Lower deeming rates mean less income: pensioners should shop around!

1 June 2016
With the official deeming rate at lacklustre levels,  it’s a great idea for pensioners to shop around for a health rate of return on their savings.

Essentially, someone’s eligibility for a pension is determined by means testing: an assets test, which measures the level of assets that a person holds and an income test, which measures the level of income that someone receives. Rather than assessing applicants on the actual amount of income they earn from their investments, though, the Department of Human Services makes an assumption about the level of income based on the amount invested. This assumed income is called the “deeming rate”.

Deeming rates – single pensioners

Investment value Deeming rate in Feb 2013 Deeming rate in Feb 2016
Up to $48,600 3.00% pa 1.75% pa
Over $48,600 4.50% pa 3.25% pa

Deeming rates – couples (at least one receiving a pension)

Investment value Deeming rate in Feb 2013 Deeming rate in Feb 2016
Up to $80,600 3.00% pa 1.75% pa
Over $80,600 4.50% pa 3.25% pa


What does a lower deeming rate mean?

In one respect the lower deeming rates are a great government initiative and a positive for part-pensioners. A lower deeming rate means that the government is assuming pensioners to be earning less income, which can help to improve their eligibility for a pension. There is also a potential downside though for those who have their money invested in a bank account which mimics the deeming rate. In this instance, the lower interest they will be earning could more than offset the pension increase. Consider the following examples of the interest potentially earned on a bank account that pays the deeming rate.

Singles – Approx interest per fortnight

Balance Deeming rate in Feb 2013 Deeming rate in Feb 2016 Difference
$45,000 $51.92 $30.28 $21.64
$100,000 $145.03 $96.96 $48.07
$200,000 $318.11 $221.92 $96.19


For a single pensioner, these potentially represent a significant drop in income and can make a significant difference to their ability to meet their living expenses!

What can pensioners do?

Shop around! At the end of the day, the government doesn’t care how much a pensioner earns – they will simply assume them to be earning the deeming rate. Therefore it makes sense for pensioners to earn the best rate they safely can from their cash. A 12-month term deposit earning a rate of 2.61%, for example, on the entire amount invested could provide a significantly better return than the deeming rate. And there are plenty of other options out there.  Check the latest star ratings and interest rates on savings accounts.

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