News: What is Centrelink deeming and how could it affect your Pension?

Deeming is a simple set of social security rules used to assess income from financial assets. Under these rules, financial assets are assumed to earn a certain amount of income, regardless of how much they actually earn.

Deeming is used to calculate income for pension, benefit and allowance payments as it is regarded as being a fair way to treat people who have the same amount of financial assets.

Your rate of pension or allowance is based on the lower of the two amounts calculated under the income test and the assets test. Under the deeming provisions, Centrelink applies a prescribed rate - the deeming rate - to financial investments to determine the assessable income. The actual returns from the investments, whether in the form of capital gains, dividends or interest, are not used for income assessment, even if the investment returns are above the deeming rates.

There are two deeming rates, separated by a threshold. The deeming rate as at the 20 March 2009 to 2% for the first $41,000 for a single and $68,200 for a couple and 3% for the remaining balance.

The following examples illustrate how income on investments is calculated:

• Ryan, a single person receiving Newstart Allowance, has $35,000 in his bank account. He has no other financial investments. As his total financial investments are below the deeming threshold of $41,000, Centrelink applies the lower deeming rate of 2% to the $35,000 and Ryan is therefore assessed to be receiving $700 of annual income from his investments.
• Jose and Marta both receive the Age Pension. Between them, their financial investments total $100,000. The first $68,200 is deemed at 2% and the remaining $31,800 is assessed at the higher rate of 3%. Therefore, Centrelink assesses them to be receiving an annual income of $2,318 from their investments.

Financial investments that are affected by deeming include:

• bank, building society and credit union cheque and savings accounts
• cash
• term deposits
• money held in solicitors' trust accounts
• managed investments
• shares and securities that are listed on a stock exchange
• bonds, debentures, unsecured notes, bank bills
• loans made to individuals, private companies and trusts
• gold and other bullion
• investments in superannuation funds held by persons who are over Age Pension age.

Before the introduction of deeming, many Centrelink income support recipients elected to receive little or no income from their savings in order to maximise their Age Pension entitlements. Deeming encourages people to consider earning better returns on their investments so that their total income, both from investments and from Centrelink, is maximised. Indeed many financial institutions offer "deeming accounts" that offer interest rates similar, but often lower, than the prevailing deeming rates.

Note that the deeming provisions explained above apply equally to means-tested payments from the Department of Veterans' Affairs.