Australian pensioners are facing a major challenge with the old pandemic days of super-low deeming rates fading into the distant past.
Now, seeking the best deposit return has become a much more serious and worthwhile approach.
It is also worth noting in passing that the higher deeming rates may reduce and even eliminate the part-pension for some who are close to the limits of the income test.
While equalling or beating the latest higher deeming rates is more of a challenge than it used to be, it is one that the government actuary has assessed as being possible, which would mean no reductions in the overall income if those returns can be achieved.
Don’t Settle for Falling Income
While the deeming changes were somewhat sneakily thrown in and disguised amid some indexing increases in various Centrelink payments such as Job Seeker and the Age Pension, it is incredibly important that Australia’s 2.6 million age pensioners now take a much more aggressive approach to their cash investments than ever before.
Adopting a steady as she goes approach could well result in lower disposable income despite the planned indexing increase in payments.
So, what are the new rules about deeming and what sort of returns are required to equal or beat the governments more challenging approach to those on the Age Pension, JobSeeker and the Disability Support Pension?
March is When Deeming Gets Serious
After first increasing the deeming rate in September last year, deeming rates will go up again this month.
In simple terms, deeming rates are the assumed rate of return people earn on financial assets.
From March 20, a deeming rate of 1.25% will apply for financial assets under $64,200 for singles and $106,200 for couples combined.
Assets above this amount will be deemed at a rate of 3.25%.
Around 771,000 people who receive income support payments have their rate affected by deemed income, as of June 2025.
Those impacted include about 460,000 aged pensioners, 96,000 on JobSeeker payments, 62,000 disability support pension recipients, and 57,000 Parenting Payment single recipients.
The Lower Rate is Achievable
As the government actuary found, equalling or beating the lower deeming rate of 1.25% should be readily achievable.
But it should be noted that banks and other financial institutions that take deposits have been increasingly putting hurdles in the way of earning advertised top interest rates.
Some of those conditions such as having a higher balance at the end of each month, making a number of transactions and not drawing down any capital might be difficult for many pensioner singles or couples to meet over time, given the ability of small financial needs to crop up at any time.
However, it should still be possible to craft a higher overall return well above 1.25% by leaving some cash reserves that you might need access to in a standard savings account and ensuring you comply with the conditions on the high interest savings account with whatever remains.
The Higher Rate Gets Complicated
Where things get a bit more complicated is for the higher deeming rate of 3.25%.
There are still quite a few high interest savings accounts with rates higher than that, although getting one without conditions is much tougher.
Macquarie’s push into the deposit market may be helpful here, with its four-month introductory offer of 4.85% and an ongoing rate of 4.5% causing quite some consternation among the competing banks.
At the very least the Macquarie offer provides a benchmark that can be used to hopefully lever up a matching or close offer from your own bank or financial institution.
Loyalty Can Cost You
The important thing to realise here is not to allow inertia and loyalty to muddy the waters with comments like “the bank manager has looked after me in the past” or “I’m used to going to the bank down the road.”
Any excess return above the deeming rate is effectively free money for pensioner or Centrelink recipients—that is extra real money in your hand every month so it is well and truly worth shooting for.
It may take a little while to set up a new deposit and transfer money in but that small effort will go a long way in helping to cope with the rising cost of living.
The latest jump in the deeming rates from 0.75% and 2.75% is substantial—even though it is still below the official cash rate of 3.85%.
If you miss a condition to get the top interest rate and it reverts to something low like 0.1%, that is a serious missed opportunity because your pension payments are set on the assumption you will be earning at least the deeming rate.
Consider Other Asset Classes
Another consideration for pensioners who have a substantial amount of money above the higher deeming rate of 3.25% is to consider assets other than cash and term deposits for part of that money, if it unlikely to be required in the foreseeable future.
There are some share market investments that yield above this rate and may also come with the possibility of making a capital gain (or loss), although this option will not satisfy everybody’s risk tolerance.
Some possibilities to look at include high yield exchange traded funds which often pay dividends quarterly, real estate investment trusts, cash funds with monthly payments, bond funds, and perhaps even listed investment companies or index ETFs.
Some of these products will come with some added benefits such as franking credits and will add some diversification to income sources—with the potential for some unwanted volatility as well.
Beat the Deeming Rates
What all age pensioners need to do is have a good look at their individual circumstances and make sure they are at least reaching the deeming rate returns or preferably beating them comfortably.
If you are not doing that you are leaving money on the table—money that is much better placed in your pocket than that of a greedy bank offering highly conditional, chicken feed interest rates.
In short, it’s time for grey power to grab the nettle and really try to leave those official deeming rates in the dust.
