51,200 |
3.25% |
|
|
Allowee couple – per person (1) |
$0 – $42,500 |
1.75% |
|
Above $42,500 |
3.25% |
|
|
Pensioner couple – combined (2) |
$0 – $85,000 |
1.75% |
|
Above $85,000 |
3.25% |
The rates have been set by the Minister for Social Services based on information the Government collects about how money markets are performing and the potential returns available to savers and investors.
The rates can be raised or lowered depending on the average markets returns and to reflect the interest rates (or cash rate) set by the Reserve Bank of Australia (RBA).
However, although the returns and interest rates are regularly monitored, the reality is that Centrelink deeming rates are not commonly amended.
Although they can be amended at any time, to minimise disruption, any changes usually coincide with the twice-yearly indexation of Age Pension payment rates or income and asset thresholds. The thresholds are indexed annually, on 1 July, in line with the Consumer Price Index (CPI).
To assess current term deposit rates, a good website to check out the options is Canstar.
The absolute best term deposit rate was 2.85% for a 12-month $50,000 deposit – still well under the 3.25 per cent deeming rate.
Would you like to see deeming rates adjusted more regularly? Should it be a priority for the next Government?
Related articles:
Why deeming rate is 3.25%
Can Australia afford its retirees?
Inside story on term deposits
