Deemed financial income

Deemed financial income from financial assets

The Age Pension Income Tests use your deemed financial income rather than your actual income from financial assets.

Why a deemed financial income

Deeming Pensioners to be earning interest on financial assets has two potential ‘advantages’.

Firstly, deeming financial assets to be earning a modest rate of interest could encourage Pensioners to use bank accounts rather than hoard cash or gold at home.
Secondly, deeming provides a mechanism for counting the ‘income’ forgone by lending money to family at low or no interest or by ‘excess gifting’.

Deemed rate or interest paid on retail bank deposits

The deemed interest rates are set, and adjusted, by the Commonwealth Government. Centrelink does not discuss the timing or basis for adjusting the deemed rates.

Any adjustments to the deeming rates are announced on the day that the new rates start to apply. The most recent adjustment was in May 2020 when the deeming rates were lowered slightly.

When deeming was introduced the Commonwealth encouraged the major banks to offer ‘at call’ Pensioner Retirement Savings Accounts that paid interest at rates close to the deeming rates. At that time, Pensioners could use term deposits that earned more than the higher deeming rate.

From July 2016, the major banks have significantly reduced the interest rates payable on their Pensioner Retirement Savings Accounts. In 2020, the interest rates offered by the major banks for both term deposits and substantial balances in Pensioner Retirement Savings Accounts, were close to the lower deeming rate.

Calculation of deemed financial income

The calculation of your deemed financial income is based on the current Centrelink formula and the value of your ‘financial assets’. The steps for determining your deemed financial income are outlined below.

Step 1 of the deemed financial income calculation is to determine if you are a single person or a member of a couple at Centrelink.

If you are a member of a couple at Centrelink you must use the total value of all of the financial assets of your partner and yourself in the ‘couples’ formula for the deemed financial income calculation.

If you are a single person not a member of a couple at Centrelink, then you just use the value of your own financial assets in the single, non-partnered formula for the deemed financial income calculation.

Step 2 is to value all of your ‘financial assets’ for Centrelink purposes.

The Centrelink definition of ‘financial Assets’ includes all of the plain banking accounts and financial investments together with less obvious financial assets. The Financial Assets section helps with understanding what is counted as a ‘financial asset’ for the Age Pension deemed financial income calculation.

Step 3 is to apply the Centrelink formula for calculating your annual rate of deemed financial income.

Effective from July 2020, the lower interest rate applicable to the first tranche of financial assets is 0.25% and the higher interest rate is 2.25%.
Also from July 2020, the changeover level capping the first tranche of financial assets is $53,000 for a single Age Pensioner and $88,000 for an Age Pensioner couple at Centrelink.

Deemed financial income for a single Age Pensioner

Thus for a single person, the annual rate of deemed financial income is calculated as 0.25% of the first $53,000 of financial assets plus 2.25% of any additional financial assets.

For a single person with no more than $53,000 of financial assets, the deemed financial income is 0.25% of her financial assets.

For a single person with over $53,000 of financial assets, the deemed financial income is 0.25% of the first $53,000 plus 2.25% of her financial assets in excess of $53,000.

Consider Betty, a single Age Pensioner who has $84,000 of financial assets.

Betty’s annual rate of deemed financial income is calculated as
0.25% of $53,000 plus 2.25% of ($84,000 less $53,000)
That is, 0.25% of $53,000 plus 2.25% of $31,000
$(132.50+697.50) equals $830

Thus at Centrelink Betty has an annual deemed financial income of $830 per year.

Deemed financial income for an Age Pensioner couple

For a couple at Centrelink, the annual rate of deemed financial income is calculated as 0.25% of the first $88,000 of financial assets plus 2.25% of any additional financial assets.

Consider Anne and Albert a couple at Centrelink who have only $84,000 of financial assets.
In August 2020, the annual rate of deemed financial income for Anne and Albert is calculated as 0.25% of $84,000, that is, $210.

Centrelink calculate your deemed financial income

Centrelink calculate the deemed financial income for Age Pensioners based on the asset and income details submitted by the Age Pensioners. Centrelink will also recalculate your deemed financial income amount whenever the deemed interest rates change or the changeover asset levels change.

Help to understand how your situation fits in the Age Pension system.

Christine at Financial Care Services writes this Age Pension Guide. She can help you to understand your Age Pension situation.

Ask Christine to help you navigate your Age Pension challenge.

Contact Christine at Christine@financialcareservices.com.au or call 03 9808 0338 to book a consultation.

Christine at Financial Care Services is experienced with Pension Applications and the many Centrelink financial means tests.
Financial Care Services helps seniors with Centrelink Pension issues. Christine at Financial Care Services could help you check if you are eligible for an Age Pension.
An estimate of your potential Age Pension amount before you apply could spare you a rejection letter from Centrelink.

Financial Care Services offers ‘personal financial factual information’ consultations to help you check your asset and income position against the Centrelink Pension means tests. Christine is also able to assist with filling in your Centrelink forms ready for you to sign. She will accompany you to a Centrelink office to lodge your Pension claim form and show your proof of identity documents.

Financial Care Services charges hourly rate fees for ‘personal financial factual information’ consultations, assistance with personal data collation, completing Centrelink forms and attendance at a Centrelink office with you. Email Christine@financialcareservices.com.au now for the Financial Care Services Client Services Guide and Financial Care Services Age Pension Personal Data Checklist.

Disclaimer This Age Pension Guide is based on our understanding of the current Social Security provisions. Your claim for a Social Security Pension will be based on your personal situation as documented to Centrelink and the Social Security legislation and Regulations in force at that date.

Updated July 2020