With bank deposit rates at record lows it's good to see the Government giving ground on pensioner deeming rates.
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Last weekend it announced that the lower Income Test deeming rate would be cut from 1.75 to 1.0 per cent and the higher deeming rate from 3.25 to 3.0 per cent.
However the people lobbying for the change were campaigning on a minor issue and missed the main problem for most part pensioners.
If a part pensioner has an extra $1000 of savings over the relevant thresholds they were losing $16.25 per year of pension (62.5 cents per fortnight) under the old Income test deeming rules.
Under the new rules they will lose $15 per year (58 cents a fortnight).
However they continue to lose $78 per year of pension ($3.00 a fortnight) under the Assets Test taper rate. That's about five times more. Far more retirees have their pensions limited or cancelled due to the Assets Test than the Income Test.
For those receiving full pensions neither the deeming rate nor the Assets Test taper rate matter. Once they surpass both thresholds it's the Assets Test that cuts down their entitlement far more rapidly.
The beneficiaries of the deeming rate reduction will mainly be retirees who, in addition to their savings, have substantial income streams not derived from assets, such as government defined benefit pensions. The deemed income on their savings will be slightly less.
Many retirees remember well who is to blame for their Assets Test problem - none other than Scott Morrison, Prime Minister.
- Russell Tym
The actual investment earnings of many retirees are much more than their deemed earnings.
Only those retirees who continue to invest entirely in bank deposits are losing out due to the deeming rates.
Deeming applies to most investments, including retirement pension plans set up with superannuation benefits after 2014.
The actual earnings from balanced pension funds for the five years to June 30 have been about 7.0 per cent per annum after fees according to research firm Lonsec.
Even conservative funds have earned around 5.5 per cent net of fees. Those who invested in major company shares that achieved average returns earned 8.8 per cent per annum (ASX 200 Index).
Retirees who put money in funds investing in commercial property and overseas shares earned even more.
Many retirees remember well who is to blame for their Assets Test problem - none other than Scott Morrison, Prime Minister. When he was Minister for Social Services some years ago he doubled the taper rate from $39 per $1000 per year, or 3.9 per cent, to $78 or 7.8 per cent.
Those campaigning for fairer treatment for retirees should direct their efforts to reducing the taper rate so retirees are not forced to spend their capital to live.
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