Navigating the Deeming Rules for Centrelink Age Pensions

For many Australians, the Centrelink Age Pension is a critical source of income during retirement. However, the assessment of this pension considers not only your assets but also the income generated from them, subject to a set of rules known as “deeming rules” for certain types of assets. In this article, we will explore the deeming rules for Centrelink Age Pensions, their impact on pension calculations, and provide a real-life case study to illustrate their application.

Understanding Deeming Rules

Deeming rules are used by Services Australia to estimate the income generated from your financial assets, such as savings accounts, term deposits, shares, managed investments, and superannuation money (when the person is over age pension age). These rules assume a set rate of return on your assets, regardless of the actual earnings, to simplify the assessment process. The current rates are based on being single or a member of a couple. These are explained below:

Deeming Rates for Singles

For single individuals receiving the Age Pension, the calculation of deemed income is as follows:

• First $60,400: The first $60,400 of your financial assets is deemed to earn an annual rate of 0.25%.
• Anything Over $60,400: Any financial assets exceeding $60,400 are deemed to earn an annual rate of 2.25%.

Deeming Rates for Couples

Deeming rules for couples receiving the Age Pension vary based on their pension status:

• At Least One Pension Recipient: If at least one member of a couple receives the Age Pension, the combined financial assets are considered. Here’s the breakdown:
• First $100,200: The first $100,200 of the combined financial assets is deemed to earn an annual rate of 0.25%.
• Anything Over $100,200: Any combined financial assets exceeding $100,200 are deemed to earn an annual rate of 2.25%.

These rates are set until the 30 of June 2024.

Case study

Mary is a single retiree who relies on the Age Pension for financial support. She has a diversified portfolio of financial assets, including a Term Deposit, a bank account, a superannuation account, and an account-based pension. In this case study, we will calculate Mary’s  deemed income using the relevant deeming rates and assess their impact on her Age Pension entitlement.

Mary’s Financial Assets:

• Term Deposit: Mary holds $120,000 in a Term Deposit, earning interest at a rate of 4.5% annually. This generates an actual income of $5,400 per year.
• Everyday Bank Account: Mary has $10,000 in a regular bank account.
• Account-Based Pension: Mary holds $125,000 in an account-based pension, from which she receives a pension payment of $6,250 per year.  This has provided her with an annual return last financial year (2022/2023) of 5.5% (after fees and taxes)
• Total Financial Assets = $255,000

Calculating Deemed Income

Let’s break down the calculation of Mary’s deemed income:

The first $60,400 is subject to the lower deeming rate of 0.25%, and anything over that is subject to the higher deeming rate of 2.25%.

• Deemed Income from the first $60,400: $60,400 x 0.25% = $151 per year.
• Deemed Income from the remaining $194,600 ($255,000 – $60,400): $194,600 x 2.25% = $4,378.50 per year.
• Total deemed income from financial investments valued at $255,000 will be $4,529.50 ($151 + $4,378.50)

It is important to note that although Mary’s investments in her Term deposits have earned higher return than the deemed rates, the extra income earned does not count against your Age Pension. The deeming rates serve as a standardised method for estimating income and may not accurately reflect the actual returns on your financial assets.

Conclusion

Understanding how Services Australia calculates deemed income is crucial for retirees who rely on the Age Pension. By grasping the deeming rates and their application, individuals and couples can better navigate the pension system and make informed financial decisions during their retirement years. For personalised advice and clarification on your specific situation, consulting with Services Australia or a financial advisor is recommended.