RETIREES STAND TO GAIN THOUSANDS IF GOVT STEPS UP ON DEEMING RATES: LABOR SAYS

Retirees stand to gain thousands if government steps up on deeming rates, Labor says

By Judith Ireland

Updated July 7, 2019

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Some retirees could be more than $3000 better off a year if the Morrison government cut the deeming rate on their assets by 1.25 per cent, to match the cuts to interest rates over the past four years.

According to a new analysis by Labor, part-pensioners could stand to gain anywhere between $62 and $3875 a year, depending on the size of their non-home assets and whether or not they own their own home.

Labor is among those demanding an urgent reduction in the deeming rate to help more than 600,000 part-pensioners who say they have been unfairly punished by recent cuts to interest rates.It is understood the Coalition will make an announcement on deeming rates as early as this week.

Labor spokeswoman for social services Linda Burney says there is an urgent need to cut the deeming rate to help pensioners.
Labor spokeswoman for social services Linda Burney says there is an urgent need to cut the deeming rate to help pensioners. CREDIT:DOMINIC LORRIMER

Under current social security laws, pensioners are allowed to earn up to $172 a fortnight before their government payments are reduced. Income from financial investments, such as term deposits, is included in the pension income test.†

The government assumes a rate of return on these investments, which is known as the deeming rate. The deeming rate for singles is 3.25 per cent for assets over $51,200 and 1.75 per cent for those under that level. Because the deeming rate has not been changed since 2015, pensioners groups argue they are being squeezed as the Reserve Bank has cut official rates by 1.25 per cent over that time.

A Labor analysis has found that if the government cut deeming rates by that same 1.25 per cent, a single homeowner on a part pension would be up to $63 better off per fortnight or $1628 better off a year. A single non-homeowner stands to gain up to $3125 a year.  Couple homeowners would see up to an extra $1850, while couple non-homeowners would be as much as $3875 better off.

What is deeming?

  • Deeming is a set of rules used to work out the income created from financial assets.
  • It assumes these assets earn a set rate of income, no matter what they really earn.
  • The main types of financial assets include savings accounts and term deposits, managed investments and listed shares.
  • Deemed income is then included in the income test when people apply for a pension.
  • The income test is used to work out how much the government will pay.

While it has not specified how much it thinks the rate should be cut, Labor is demanding urgent action on deeming rates.  Opposition spokeswoman for social services Linda Burney said Prime Minister Scott Morrison had been “deliberately short-changing pensioners for years”.

“Interest rates have been cut five times, but the Liberals haven’t adjusted the deeming rate at all,” Ms Burney said.

Treasurer Josh Frydenberg has strongly hinted an announcement on deeming rates is imminent. He told The Sydney Morning Herald and The Age on Saturday to “watch this space“.  But it is also understood the government has not yet decided on a figure.  Mr Frydenberg has cautioned any cut to the deeming rate may not match the Reserve Bank’s cuts to the cash rate.

Social Services Minister Anne Ruston, who has been discussing a deeming rate change with Mr Morrison and Mr Frydenberg, said the Morrison government understood the difficulties facing older Australians on fixed incomes.

But she added “any changes to the deeming rate must be financially responsible”, describing Labor’s figures as “back-of-the-envelope calculations”.

Council on the Ageing chief executive Ian Yates said part-pensioners were angry and worried about their finances.

“I think the government has got no real choice but to reduce the deeming rate,” he said. “Every dollar counts when you’re on a full or part pension.”

Mr Yates also said deeming rates should be set by a transparent, independent process, rather than be subject to the social services minister’s discretion. The COTA chief said they should be included in a review of the retirement income system recently flagged by Mr Frydenberg.

WHAT IS DEEMING? 

Deeming is a set of rules used to work out the income created from financial assets. It assumes these assets earn a set rate of income, no matter what they really earn. The main types of financial assets include savings accounts and term deposits, managed investments and listed shares.

Deemed income is then included in the income test when people apply for a pension.  The income test is used to work out how much the government will pay.

Source: Department of Human Services

Judith Ireland

Judith Ireland is a political reporter for the Sydney Morning Herald and The Age, based at Parliament House

SOURCE: https://www.smh.com.au/politics/federal/retirees-stand-to-gain-thousands-if-government-steps-up-on-deeming-rates-labor-says-20190706-p524qa.html

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