Pensions
and deeming.
If you’re on a pension, then ‘they’ have made a few changes to the rules
that will affect you and the amount of
pension you receive. From the 7 November, 2008, the deeming rate dropped
from 4 per cent to 3 per cent for the first $41,000 of a single
pensioner's financial investments and for the first $68,200 for a
couples’.
It also decreased from 6 per cent to 5 per cent for the balance of your
financial investments over the amounts mentioned above. The changes were
included in payments made on and after the 4 December, 2008. DVA payments
affected by the deeming rate change include service pension and income
support supplement. The lowering of the deeming rates mean that part rate
pensioners paid under the income test, with financial investments mainly
in term deposits, shares, managed investments and other accounts, may
receive an increase in their pension payments, to reflect the reduction in
their assessable income.
Veterans already paid at the maximum rate will have no change to their
pension payments.
The DVA will update the value of pensioners' listed securities and managed
investments. As a result, on November 20, nearly 18,000 DVA income
support pensioners will receive an average increase of $10 per fortnight.
Individual results are heavily dependent on individual circumstances.
DVA pensioners who would like to discuss the outcome of this decision
should contact the Department on 133 254.
So! What
is deeming??
The deeming rules are a
central part of the social security income test. They are used to assess
income from financial investments for social security and Veterans'
Affairs pension/allowance purposes. Deeming assumes that financial
investments are earning a certain rate of income, regardless of the amount
of income they actually earn. If pensioners earn more than these rates,
the extra income is not assessed.
The main types of financial investments are:
·
bank, building
society and credit union accounts and term deposits
·
managed
investments, loans and debentures, and
·
listed shares
and securities.
Deeming is a simple and fair
way to assess income from financial investments, as:
·
people with the
same amount held in different financial assets receive a similar
assessment.
·
it reduces the
extent to which income support payments fluctuate.
·
it increases
incentives for self-provision because returns above the deeming rate are
not counted as income, and,
·
it simplifies
choice of investments as it encourages people to choose investments on
their merits.
·
The
current rates.
The new deeming rate of four
per cent applies to the first:
·
$41 000 of a
single customer's total financial investments
·
$68 200 of a
pensioner couple's total financial investments
·
$34 100 of
total financial investments for each member of an allowee couple.
A deeming rate of six per
cent applies to financial investments above these amounts. The thresholds
at which the higher deeming rate begins to apply are indexed in line with
the CPI in July each year.
How
deeming works.
Investment decisions should
be made taking into account the person's full circumstances. While all
pensioners and allowees can be expected to hold some savings on an at-call
basis, as the amount of savings increases, they should also be expected to
have a more diverse portfolio of investments. Many safe and readily
available financial products will actually meet or exceed deeming rates.
The lower deeming rate reflects the expectation that pensioners will
generally choose to have savings in investments with very high
accessibility and safety, but which tend to provide relatively low income.
The higher deeming rate reflects the expectation that people with higher
amounts of savings should seek higher returns on some of their savings,
either by accepting relatively lower accessibility (for example term
deposits) or by accepting some more risk (for example shares).
The deeming rules create incentives for investors to earn more income from
their savings. If pensioners and allowees respond to the deeming rules by
investing to get higher returns (higher than the 6%), their total income
will increase. The introduction and application of the deeming system has
led to an increase in the total income of the pensioner population.
Deemed income is calculated by multiplying the total value of a customer's
financial investments by the deeming rates. Deemed income is then added to
any other income (for example rental income) in order to work out the
customer's payment under the income test.
Single pensioners whose only source of income is from financial
investments can have up to $73,466 in financial investments ($126,733 for
pensioner couples) and still receive the full pension under the income
test. This is because of the income test free area. The generous pension
income test benefits all pensioners. The income test is designed to
encourage people to supplement their income support payment with private
income.
Monitoring the deeming rates
The deeming rates are
monitored on an ongoing basis. Any changes made to the deeming rates are
usually made to coincide with the indexation of pensions, to reduce
disruption to pensioners by reducing the number of changes to their
payments.
Changes are only made if a
consideration of a range of relevant factors that determine the deeming
rates indicates that a change is appropriate. However, changes can be made
at any time if there are very significant movements in the factors taken
into account.
Financial
institutions
The Australian Government's
policy is that it should not regulate the terms and conditions of bank
accounts; rather to ensure that competition between banks and financial
institutions, such as credit unions and building societies, results in
people being able to shop around for the banking products that meet their
needs.
Financial institutions decide the interest rates they offer on their
various accounts. Decisions about fees and interest rates charges
represent commercial decisions taken by financial institutions in the
context of a very competitive marketplace. While many financial
institutions link the interest rates on accounts offered to seniors to
generally reflect deeming rates, this is a result of market forces
applying to financial institutions to retain people, not at the direction
of government.
General
availability of deeming rates.
Returns equal to or higher
than the deeming rates are available on a wide range of conservative
investments such as at-call accounts, term deposits, cash management
accounts, and Internet-based savings accounts. Many of these accounts may
pay more than the deeming rates while retaining the accessibility that
many pensioners need.
However, conditions for these accounts vary according to the financial
institution offering them, so it is important that people should first
talk to their financial institution when choosing these products. If still
unhappy, people should shop around financial institutions for the account
that best satisfies their needs.
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