The Albanese government has announced the end of a three-year freeze on pension deeming rates, a move that will lead to reductions in pensions for many retirees. In a statement issued by Social Services Minister Tanya Plibersek on July 1, 2023, it was revealed that the government would adjust the rates used to calculate how much income pensioners can earn from their cash investments. This policy change comes after more than five years of stagnant rates, which were originally set by the Morrison government at the onset of the COVID-19 pandemic.
The adjustment involves an increase in the deemed return on investments for age pensioners, including self-funded retirees, from 0.25 percent to 0.75 percent. While the impact on individual pension payments will vary depending on each retiree’s financial assets, the change is expected to draw criticism from seniors. Many of them had previously protested against high deeming rates in 2019, and with current interest rates on savings accounts declining, the timing of this adjustment may further aggravate their concerns.
Deeming is a process employed by the government to establish a standardized return on various financial investments, such as savings accounts and term deposits. This method simplifies the calculation of income rates for pensions by applying a uniform deemed rate rather than requiring pensioners to report their actual earnings. Plibersek stated that the previous deeming rates had been kept “artificially low” since 2020 and had not reflected the real earnings from investments. This situation had inflated pension payments, prompting the government to maintain the freeze to protect age pensioners and other income-support recipients during the economic recovery following the pandemic.
As the official cash rate has risen, bank deposit rates have also increased, making the previous freeze on deeming rates less sustainable. The three-year freeze officially ended two months after the Albanese government took office.
The decision to lift the deeming rates marks a significant shift in the government’s approach to pension calculations, with potential implications for the financial well-being of many retirees in Australia. As the government navigates economic challenges, this policy change will be closely scrutinized by the public and could affect the relationship between the government and senior citizens in the long term.
