- What is Deeming?
- The Current Rates
- How Deeming Works
- Monitoring the Deeming Rates
- Financial Institutions
- Changes to the Assessment of Income from Superannuation Account-Based Income Streams
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 are actually earning. 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,
- listed shares and securities, and
- new account-based income streams (from 1 January 2015).
Deeming is a simple and fair way to assess income from financial investments, as:
- customers 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-it encourages customers to choose investments on their merits.
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For current deeming rates refer to the deeming page on the Department of Human Services site.
Investment decisions should be made taking into account the person's full circumstances. All pensioners and allowees will want to hold some savings that they can access easily. However, as their savings increases, they can also be expected to have a more diverse portfolio of investments earning higher returns. Many financial products will provide returns the same as or greater than deeming rates.
The lower deeming rate reflects that many pensioners will generally choose to have some savings in investments with very high accessibility and safety, but which tend to provide relatively low returns.
The higher deeming rate reflects that customers with higher amounts of savings 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, 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).
Currently, single pensioners can have income of $168 a fortnight ($300 a fortnight for a pensioner couple) before the pension starts to be reduced. For each dollar of assessed income over the income test free area, the pension is only reduced by 50 cents (25 cents for each member of a couple).
Single pensioners whose only source of income is from financial investments can have up to $157,569 in financial investments ($278,492 for pensioner couples) and still receive the full pension under the income test. This is because of the income test free area, which benefits pensioners. The income test is designed to encourage people to supplement their income support payment with private income.
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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 minimising the number of changes to their payments. However, changes can be made at any time if there are significant movements in returns from financial investments.
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The Government’s policy is that it should not regulate the terms and conditions of bank accounts; rather that competition between banks and financial institutions, such as credit unions and building societies, results in banking products that meet people’s 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 competitive market place.
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The deeming rules have been extended to include superannuation account-based income streams.
On 1 January 2015, the Australian Government changed the social security income test treatment of account-based income streams. Under the new rules, income from account-based income streams is deemed based upon the account balance. This makes the assessment of income from account-based income streams consistent with income from other similar financial investments.
This is a simple and common sense extension of the deeming rules that ensures a fairer and more sustainable income support system. If a person received an income support payment on 31 December 2014 and had a superannuation account-based income stream, this income stream continues to be assessed under the current rules.
However, if a person chooses to change their existing product to a new product, or purchase a new product after 1 January 2015, the new product is assessed under the deeming rules.
For more detailed information on the deeming changes, please refer to the deeming fact sheet.
Please visit the deeming page on the Department of Human Services website for additional information on deeming rules.
If you receive a Veterans’ Affairs payment, please visit the income and assets page on the Department of Veteran’s Affairs website for more information on deeming and the income test and assets test.
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