Pension bonus: Almost a million pensioners set to receive over $800 extra per year
Almost a million Australians will be up to $804 better off after the federal government’s decision to cut deeming rates.
Deeming rates are the rate of return that financial investments, owned by pensioners, are ‘assumed’ by the government to earn, and are loosely related to market movements.
Deeming rates were introduced in 1991 to simplify the federal government’s social security income test. However, cuts in the official interest rates have meant lower returns from term deposits and other savings, forcing the government to act.
Treasurer Josh Frydenberg says the decision to cut deeming rates will cost approximately $600 million and help more than 630,000 pensioners.
As the deeming rate is reduced, part pensioners receive more money, and the number of eligible pensioners is likely to increase. The move applies to one quarter of the nation’s 2.5 million age pension recipients.
The government’s decision to cut the rate means more money will flow into the bank accounts of aged pensioners and people receiving other government payments.
“The decision shows the Morrison government has listened to and acted on the concerns expressed by older Australians who receive a part pension,” Minister for Families and Social Services Senator Anne Ruston said.
Under changes, pensioners whose income is assessed using deeming rates will receive up to $40.50 a fortnight for couples, which is $1053 extra a year, and $31 a fortnight for singles, which works out to $804 a year.
The new deeming rates payments to start end of September, backdated to 1 July 2019.
So what exactly are deeming rates for pensioners, and what does it mean for you?
Deeming is the method Centrelink and the Department of Veteran’s Affairs use to calculate the income from your financial assets when determining your entitlements for the age pension (as well as benefits including the disability support pension and Newstart) under a means test.
There are two components of means testing:
- Asset test
- Income test
Centrelink calculated your age pension on the test that generates the lowest eligible pension amount.
As of 1 July 2019, for both singles and couples, the deeming rate has decreased from 1.75% to 1%, whilst the upper deeming rate has been cut from 3.25% to 3%.
More specifically:
- For single pensioners, the first $51,800 of financial assets is subject to a deeming rate of 1% and anything over $51,800 is deemed to earn 3%.
- For a pensioner couples of which at least one receives a pension, the first $86,200 of combined financial assets has a deeming rate of 1% and anything over $86,200 is deemed to earn 3%.
Non-financial investments such as defined benefit pensions, distributions from trusts and private companies, rental income and wages earned from work are not assessed subject to these deeming rules, but continue to be assessed for income test purposes in the usual way.
Individuals may earn up to $174 a fortnight and couples up to $308 before their pension entitlements are affected by the income test. Income in excess of these amounts reduces pension entitlements by 50 cents for every dollar assessed for income test purposes.
The changes mean couples whose income is assessed using deeming may receive up to $1,053 extra per year, while singles could receive up to $804 extra.
Payments will start from the end of September, but will be backdated to 1 July 2019.
Reduced deeming rates are automatically applied so you don’t need to do anything. If you have deemed income, the Government will automatically apply the new deeming rates. You may see a change in your regular payment rate after the new deeming rates have been updated.
Read more about how the Government work out your deemed income, based on your circumstances.
Need more information on pension eligibility?
If you’re born between 1 January 1954 and 30 June 1955, you can claim Age Pension once you’re 66.
The qualifying age to get Age Pension has been increasing by 6 months every 2 years. This will continue until it reaches 67 years on 1 July 2023.
The Government use your birthdate to determine your Age Pension age.
You can plan your financial future by using the Governments free and confidential Financial Information Service.
Source:
– Australia Financial Review. Pension boost for 600,000 by Christmas. By Phillip Coorey. Published 6 July 2019. Read article
– The Weekend Australian 20-21 July 2019. Andrew Heaven, AMP Financial Planner at Wealth Partners Financial Solutions.
– 7 News, Pension bonus: Are you one of almost a million Australians now $800 better off? Read more
– Australian Government, Dept Human Services. Changes to the deeming rates. 15 July 2019. Read more
– Australian Government, Dept Human Services. Increase to Age Pension age from 1 July 2019. 12 June 2019. Read more
