The government has announced today (22 March) the second round of measures as part of its economic response to the coronavirus. This includes a range of measures that have a direct impact on superannuation, which includes:
- Temporary early release of superannuation
- Temporarily reducing super minimum pension drawdown rates
- Reducing social security deeming rates
This blog post is focusing on the changes to the social security deeming rates. You can click on the items above to be taken to the posts on other related topics.
Changes to the social security deeming rates
The Government has decided to further reduce both the upper and lower social security deeming rates by 0.25%, which is in addition to the 0.5% reduction to both rates announced on 12 March 2020.
As of 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%. The reductions reflect the low interest rate environment and its impact on the income from savings. The change will benefit around 900,000 income support recipients, including around 565,000 people on the Age Pension who will, on average, receive around $105 more from the Age Pension in the first full year that the reduced rates apply.
The changes will be effective from 1 May 2020.
The following examples demonstrate how this deeming rate change will impact Age Pension entitlements
Example 1 – single part-rate age pensioner
Helen receives a single part-rate Age Pension. She has $200,000 in financial assets with $175,000 held in a term deposit which returns 1.5 per cent and the remainder in a cash transaction account earning a
negligible rate of interest. Under the former deeming rates, Helen’s Age Pension would have been reduced by $8.50 per fortnight as her income was above the income test threshold. With the change in deeming rates Helen has less deemed income and will now be eligible for a maximum rate Age Pension.
Example 2 – age pensioner couple
Leslie and Brian are an age pensioner couple. They have $550,000 worth of financial assets. They hold $300,000 in a superannuation account with a conservative investment strategy which returned around 5% last year. They have invested $130,000 in a term deposit with an annual return of 1.5% and hold the remainder in a cash transaction account earning a negligible rate of interest. Under the former deeming rates, Leslie and Brian’s Age Pension would have been reduced by $65 each per fortnight. Under the new deeming rates, Leslie and Brian’s Age Pension will only be reduced by around $32 each per fortnight.
For more information on the Australian Government’s Economic Response to the Coronavirus visit treasury.gov.au/coronavirus.