Take advantage of deeming rates
DESPITE the drop in interest rates, the Centrelink deeming rates remain unchanged. However, as a small token to pensioners, the thresholds for higher rates have increased slightly.
Let's refresh our knowledge of the deeming rules that determine the income that Centrelink applies to pensioners' financial assets. The rates for a couple are 3% on the first $75,600 and 4.5% on the balance. For a single pensioner the first $45,400 is assessed at 3%, and the balance at 4.5%. The assets that are subject to deeming include bank accounts, shares and managed funds, debentures, superannuation when the owner has reached pensionable age, and deprived assets such as excess gifts.
For example, if a couple of pensionable age had financial assets totalling $375,600, the income from these would be deemed by Centrelink to be $15,758 made up of 3% on the first $75,600 ($2,268) and 4.5% on $280,000 ($13,500).
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". The problem with many of these is that they may pay interest rates that are lower than what can be obtained safely elsewhere.
Right now, there are major banks offering up to 5% on online savings and term deposits. Pensioners and their families should check these rates out because the purpose of the deeming rates is to encourage pensioners to become interest rate savvy. As always, take advice and stick with safe institutions.
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.