Before the recent change, the deeming rates used for singles were 3 per cent a year on the first $43,200 of financial assets and 4.5 per cent on the excess. For couples, the deeming rates were 3 per cent a year on the first $72,000 of combined financial assets and 4.5 per cent on the excess.
The new deeming rates applying now are 2.5 per cent on the lower threshold and 4 per cent on the higher.
The losers from the reduction in the deeming rates were those pensioners who have their money in bank deeming accounts. This is because the actual interest income they earn has decreased by 100¢ in the dollar, but their pension has increased by only 50¢ in the dollar.
Winners from the decrease in deeming rates are those pensioners investing in financial assets producing income higher than the deeming rates. These can include direct shares, term deposits, listed property trusts and pooled mortgage trusts.
Age pensioners investing in these higher yielding types of financial assets have not only seen an increase in the age pension they receive, as a result of the decreased deeming rates, but in many cases have seen the income they receive remain the same.
The third type of income counted by Centrelink, adjusted taxable income, can result in a person maximising their age pension while still receiving a high level of income from their investments. Under this category Centrelink allows the actual income received to be reduced by their purchase price. The most common example is a superannuation pension.
A reduction for this purchase price is allowed because over the life of the super pension some of the original capital value of the superannuation account will be paid back.
How this purchase price of a super pension works, and how to maximise your entitlement to the age pension, will be detailed next week.
