What is deeming?
The ‘deeming rate’ is the rate of income the government deems – or assumes – that people will earn on their financial assets. This rate is assumed regardless of how much the asset has actually earned. The government uses deeming for certain income assessment tests, such as the Age Pension, meaning that changes to the deeming rate can affect the payment you’re eligible for through the pension.
What are the current deeming rates?
Deeming rates are set by the Minister for Social Services, and adjusted in line with what financial markets are doing. At the time of writing, there are two deeming rates – a higher deeming rate and a lower deeming rate. The lower rate applies up to a certain threshold. After your asset’s balance reaches this threshold, the higher deeming rate then applies to the remaining balance. Which threshold applies to you will depend on whether you are single or part of a couple and whether you already receive the pension.
As at September 2021, the following deeming rates apply depending on your situation:
- If you’re single, the deeming rate is:
- 0.25% on the first $53,600 of your financial assets
- 2.25% on assets over $53,600.
- If you’re a member of a couple and at least one of you get a pension:
- 0.25% on the first $89,000 of your combined financial assets
- 2.25% on combined assets over $89,000
- If you’re a member of a couple and neither of you get a pension:
- 0.25% on the first $44,500 of each of your own and your share of joint financial assets
- 2.25% on anything over $44,500.
Importantly, when the deeming rate is lower than your actual returns, you can often earn more without your pension eligibility or payment amount being affected. On the flip side, if you are earning less than the deeming rate, the government may assume your income is higher than it actually is, and your pension could be reduced accordingly.
What is a deeming account?
A ‘deeming account’ is a type of bank account that must pay interest at the legislated deeming rate. To be eligible to open a deeming account, you generally need to be receiving an eligible government pension and/or be a self-funded retiree older than 55 years old.
Be aware that there may be accounts marketed as ‘pensioner accounts’, ‘retirement accounts’ or similar which, while seeming to resemble deeming accounts in some ways, may not guarantee interest at the government’s deeming rate. Check the terms and conditions with the financial institution.
Which institutions offer a deeming account?
Deeming rates were introduced back in 1991. For the first 20 years or so of deeming, the higher rate roughly aligned with RBA cash movements. During this time, a number of institutions offered deeming accounts that paid interest at the deeming rate. Today, though, deeming accounts are far less common. Some banks do offer deeming accounts, but they may only be available to existing account holders. In fact, there are no deeming accounts in Canstar’s database at the time of writing.
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