Deemed financial income calculation
Centrelink and DVA pension income tests use your deemed financial income rather than your actual income form financial assets. What is the formula for the deemed financial income calculation?
Interest rates in the deemed financial income calculation
Two interest rates are prescribed for the deemed financial income calculation. The lower of the interest rates applies to the first tranche of your financial assets. Whilst the higher rate is applied to any part of your financial assets in excess of your changeover point.
As at August 2015, the lower interest rate is 1.75% per annum and the higher interest rate is 3.25% per annum.
The Commonwealth sets the interest rates for the deemed financial income calculation.
Changeover points for deemed financial income calculation
The deeming rate changeover point increased in July 2015 to $48,600 for a single pensioner. For a couple at Centrelink or DVA, the changeover point increased to $80.600.
The changeover points for the deemed financial income calculation are usually increased slightly each July.
Examples of deemed financial income calculations
Mary, a single pensioner, has only $40,000 of financial assets. Mary’s deemed financial income is calculated as 1.75% of her financial assets of $40,000. Thus Mary’s deemed financial income is $700 per year (0.0175 x $40,000).
Another single pensioner, Tom, has financial assets of $300,000. Tom’s deemed financial income is calculated as 1.75% of the first $48,600 of his financial assets plus 3.25% of his financial assets in excess of $48,600. Tom’s deemed financial income is $9,021 per annum calculated as 1.75% x $48,600 plus 3.25% x ($300,000 – $48,600).
Sue and Sam are a couple at Centrelink even though they choose to keep their finances separate. Sue has financial assets of $60,000 and Sam has $240,000 of financial assets. For the purposes of the Centrelink means tests, Sue and Sam are a couple with total combined financial assets of $300,000.
Thus Sue and Sam’s deemed financial income is calculated as 1.75% of the first $80,600 of their joint total financial assets plus 3.25% of their joint total financial assets in excess of $80,600. Sue and Sam’s deemed financial income is $8,541 per annum calculated as 1.75% x $80,600 plus 3.25% x ($300,000 – $80,600).
Earning the deemed financial income on financial investments
Australian banks offer ‘pensioner savings accounts’ that are credited with interest at rates close to the deeming rates. You could find that the changeover point from the lower deemed interest rate to the higher deemed interest rate could be different from the changeover point that Centrelink apply to your particular situation.
You must read the details of the terms and conditions, the ‘small print’, to check that any particular banking product is suitable for your needs.
Some pensioners prefer to use a pensioner savings account for their everyday banking transaction account and invest their additional money in a term deposit. Please be aware that you cannot cash out a term deposit early; your bank requires 31 days’ notice of an early withdrawal of a term deposit.
Mary decided to invest $20,000 in a 90 day term deposit and keep her other $20,000 of financial assets in her pensioner savings account. Mary’s bank was offering 2.25% per annum interest on a 90 day term deposit. Thus Mary could earn 1.75% per annum on the $20,000 in her pensioner savings account and 2.25% per annum on her $20,000 term deposit, an average interest rate of 2.00% per year on her total financial assets. Mary watches the term deposit rates at her bank to ensure that she chooses term deposit periods that suit her needs.
Tom considered keeping just $20,000 in a pensioner savings account and investing his other $280,000 in term deposits. His usual bank was offering 12 month term deposits with an interest rate of 2.40% payable on maturity. If Tom invested $280,000 in the 12 month term deposit, his interest from the term deposit would be $6.720 for the year. In addition Tom would have his $20,000 earning 1.75% in his pensioner savings account, that is, $350. Thus Tom’s total interest income would be $7,070.
Updating your financial asset data at Centrelink and DVA
You are responsible for informing Centrelink, or DVA, whenever your asset or income position changes so that your means tested benefits and/or aged care fees are based on correct data.
The income test for Centrelink pensions and aged care fees, is based on your deemed financial income. Therefore you must advise Centrelink, or DVA, whenever you receive large sums such as gifts or inheritances. If you need to buy an expensive item or have substantial maintenance work done on your home, you could inform Centrelink about the big withdrawal from your bank account.
Help with Centrelink DSP and Age Pension Income Tests and Asset Tests
Help is available.
Christine at Financial Care Services is experienced with Centrelink financial asset definitions, means tests and Pension Applications.
Financial Care Services offers Short Consultations to help you check your financial position against the Centrelink financial means tests for an Age Pension, DSP or a Carer Payment.
Christine could also assist you with collating your personal data, estimating how much Pension you could expect to receive and completing the Centrelink forms for you to sign. Normal hourly rate consultation fees apply for assistance with personal data collation, completing Centrelink forms and attendance at a Centrelink office with you.
Financial Care Services is an independent aged care financial advisory service specialising in aged care entrants and Centrelink Pensions.
Financial Care Services core value in financial advice is to assist with your money plan in the responsible management of your assets to generate the cash flow needed for your lifetime planning. Christine at Financial Care Services understands both the DVA and Centrelink Pensions systems and the Commonwealth aged care fee arrangements.
If you would like further confidential, independent and professional advice about Centrelink, lifestyle or financial issues please contact Christine Hopper 03 9808 0338 or email your enquiry.
The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations.
All eligibility for Commonwealth benefits will be determined by Centrelink or DVA, based on your personal position as documented and the legislation and Regulations in force at that time.
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