Deeming rates increase to reflect higher market returns

Deeming rates for social security payments will rise following an announcement today by Minister for Families, Community Services and Indigenous Affairs, Mal Brough, Minister for Employment and Workplace Relations, Joe Hockey and Minister for Education, Science and Training, Julie Bishop.

Deeming rates will increase from three and five per cent to 3.5 and 5.5 per cent from 20 March 2007. The deeming rates are used to assess income for social security pension and allowance purposes from financial investments such as bank accounts, term deposits, shares and securities.

Lower deeming rates apply to the first $38,400 of a single person’s financial investments ($63,800 for pensioner couples and $31,900 for each member of an allowee couple). This rate will increase by half a per cent from 3 to 3.5 per cent.

A higher rate applies to any part of a financial investment over the relevant threshold. This rate will also increase by half a per cent from 5 to 5.5 per cent.

Factors taken into account in setting these rates include the returns available from a range of financial investments as well as changes to the Reserve Bank’s cash rate.

"It is important that deeming rates realistically reflect the market returns available to pensioners so the Government can fairly assess the returns for social security purposes,

Regular monitoring has shown that average market returns have increased and an accompanying increase in the deeming rates will keep the system fair.

The impact of the deeming rules is clearly shown by the fact that income from investments is assessed only at the deeming rates; if pensioners earn more than those rates the extra income is not assessed.

A single pensioner who has $100,000 invested at 6 per cent receives $6,000 per year income, under the deeming rules only $4,732 would be assessed as income for their pension.

The Australian Government deeming rates do not set bank interest rates. Bank rates are set by financial institutions in response to market forces applied to retain customers.

The Howard Government extended deeming rates in 1996 to cover all financial investments and this is the first adjustment to the rates since March 2004.

The Coalition Government will continue to assist pensioners by increasing incentives to save for retirement. From 20 September 2007, the pension assets test taper rate will be halved. The rate will go from $3 to $1.50 a fortnight for every $1,000 of assets above the free area. Based on the current Age Pension, a single retiree home owner could have around an extra $172,000 of assets before losing the Age Pension, while a couple could have around $287,000 of extra assets.