Introduction
If you have financial assets, you’re bound to have deemed income that counts toward your Income test.
When assessing your eligibility for the Age Pension, a number of requirements and tests must be met. The income test is one that must be satisfied to determine if your income levels are appropriate for you to be considered for the Age Pension. There are many different sources of income that are looked at, and one of these forms is called deemed income — which is related to your financial assets. We discuss how it works.
What is deeming?
Deeming might seem a strange term in the context of Age Pension, but it’s actually more straightforward than you might realise. As you may be aware, part of assessing your eligibility for Age Pension is the income test. Services Australia deems that your financial assets create a level of income — even if they don’t actually — and the deemed amount of income will be added to any other income you may have — such as employment income — for the income test. Understandably, you might be wondering how much income they deem your financial assets make and what in fact are considered to be financial assets. Below we have outlined everything there is to know about deeming to convert a peculiar word into a familiar concept for you.
Firstly, what financial assets are deemed to earn income?
Deeming will apply to your:
- Savings accounts
- Direct investments such as term deposits, debentures and bonds
- Regular bank accounts (referred to as ‘Deposit accounts’) which are generally held at a bank, credit union or building society. Your financial institution may have different names for these accounts such as Deeming account, Transaction account, Everyday account, Pensioner Security account etc.
- Listed shares and securities
- Mortgage Offset accounts (but not lines of credit)
- Some income stream products
There are also some financial assets that aren’t immediately obvious but are still subject to deeming. These include church development funds, money you have loaned to another party and cash on hand. It’s important to note that Services Australia doesn’t include the cash you have for daily expenses or shopping. Instead, the term ‘cash on hand’ means money that you have in a safety deposit box, that someone else is holding for you or that you are holding instead of putting in your bank account.
If you hold any gold, silver, platinum bars, nuggets, coins and medals etc. as investments, these will be deemed as well.
But what if my investment/bank account earns more than the deemed rate?
The good news is that if your investment return — which you might refer to as ‘interest’ — is higher than the deemed rate, the extra amount does not get counted as income.
What if I have a negative return on my investment?
Unfortunately, poorly performing investments are still subject to deeming. This means that even if you have a negative return on something like shares, deeming rates will still be applied to the value of your shares.
Are there any exemptions available?
Whilst low performing investments aren’t eligible for exemptions, failed financial investments are. Services Australia is very strict in what they consider a failed investment to be, but an example could be a financial investment that has been ‘frozen’ by the investment company, where you no longer have access to any of the original money you invested — your ‘capital’.
If you hold an account that contains money solely from a National Disability Insurance Scheme (NDIS) package, it will be exempt too.
What are the current deeming rates?
Like the Age Pension rates themselves, the deeming rate that is applicable to you depends on whether you are a member of a couple or not. The formula is similar across all circumstances just with different thresholds.
Single
The deeming rate for the first $60,400 of a single person’s investments is 0.25%. The balance of their investments over $60,400 is deemed to earn 2.25%.
Example:
- You have $75,000 of financial assets.
- The first $60,400 is deemed to earn 0.25% which equals $151.
- The remaining amount of $14,600 is deemed to earn 2.25%, which equals $328.50.
- The total amount of deemed income is $479.50 per year, or $18.44 per fortnight.
Couple
For couples the first $100,200 of your combined financial assets is deemed at 0.25% with any remaining balance deemed at 2.25%.
Example:
- You have $150,000 of combined financial assets.
- The first $100,200 is deemed at 0.25% which equals $250.50.
- The remaining $49,800 is deemed at 2.25%, which equals $1,120.50.
- Therefore, the total amount of deemed income is $1,371 per year, or $52.73 per fortnight.
Age Pension deeming calculator
Use our deeming calculator below to get an estimate of how much deemed income would be applied to your financial investments.
How is my superannuation treated under deeming?
Generally, your superannuation is included in the deeming process for Age Pension unless it is fully preserved or inaccessible. This is also true if you hold an Account Based Income Stream product and purchased it (or converted your super to it) after 1 January 2015. Services Australia will use the balance of your last Account Based Income Stream statement towards your total financial assets for deeming.
Summary
Until recently, you may have been in the dark about deeming and perhaps unsure of what it meant for you. By knowing what financial assets you hold, if they are subject to deeming and what rate applies to you; understanding your approximate deemed income is relatively simple! Of course, Services Australia will conduct the final calculations, but at the very least you can confidently comprehend how deeming plays a part towards your overall income test.
The information in this article is general in nature.