Nick Bruining: 460,000 part-pensioners left in limbo with Labor’s cone of silence over deeming rates freeze

Confusion surrounds reports that an extension to the current freeze on Centrelink deeming rates may have been revealed in last week’s Federal Budget. On the back of a supposed pre-election leak, numerous media outlets reported the rates would not be lifted in the Budget papers. But the issue of deeming rates was not mentioned at all when Treasurer Jim Chalmers released his Budget last Tuesday. Those same reports stated the extension was likely to add $450 million a year — or $1.8 billion — to the four-year forward estimates. in a bid to clear up the confusion, Your Money approached Social Services Minister Amanda Rishworth, who declined to comment on the leak. “It must have been a misunderstanding,” her spokeswoman said. The Department of Social Services confirmed to Your Money after the Budget that no changes had been announced, but also hinted the rates may not necessarily increase. “The freeze is to continue to 30 June 2025, and the expiry of the deeming-rates freeze does not mean the deeming rates will increase automatically,” a spokesman said. “A decision of the Government would be required to change the deeming rate settings.” The deeming rates are used to calculate Centrelink-assessable income for pensioners and other income support recipients who own financial assets. Financial assets include all bank accounts, shares, managed investment funds, cash, bullion, account-based pensions, accumulation superannuation funds for those aged over 67 and gifts over certain limits. Unlike the Australia Taxation Office, the actual income received from these investments is completely disregarded by Centrelink. Under a special COVID-19 concession, the deeming rates were set at 0.25 per cent a year for the first $62,600 for singles and a combined $103,800 for couples. Amounts above this are deemed to be earning 2.25 per cent a year. These rates were to be frozen until June 30, 2024. But last year the Albanese Government extended the freeze for an additional 12 months. Any end to the deeming rate freeze is likely to have a major impact on more than 460,000 part-pensioners who currently receiving an income means-tested pension. The rates were set when the Reserve Bank’s overnight cash rate had been slashed to a record-low 0.1 per cent in the midst of the coronavirus pandemic. With the same overnight cash rate now at 4.1 per cent, a reset of deeming rates to match the RBA’s rate would likely see an increase to the lower rate to about 3.5 per cent and 5.5 per cent for the upper rate. For example, under the frozen rates a single age pensioner with $500,000 in financial assets would currently have deemed income of $384.54 a fortnight. If the rates were reset to 3.5 and 5.5 per cent, respectively, the new deemed income would be $1009.54 a fortnight — $625 more than the current figure. With a 50¢-in-the-$1 reduction once income exceeds $212 a fortnight, the additional loss in pension under the income test for a single would be $312.50 a fortnight. This example doesn’t include the effects of the asset test, which could result in a lower pension. More concerning, increasing the deeming rates could see some pensions cancelled altogether. While no announcement was made, the upcoming Federal election and the scale of the impact of an increase in deeming rates are sure to see the issue become a political hot potato. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association