Australian politicians are facing growing pressure to provide clarity on the potential impacts of a “sneaky attack” on pension payments.
The issue concerns deeming rates, which affect around 900,000 Centrelink recipients, including 450,000 pensioners. With the current freeze set to expire in 2025, it remains uncertain whether the rates will rise when the freeze ends.
The Status of Deeming Rates Freeze
For the past three years, deeming rates have been frozen, with the extension of the freeze running through to June 30, 2025.
Although there were initial indications, via Department of Social Services representatives and pre-budget leaks, that the freeze might extend for another year, the government has now refused to rule out ceasing the current freeze.
If deeming rates were to increase, pensioners could be facing a loss of up to $3,300 a year. This figure is based on the assumption that the rates will return in line with the Reserve Bank of Australia’s (RBA) cash rate.
What Are Deeming Rates?
Deeming rates are the rates of return the government assumes individuals earn on their financial assets, regardless of their actual earnings.
This impacts various payments, such as the age pension, JobSeeker, and parenting payments. Deeming rates apply to assets like bank accounts, superannuation, and shares.
- Lower deeming rate: Currently frozen at 0.25%.
- Upper deeming rate: Currently frozen at 2.25%.
These rates will remain frozen until June 30, 2025. The expiry of the freeze does not automatically imply an increase in the rates. Typically, deeming rates are adjusted by the government on July 1 every year.
Historical Context of the Deeming Rate Freeze
The former Coalition government implemented the freeze in 2022 as part of a cost-of-living measure, following the RBA’s interest rate hikes. The Labor government then extended this freeze in last year’s federal budget.
Advocates Push to Maintain Deeming Rates During Cost-of-Living Crisis
Various advocacy groups are calling for the deeming rates to remain unchanged as pensioners and others continue to struggle with the cost-of-living crisis.
Patricia Sparrow, CEO of COTA Australia, emphasized that the financial burden on pensioners is already severe. She stated, “To expect people to deal with a drop of more than $3,000 on top of what they’re already dealing with is unreasonable.”
According to Sparrow, the most recent indexation adjustment to the Age Pension in March barely covered basic expenses like buying a coffee per week.
Similarly, Chris Grice, CEO of National Seniors Australia, stressed that any adjustments to deeming rates should be measured, incremental, and transparent, ensuring that already struggling Australians aren’t further burdened.
Political Parties’ Stance on Deeming Rates
Both major political parties have been vague about what will happen after the freeze ends.
- Prime Minister Anthony Albanese has not ruled out the possibility of ending the three-year freeze. He indicated that Labor typically sets deeming rates lower than the cash rate, but he has left open the option of change.
- The Coalition has similarly refrained from commenting on the future of deeming rates. Their campaign headquarters stated that they are “not proposing any change to the scheduled assessment of deeming rates.”
The uncertainty surrounding deeming rates continues to stir concerns among pensioners and advocacy groups, with the potential for pensioners to experience financial setbacks if the freeze ends and rates are adjusted.
The government must provide clear guidance on the future of deeming rates, especially in the context of the ongoing cost-of-living pressures faced by pensioners and other Australians.
FAQs
What are deeming rates?
Deeming rates are assumed rates of return that the government applies to an individual’s financial assets, impacting various payments like age pension, JobSeeker, and parenting payments.
Why have deeming rates been frozen?
Deeming rates have been frozen to help ease the financial burden caused by cost-of-living pressures and to align with changes in the Reserve Bank of Australia interest rates.
How will deeming rates affect pensioners?
An increase in deeming rates could result in a $3,300 loss per year for a single pensioner, significantly impacting their already strained finances.