Age pension to rise by up to $40 as income test deeming rates are eased

Good news for retirees and others on income-tested payments — they’ll receive more money because of the historic interest rate cuts. HOW IT WORKS

The bar will be lowered for retirees on the age pension, delivering gains of up $40 a fortnight on how much they receive from the Federal Government.

New Families and Social Services Minister Anne Ruston said 630,000 pensioners — including 55,000 in South Australia — will benefit from changes to income tests on pension eligibility.

The changes, to so-called deeming rates, mean the Government will not assume retirees are earning as much income as they used to from their lifetime savings.

The move acknowledges that cuts to interest rates by the Reserve Bank to record lows has helped homebuyers and businesses but punished retirees.

“It will mean more money in the pockets of older Australians,” Senator Ruston said.

“Under the new rates, age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples, $1053 extra a year, and $31 a fortnight for singles, $804 a year.”

The extra payments take effect from September 20 but will be backdated to July 1.

Changes to the deeming rate will also benefit people receiving other income-tested payments including the disability support pension, the carer payment, and income-support allowances and supplements such as the parenting payment and Newstart.

Nearly 350,000 people receiving these benefits will also receive increases in their payments.

Senator Ruston, one of two South Australians in Cabinet, said that since becoming a minister she had “made it a priority to be thoroughly informed on this issue to make sure that any decision made on deeming rates was appropriate and reflected the current returns on financial investments”.

Advocacy groups for older Australians — especially National Seniors and COTA — have been lobbying hard for changes to income support for retirees.

National Seniors accused the Government of being unfair by demanding banks reduce mortgage rates in line with Reserve Bank cuts while not lowering deeming rates since 2015.

“It is disgraceful for the government to have gone to the election attacking the Opposition on the basis they were going to bring in a retiree tax and while they’ve been there for the last four years they’ve been having a pensioner tax by stealth,” National Seniors advocate Ian Henschke said last week.

COTA chief executive Ian Yates had also called for action.

“Every dollar counts when you’re on a full or part pension,” he said.

Opposition spokeswoman for Families and Social Services Linda Burney had accused the government of hypocrisy.

National Seniors and an alliance of groups has also been calling for pension payments and deeming rates to be set by an independent tribunal, similar to the Reserve Bank’s setting of interest rates and a remuneration tribunal setting MPs’ pay.

The Government has not moved on that suggestion but a fuller inquiry into retirement living is still pending.

To qualify for an age pension, retirees go through two tests by Centrelink — a test of their overall assets and a test of their ongoing income. The test that yields the lower rate of payment is applied to the pensioner.

No changes are being made to the assets test but the income test will be easier through deeming rate changes.

Pension payments start to reduce when singles earn $174 a fortnight and couples $308.

Deeming aims to make the income test simpler with pensioners telling Centrelink what their overall financial assets are without splitting into how much and when they received income from bank deposits, share dividends, super accounts, annuities, managed investments and so on.

Centrelink then deems, or assumes, the pensioner will be earning a certain percentage return on their overall financial assets and applies that as income earned for the income test, irrespective of what they actually earn.

There are two deeming rates.

The deeming rate of 1.75 per cent will be cut to 1 per cent on the first $51,800 of financial assets held by a single pensioner, and the first $86,200 held by a couple.

The second deeming rate of 3.25 per cent will be cut to 3 per cent. That rate applies to the balance of financial assets held by the pensioner.

The changes will cost about $600 million over the four years of the Budget’s forward estimates.

There is capacity to absorb the cost without losing a surplus, predicted at $7.1 billion this financial year by Treasurer Josh Frydenberg on Budget night in April.

The age pension is a burning, long-term issue for the public and the Federal Government.

We all know many retirees are doing it tough.

“The pension fails to provide a decent standard of living,” a Benevolent Society report says.

Pensioners were “turning off hot water in summer and blending food because they can’t afford a dentist”, it says.

In a wealthy, fair-go country, that’s not good enough.

However, warning lights in Treasury go off at suggestions of reform. The age pension is one of the biggest slices of federal spending. At $45 billion it was 10 per cent of the total in 2017-18, according to the Parliamentary Budget Office.

And it’s going to get a lot bigger. Over-65s will soar from 3.8 million now to 6.5 million by 2040, the Australian Bureau of Statistics says.

They’ll also be a bigger proportion of the population, supported by labour and taxes of the smaller proportion of working-age people.

Compulsory super, introduced in 1992, has led to new batches of retirees having bigger savings than in the past.

Bigger super balances will push more retirees into the zone where they qualify for only part of the age pension, rather than the full pension, because of their own savings.

Of 2.5 million now on the age pension, 25 per cent only get a part-payment because of income and 13 per cent because of assets.

Deeming rates will become increasingly important to individuals wanting to get more and Government wanting to keep spending under control.