If pensioners don’t earn income above the government’s deeming rate, they lose money.

Despite three official Reserve Bank of Australia interest rate cuts totalling 0.75 per cent since May last year, the pension deeming rate used to assess people’s income from cash and other investments has not moved.

A higher deemed income can result in lower pension payments, and the Federal Government currently deems income from financial assets to earn up to 3.25 per cent a year — well above the average interest rate now paid on savings accounts of just over 2 per cent.

This means that many seniors are judged to be earning more than they actually receive, putting pressure on the government to cut the deeming rate when it increases pension payments next month.

Seniors are being hard hit by the falling interest rate while the deeming rate remains unaltered.Source:Supplied

Ian Yates, CEO of seniors group COTA Australia, said pensioners were very sensitive about deeming rates and he hoped they would be cut in September.

“If people can’t get the deeming rate, they actually lose income because they government assumes they have got it,” he said. “If you earn more than the rate, it’s free money.”

“We have flagged to the government that they should be looking at it.”

The most recent deeming rate cut was in March 2015 by then Social Services Minister Scott Morrison, to 1.75 per cent for a pensioner’s first $48,600 of financial assets and 3.25 per cent on every dollar above that.

COTA’s Mr Yates said deeming rates were often set “a little on the conservative side” to encourage people to seek higher income than bank deposits. For example, Australia’s 50 largest shares are paying an average dividend income of 4.7 per cent, but many retirees ditched shares during the Global Financial Crisis and never went back.

“Sometimes it’s the part pensioners who are proportionally more affected because they are less likely to be using shares and more likely to have tens of thousands rather than hundreds of thousands of dollars,” Mr Yates said.

“That makes people more susceptible to get rich quick schemes.”

Palmer Portfolios principal Joel Palmer said government policy about deeming rates was not transparent.

“We are talking about government expenditure at the end of the day,” he said.

Mr Palmer said many retirees relied on bank deposits for income. He said falling interest rates, tougher age pension rules due in January, and the inflated deeming rate might force more people to take unnecessary risks with their money.

A spokeswoman for the Department of Social Services said deeming rates were set with regard to income from a variety of investments, not just savings accounts affected by Reserve Bank interest rate moves.

“The official cash rate is only one of a number of factors that are considered when setting the deeming rates,” she said.

“The Australian Government monitors the deeming rates on an ongoing basis. If required, changes to the deeming rates are usually made either in March or September, in conjunction with pension indexation.”

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