There are renewed calls for a cut to the age pension deeming rates, following the recent interest rate cut by the RBA, which the Government is reportedly considering.
The deeming rate is used to assess income from financial assets, and is currently either 1.75% or 3.25%, depending on the level of financial assets and if the pensioner is single or in a couple.
Seniors and retiree groups have been calling for cuts to the rates, and with the latest interest rate cut they have been joined by Labor.
Speaking to ABC Radio National, Labor’s Shadow Minister for Families and Social Services, Linda Burney, said the deeming rate should be lower but that Labor was working on a figure.
“I don’t have a particular figure in mind. But I do know that the Morrison Government, who assumes the deeming rate is 3.25%, as you’ve described, when we know the cash rate is 1%, is just not fair.”
“You’d want the deeming rate to be much closer to what the 1% cash rate is at the moment. If the Government is going to move on this, then they would be showing hypocrisy if they don’t move on it, particularity given their rhetoric throughout the election campaign.”
The Liberal’s election policy, “Our Plan to Support Retirees“, doesn’t mention deeming. But there are now reports that the Government is considering a cut to the deeming rate.
Update: Prime Minister Scott Morrison has told the House of Representatives, in question time, that the Minster for Social Services has asked the Department to review the deeming rate.
Burney said a rate of 3.25% was “absolutely inflated” when the “best” term deposit was around 2%.
“The deeming rate, I think, should be lower than the best term deposit. Something around maybe 1.25[%].”
“We’re working on really what it needs to be. All we know for sure is that there has not been a change in the deeming rates for about 4 years, since 2015, and to have them at 3.25 is completely unfair to pensioners.”
Last month – prior to the most recent RBA interest rate cut – National Seniors was calling for the deeming rates to be cut to bring them in line with interest rates.
Since the RBA cut to 1.0%, the Association of Independent Retirees has also called for a cut in rate.
“The reduction in interest rates on retirement savings is having a major impact on retirees, but is made even worse for those receiving age pensions because of the unfair deeming rate set by the government” said Mr Wayne Strandquist, Acting President of the Association of Independent Retirees.
“The higher the deeming rate is above the interest rate actually received on their financial investments, the lower age pension payments will be. This is particularly unfair for partly self funded retirees who rely on a part age pension.”
“Deeming rates are determined by the Minister for Social Services and are supposed to reflect returns available from a range of financial products. There have been 4 reductions in the RBA official interest rates since March 2015 and similar cuts to interest bearing deposits, but no changes to the deeming rates.”
Strandquist said is was “simply not possible” to find low risk cash investments returning anywhere close to the 3.25% deeming rate.