The landscape of Australian social security is undergoing a significant shift as the long-standing freeze on deeming rates officially thaws. For several years, retirees and welfare recipients were shielded from the impact of rising interest rates by a government-mandated freeze designed to provide stability during economic uncertainty. However, as of March 20, 2026, the Minister for Social Services has implemented a “gradual reset” of these rates. While the word “hike” often triggers financial anxiety, understanding the mechanics of deeming is essential to navigating how these changes will filter through to your fortnightly bank balance and your broader investment strategy.
What Are Deeming Rates and Why Do They Matter?
Deeming is the method used by Services Australia (Centrelink) to estimate the income you earn from your financial assets. Instead of tracking every dividend payment or interest cent you actually receive—which would be an administrative nightmare—the government “deems” that your money is earning a specific percentage. This “assumed” income is then used to determine your eligibility for payments like the Age Pension, Disability Support Pension, or the Commonwealth Seniors Health Card. The critical factor to remember is that if your actual investments earn more than the deemed rate, the extra money is not counted against you, essentially rewarding savvy savers.
The 2026 Rate Adjustments: A Closer Look
Following a recommendation from the Australian Government Actuary (AGA), the government has increased both the lower and upper deeming rates. This decision reflects the reality that bank interest rates and investment returns have risen significantly since the pandemic-era lows. The goal of the adjustment is to ensure the social security system remains fair and accurately reflects the “reasonable” returns an average person can achieve without taking on excessive risk. The hike is being described as “measured” to avoid a sudden shock to those who rely heavily on government support.
New Deeming Rates (Effective March 20, 2026)
| Asset Threshold Category | Previous Rate (Until March 19) | New Deeming Rate (From March 20) |
| Lower Rate (First $64,200 for singles / $106,200 for couples) | 0.75% | 1.25% |
| Upper Rate (Assets above the threshold) | 2.75% | 3.25% |
| Threshold (Singles) | $64,200 | $64,200 (Unchanged) |
| Threshold (Couples) | $106,200 | $106,200 (Unchanged) |
The Impact on Part-Pensioners and Full-Pensioners
The group most sensitive to this change is part-pensioners who are assessed under the Income Test rather than the Assets Test. Because the government now “assumes” you are earning more from your savings, your calculated income will rise. Under the current rules, for every dollar of income over the “free area,” your pension is reduced by 50 cents. Consequently, some retirees may see a slight reduction in their fortnightly payments. However, for full-pensioners with very limited assets, the impact may be negligible, as they often fall well within the income-free thresholds regardless of the deeming percentage.
The Indexation “Cushion”: Balancing the Scales
The government has strategically timed the deeming rate hike to coincide with the regular March 20 indexation of social security payments. This means that while the deeming change might pull your pension down slightly, the standard cost-of-living increase (indexation) will be pushing it up. For many, these two forces will largely offset each other. For example, a single pensioner might receive a $22.20 boost due to indexation, which could cover most, if not all, of the “loss” triggered by the higher deeming rates. This “soft landing” approach is intended to protect the standard of living for the most vulnerable Australians.
Strategic Moves for Your Savings and Investments
With the upper deeming rate now at 3.25%, the financial incentive to ensure your actual returns exceed this figure has never been clearer. If your money is sitting in a low-interest transaction account earning 1%, you are effectively being “taxed” by Centrelink on income you aren’t even receiving. To mitigate the impact of the hike, many retirees are looking toward high-interest term deposits, high-yield savings accounts, or diversified portfolios that can reliably return 4% or higher. By outperforming the 3.25% benchmark, you keep the surplus income without it affecting your pension entitlement.
Looking Ahead: A New Era of Transparency
Perhaps the most significant change isn’t the percentage itself, but how it is decided. For the first time, the Australian Government Actuary (AGA) is providing independent, public advice on where these rates should sit. This shift toward a more transparent, evidence-based model is designed to remove political guesswork from the equation. While “gradual” remains the keyword for 2026, savers should prepare for a future where deeming rates more closely track the broader market, requiring a more proactive approach to managing personal wealth and government benefits in tandem.
FAQs
Q1 Does the deeming rate hike affect my family home?
No. Deeming only applies to “financial assets” such as bank accounts, term deposits, shares, and managed funds. Your principal place of residence is generally exempt from both the assets test and deeming rules.
Q2 Will I lose my Commonwealth Seniors Health Card?
It is possible. The Commonwealth Seniors Health Card (CSHC) is subject to an income test that uses deeming. If the rate hike pushes your “deemed income” above the annual limit, you could lose eligibility, though the government has recently increased these limits significantly.
Q3 What if my actual investment returns are zero?
Unless you qualify for a specific “deeming exemption” (usually reserved for failed investments or frozen funds), Centrelink will still apply the standard rates. They assume you have the choice to move your money to a better-performing account.
