If your Age Pension payment in late September looked smaller than the headlines promised, you're not imagining it. The pension did go up, but a second change on the same day quietly took some of it back.
What changed on 20 September
The Age Pension was indexed on 20 September, as it is every March and September. The maximum single rate rose by $36.80 a fortnight to $1,237.70. Couples received an extra $27.80 each, taking their combined payment to $1,866.00.
On the same day, deeming rates rose by half a percentage point. The lower rate went from 1.25% to 1.75%, and the upper rate from 3.25% to 3.75%. The thresholds didn't move, so the lower rate still applies to the first $66,800 of a single person's financial assets, or $110,600 for a couple.
Deeming rates were held at very low levels for several years. Since that freeze ended last year, they've been lifted in steps.
Why some pensioners saw little or no increase
Centrelink doesn't look at what your savings actually earn. It assumes, or "deems", that your financial assets earn a set rate, and that figure counts towards the income test. Bank accounts, term deposits, shares, managed funds and account-based pensions are all deemed.
Because both rates rose by the same amount, there's a simple rule of thumb. For every $100,000 of financial assets you hold, Centrelink now assumes an extra $500 a year of income.
If your pension is worked out under the income test and you're already above the income free area, each extra dollar reduces your pension by 50 cents. Take a single pensioner with $300,000 in financial assets who is assessed this way, perhaps because they also receive a defined benefit pension. Their deemed income rises by $1,500 a year, which trims about $29 a fortnight from their payment. They still come out ahead, but by around $8 a fortnight rather than $36.80.
At roughly $380,000 in financial assets, the deeming increase cancels out the indexation rise altogether for a single pensioner on the income test. For couples, that point is roughly $580,000 in combined financial assets.
Not everyone is affected. If your pension is worked out under the assets test, deeming doesn't change your payment and you'll have received the full increase. The same applies if your total income stays under the free area.
What you can do
- Check your new rate. Your fortnightly amount is shown in your Centrelink online account or you should be able to see a change reflected in your bank statement.
- Keep your values up to date. Deeming is based on the balances Centrelink holds for you. If your savings have fallen through drawdowns, spending or market movements, updating them can lower your deemed income.
- Review how your assets are held. Some assets are treated differently under the income and assets tests, and the right approach depends on your circumstances.
If you feel your assets haven’t been updated for some time and would like to talk it through, please get in touch.
This article contains general information only and does not take into account your personal objectives, financial situation or needs.
