By Damian Gibson
Financial Adviser, Elevate Wealth Solutions
CENTRELINK can be confusing at the best of times.
When terms like ‘deeming rates’ are thrown around it adds another layer of confusion altogether.
Let’s discuss the most recent changes to the Age Pension and how they might affect you.
The Department of Human Services assess your eligibility to receive Centrelink Age Pension entitlements under two tests – an asset test and an income test.
The asset test assesses the value of your assets, generally excluding the value of your home.
The income test assesses your income from all sources and deemed income from your financial assets.
Common types of financial assets that are deemed to earn income include, but are not limited to, assets such as superannuation, cash, shares, managed funds and term deposits.
Centrelink use interest rates to calculate deemed income from your financial assets, these interest rates are commonly known as deeming rates.
Under the income test, Centrelink assumes you will earn a certain amount from your financial assets, regardless of the actual return you receive.
For example, if you hold $50,000 in a term deposit earning you 2.8 per cent per annum, Centrelink deems this money to earn a certain amount based on their deeming rates, not the rate of your term deposit.
Due to the low interest rate environment, there have been some recent changes to the deeming rate.
On 14 July 2019, the Morrison Government announced a reduction to deeming rates, which were last changed in 2015.
The announcement was made after mounting pressure was placed on the Government to reduce deeming rates in line with reducing interest rates.
These changes were largely influenced by the Reserve Bank of Australia reducing the Cash Rate to all-time lows of 1.00 per cent on 3 July 2019.
As such, the deeming rate for singles has been reduced to 1.00 per cent for the first $51,800 of your financial assets and 3.00 per cent on any amount more than $51,800.
For couples, a rate of 1.00 per cent for the first $86,200 and 3.00 per cent on any amount more than $86,200 will be used to calculate the assessable deemed income from your financial assets.
Let’s look at an example.
Margaret and Bill are married and are both receiving Age Pension, assessed under the income test.
Margaret and Bill jointly hold $100,000 in a term deposit and $36,000 in direct shares.
Their combined financial assets are $136,000.
As a result of the reduced deeming rates, Bill and Margaret’s deemed income from their financial investments have reduced from $3,127 to $2,356, potentially resulting in Margaret and Bill receiving a higher rate of Age pension.
Remembering that the Age Pension reduces by 50 cents for every dollar more than the threshold of $174 per annum for singles, and 25 cents for every dollar of the threshold of $308 per annum for couples.
If you are unsure how these changes affect your entitlements, it is important to speak with a financial adviser to ensure you are receiving the appropriate rate of Age Pension.