Govt deems it time to review pension interest rules

FROM March 20, a number of social security changes will take effect: pension payments are set to rise as a result of a half-yearly indexation adjustment in line with the cost of living; the payment of a cleaner energy supplement and also changes to deeming rates.

These changes will affect those on the Age Pension, the Disability Support Pension, Carer Payment and Veteran income support supplements.

Of importance is the lowering of deeming rates - for the first time in four years.

Deeming rates are used to determine income earned from a range of financial investments, such as cash, term deposits and shares.

When a social security recipient receives interest on their investments, Centrelink doesn't care how much you actually receive, it is "deemed" to be earning a certain rate.

The lower deeming rate will decrease from 3% to 2.5% for financial investments up to $45,400 for single pensioners or $75,600 for a couple. For balances over these amounts the deeming rate falls from 4.5% to 4%.

These lower rates produce a mixed outcome. What you may receive in extra pension could be lost in actual interest earned. Lower deeming rates means Centrelink will determine less income from investments, thereby meaning more age pension for those on a part payment.

An individual receiving a part age pension should expect to receive $6.80 per fortnight extra with the cost of living rises. Of course, if you are already receiving the full age pension, these lower rates will not increase your pension any further.

What many won't realise is that the cash savings of social security recipients are linked to deeming rates. Banks and credit unions offer retirement savings or pension deeming accounts in line with deeming rates and are generally paying interest higher than standard term deposit rates at the moment.

A couple with $75,600 in cash will lose $14.54 in interest a fortnight. For those on a full age pension you'll receive a cost of living rise but, depending on your financial situation, less money in interest.

For those on pensions the lowering of deeming rates is a mixed result.

I'm reminded of the saying: What the government gives with one hand, they take away with the other.