Australia’s peak body and leading advocate for older Australians, COTA Australia, said today’s announcement of a reduction in deeming rates used for the age pension income test will be welcome news for over 600,000 part-rate age pensioners.
COTA Australia Chief Executive, Ian Yates, said the rate reduction for savings up to $51,800 from 1.75% to 1.0% and for savings above that from 3.25% to 3.00% was a reasonable, balanced response to a complex issue. Backdating it to 1 July is a welcome decision rather than leaving it until the pension indexation in September.
“Reductions in the Reserve Bank cash rate have impacted on the interest paid on savings accounts and term deposits” Mr Yates said “so a reduction in the deeming rate is in order. At the same time, we need to acknowledge that many of the 25% of pensioners whose pension is affected by the deeming rate are actually earning more than that rate anyway.”
“With regard to the lower deeming rate, pensioners need access to immediately available cash. Most banks are offering less than 1.0% for savings accounts, but at least two of the “big four” are currently offering 1.75% on term deposits over $5,000 for only six months, so many pensioners will be ahead on average between their savings account and term deposits together” Mr Yates said.
Mr Yates said it is important to remember that three quarters, or 75% of age pensioners, are NOT affected by deeming rates. ”You can have well over $100,000 in the bank as a single pensioner, or over $200,000 as a couple and the deeming rate doesn’t affect you. Most pensioners don’t even have that level of savings.”
“For pensioners with higher levels of assets the deeming rate has been reduced from 3.25% to 3.0%. This has been a complex decision for government. Pensioners with hundreds of thousands of dollars in term deposits will complain that they are still disadvantaged, although there are term deposits in the market with full government guarantee that pay 3.25% (or did until today), while the “big four” are mostly offering rates in the 2.0 – 2.5% range”.
Mr Yates said “However we need to recognise that more than two thirds of age pensioners affected by the higher deeming rate are currently earning more than 3.25% – with 70% having market-linked investments (such as shares, managed funds or superannuation funds) that are returning over 5.0% – so they are winners.”
“Those calling for the full cut in the cash rate to be applied to deeming need to be honest about how many pensioners are affected, and about the fact that if the government replaced the deeming rate with actual earnings the majority of part pensioners would be worse off“ Mr Yates added.
“We appreciate the frank and constructive discussions we have had over the last week with relevant Ministers in the Morrison Government and the positive outcome that has resulted”, Mr Yates said, “and we look forward to further discussions on how the deeming rate might be set in the future to remove the current level of uncertainty, which Minister Anne Ruston has indicated she will welcome”.
“This is an issue that can also be looked at in the Treasurer’s proposed Retirement Income Review, which COTA is actively discussing with government.”
Media contact: Ian Yates 0418 835 439, Hannah Craft 0423 377 965
COTA Australia is the peak policy development, advocacy and representation organisation for older Australians, representing COTAs in every State and Territory and through them over 500,000 older Australians.