Australia’s Age Pension recipients received a modest boost on Sunday, with the maximum fortnightly payment rising by A$36.80 for singles and A$55.60 for couples. However, the same day brought an increase in deeming rates, which could reduce the net benefit for part-pensioners with financial assets.
The maximum single pension now stands at A$1,237.70 per fortnight, up from A$1,200.90, while couples receive a combined A$1,866.00, up from A$1,810.40. On an annual basis, that translates to an additional A$956.80 for singles and A$1,445.60 for couples, based on 26 fortnights.
Deeming rates, which are used to calculate the income from financial assets for pension purposes, rose by 50 basis points. The lower rate increased to 1.75% and the upper rate to 3.75%. This means that for every A$100,000 in deemed assets, an additional A$500 in annual income is assessed, potentially reducing pension payments by up to A$250 per year under the income test.
The changes come ahead of the Reserve Bank of Australia’s (RBA) September 29 policy decision. The central bank’s cash rate target is currently 4.35%, with several economists expecting another hike. If rates rise, deposit income could increase, but the deeming change already impacts pension calculations immediately.
According to TS2 calculations, a single pensioner with A$100,000 in financial assets would see their deemed income rise from A$1,914 to A$2,414 annually, potentially reducing their pension by A$250 per year. For a couple with A$200,000, the deemed income increases from A$4,288 to A$5,288, cutting their pension by A$500 annually. A couple with A$500,000 in assets could lose A$1,250 per year.
Not all recipients are affected. Singles can earn up to A$226 per fortnight before the income test reduces payments, while couples have a combined A$396 free area. Additionally, the assets test may apply, with Services Australia paying the lower of the two calculated rates.
The deeming rate increase aligns with the RBA’s recent monetary policy actions. In August, the central bank raised its cash rate to 4.35%. Major banks are split on the next move: National Australia Bank (ASX: NAB) expects a 25-basis-point hike on September 29, while ANZ, Commonwealth Bank, and Westpac forecast a hold in September followed by a hike in November.
Economists from ANZ and Westpac have both indicated a November increase as their base case. The consensus could shift with upcoming inflation and labor market data, which will be closely watched ahead of the RBA’s decision.
For full-rate pensioners with assets below the income free area, there is no deeming clawback, and they will receive the full indexed increase. Asset-tested recipients may also see no change if their deemed income doesn't affect their payment. The key issue for all is whether their actual portfolio yield exceeds the deeming rates, as returns above those rates do not affect pension eligibility.
The RBA’s decision at 14:30 AEST on September 29 will be pivotal, potentially affecting both bank forecasts and the assumptions behind the deeming rate change.
