Deeming rates to change, giving boost to pensioners
DUE to interest rates moving down the Centrelink deeming rates have changed again. The good news is those who are income tested for pension purposes will receive a slight increase to entitlements.
The rates for a couple will be 2% on the first $77,400 and 3.5% on the balance. For a single pensioner the first $46,600 will assessed at 2%, and the balance at 3.5%. The assets that are subject to deeming include bank accounts, shares, managed funds, insurance bonds, debentures, superannuation when the owner has reached pensionable age, and deprived assets such as excess gifts.
For example, if a single pensioner had financial assets totalling $146,600 the income from these would be deemed by Centrelink to be $4432 year made up of 2% on the first $46,600 ($932) and 3.5% on $100,000 ($3,500).
These rates apply irrespective of the amount actually earned on investments, so pensioners can gain an advantage if they can get safe returns that are higher than the deeming rates. Unfortunately, many pensioners don't understand this and leave their savings in the "deeming accounts" offered by the major banks. The problem with these is that all they pay is the rate stated above. This means pensioners are being penalised because banks and credit unions have accounts with no fees that offer around 4% on the entire balance.
Cast your minds back to the example above. If the whole $146,600 was placed in an account paying 4% the pensioner would receive $5864 - even though they are only deemed to be earning $4432. That's a difference of $1400 a year just because they were financially aware.
For pensioners who are prepared to accept stock-market volatility there are also managed funds available that target high yield stocks. They have the potential to deliver high returns, but also have a higher degree of risk. A good financial adviser should be able to recommend appropriate ones for your situation.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com.