Age Pension income Deeming rates drop in May 2020
The Australian Government’s response to coronavirus (COVID-19), announced on 22 March 2020 included “On 1 May 2020 the deeming rates will drop from: 1.0% to 0.25% for the lower tier and from 3% to 2.25% for the higher tier.”
This means that on 1 May 2020 the Centrelink deeming rates will drop by 0.75% pa.
For a single person, the new deeming rates will be 0.25% pa on the first $51,800 of financial assets and 2.25% pa on any financial assets in excess of $51,800.
If you have a domestic partner then Centrelink could treat you as a member of a couple and base your deemed financial income on the total value of the financial assets of both members of the couple. Thus for a couple, the new deeming rates will be 0.25% pa on the first $86,200 of financial assets and 2.25% pa on any financial assets in excess of $86,200
Age Pension Income Test uses deemed financial income
Your deemed income from financial assets is used for the Age Pension Income Test.
Remember, Centrelink uses deemed interest rates to assess your ‘income from your financial assets’. Your ‘financial assets’ includes your actual financial investments including your cash and any loans to family and friends together with your ‘excess gift amounts’.
Read more about ‘financial assets’ for an Age Pensioner’s deemed income.
Age Pension Income Test
The Age Pension Income Test reduces the Age Pension payment amount by fifty cents for each additional one dollar of income.
A single Age Pensioner is allowed $174 of income per fortnight before the Income Test bites.
The Income Test then cuts the Age Pension payment rate by fifty cents for each additional dollar of income over $174 per fortnight for a single Pensioner.
The Income Test for a couple, reduces each Age Pension by twenty five cents, $0.25, for every additional one dollar of combined income of the couple in excess of $308.00 per fortnight.
Asset Test and Income Test for Age Pensions
Your Age Pension payment is the lower result from checking against the Asset Test and the Income Test.
Each time Centrelink review your Age Pension entitlement you will be checked against the Income Test and the Asset Test. Centrelink will apply only the Test that gives you the smallest Age Pension.
Read more about the Age Pension Income Test and Asset Test
When the Asset Test hits harder than the Income Test
Consider Tom a single person who has $400,000 in bank accounts. Tom owns his own home and has personal assets and motor vehicles valued at $50,000 in total.
In April 2020, Tom was receiving a part Age Pension. Tom hopes for an increase in his Age Pension when the deeming rates are lowered.
To be eligible for some Age Pension, Tom must not be excluded by either, or both, of the Asset Test and the Income Test. Centrelink assess Tom under each of the Income Test and the Assets Test then apply the means Test that gives Tom the smallest Age Pension or none.
Tom is a single person with no regular income from work, rents or superannuation. Centrelink treat the ‘deemed income‘ from Tom’s financial assets as his only assessable income.
Calculating the deemed income
In April 2020, the deeming rates were 1.0% for the lower tier and 3% for the higher tier.
For a single person, the changeover point from the first tier to the second tier is at $51,800 currently.
Thus in April 2020, Tom’s deemed financial income is 1.0% pa of the first $51,800 and 3.0% pa of the other $348,200 of his financial assets.
That is (0.010*$51,800 + 0.030*$348,200 = $10,964 per year).
Centrelink use 26 fortnights for a year.
Therefore at Centrelink, Tom’s fortnightly deemed financial income is $421.69.
Applying the Income Test
The Income Test for a single person, reduces the Age Pension by fifty cents per fortnight for each one dollar of assessable income in excess of $174.00 per fortnight.
If Tom’s fortnightly income is $421.69 then the Income Test reduction for his Age Pension is $123.85 per fortnight in April 2020.
When the deeming rate dropped
Tom hopes that the reduction in the deeming rates in May would lift his Age Pension.
As from 1 May 2020, Centrelink assess Tom as having a deemed financial income of $306.30 per fortnight.
In May 2020, Tom’s deemed financial income is calculated as 0.25% pa of the first $51,800 of his financial assets and 2.25% pa of any financial assets in excess of $51,800.
Thus for Tom as a single person, deemed financial income is 0.25% pa of the first $51,800 and 2.25% pa of the other $348,200 of his financial assets.
That is (0.0025*$51,800 + 0.0225*$348,200 = $7,964 per year).
Thus at Centrelink Tom’s fortnightly deemed financial income is $306.30.
If Tom’s fortnightly income is $306.30 then the Income Test reduction for his Age Pension is $66.15 per fortnight.
The reduction in the deeming rates has reduced Tom’s deemed financial income by $115.38 per fortnight, $3,000 per year.
His Income Test reduction drops by half of this amount so Tom is hopeful for an increase in his Age Pension.
Age Pension Asset Test
Alas Tom has forgotten that his Age Pension is actually hit harder by the Asset Test than the Income Test.
The Asset Test could reduce Tom’s potential Age Pension by three dollars per fortnight for every $1,000 of his assets over the single person’s homeowner Allowance of $263,250.
Tom’s assessable assets total $450,000.
Hence for the Assets Test, his excess assets are $186,750, that is, $450,000 less $263,250.
The Asset Test reduction to Tom’s Age Pension is $560.25 per fortnight or 0.3% of $186,750.
Asset Test or Income Test
For Tom, the Asset Test reduction of $560.25 per fortnight is larger than the Income Test reduction of $66.15 per fortnight from May 2020.
Therefore Centrelink will apply the Asset Test to determine Tom’s Age Pension amount.
So Tom does not get any increase in his Age Pension when the deeming rates drop.
Tom is unhappy because his sister, Sue, does get a small increase in her Age Pension when the deeming rates drop.
When only the Income Test hits
Sue has $240,000 of financial assets together with a home and $20,000 of other stuff. As a single homeowner, Sue is allowed $263,250 before the Asset Test bites. Sue’s assets are less than the single homeowner’s Asset Allowance so the Asset Test does not hit her Age Pension.
Calculating deemed income
In April 2020, Sue is deemed to earn 1.0% pa of the first $51,800 and 3.0% pa of the other $188,200 of her financial assets.
That is (0.010*$51,800 + 0.030*$188,200 = $6,164 per year).
Centrelink use 26 fortnights for a year.
Thus at Centrelink Sue’s fortnightly deemed financial income is $237.08.
Applying the Income Test
The Income Test for a single person, reduces the Age Pension by fifty cents per fortnight for each one dollar of assessable income in excess of $174.00 per fortnight.
If Sue’s fortnightly income is $237.08 then the Income Test reduction for her Age Pension is $31.54 per fortnight in April 2020.
When the deeming rate drops
Come May 2020, Sue’s deemed financial income on $240,000 of financial assets, drops to $4,364 per year, $167.85 per fortnight.
Sue’s assessable income is now below the Income Test Allowance of $174 per fortnight. The Income Test no longer hits Sue.
Therefore Sue expects the full Age Pension from May 2020.
Help to understand how your situation fits in the Age Pension system.
Christine at Financial Care Services writes these Insights. 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 can accompany you to a Centrelink office to lodge your Pension claim form and show your proof of identity documents.
Financial Care Services is a fee-for-service practice. Clients of Christine Hopper at Financial Care Services pay fees for personal financial factual information consultations and general advice. We charge 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 her Client Services Guide and Financial Care Services Age Pension Personal Data Checklist.
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Disclaimer. These Insights are a general over view based on our understanding of the Centrelink and DVA Pension arrangements. Individual entitlements to Centrelink and DVA benefits are determined based on your actual situation as documented to Centrelink or DVA. The information contained in this website is of a general nature only and does not constitute “financial advice”.
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