The landscape of Australian retirement planning is shifting as the Federal Government moves to adjust deeming rates for the first time in years. Deeming is a foundational element of the social security system, acting as a simplified way for Centrelink to estimate the income generated by a person’s financial assets. Rather than tracking every fluctuating dividend or interest payment, the government assumes your investments earn a set percentage. When these rates rise, the “assumed” income of a pensioner increases, which can subsequently trigger a reduction in fortnightly pension payments under the income test. For many, this adjustment marks the end of a long-standing freeze and introduces a new variable into already tight household budgets.
The Shift in Deeming Thresholds and Rates
Starting in March 2026, the Australian Government has confirmed a “step up” in these rates to reflect the reality of higher interest rates available in the current market. The lower deeming rate is set to move from 0.75% to 1.25%, while the upper rate will climb from 2.75% to 3.25%. This change follows a recommendation by the Australian Government Actuary, aimed at ensuring the social security system remains fair and sustainable. While the government emphasizes that these rates remain below historical averages, the jump represents a significant change for self-funded retirees and part-pensioners who rely on a delicate balance of private savings and public support to meet their daily needs.
Understanding the Financial Impact
The impact of a deeming rate increase is felt most acutely by those who sit just above the income test thresholds. For a single pensioner, the lower rate applies to the first $64,200 of financial assets, while for couples, it covers the first $106,200. Anything above these amounts is assessed at the higher rate. Because the government assumes you are now earning more from your bank accounts, shares, and managed funds, your total “assessable income” rises. If this new total exceeds the income-free area, your pension is reduced by 50 cents for every dollar over the limit (for singles). Essentially, even if your actual bank balance hasn’t grown, the paperwork says you are wealthier, leading to a smaller government deposit in your account.
Current and Revised Deeming Figures
To visualize how these shifts translate into real-world numbers, it is helpful to look at the transition from the previous “freeze” period to the new 2026 standards.
Balancing the Budget: Indexation vs. Deeming
There is a silver lining in this policy shift: the deeming rate increase has been timed to coincide with the regular March indexation of the Age Pension. Historically, when the cost of living rises, the base rate of the pension is adjusted upward to help seniors keep pace with inflation. For many, the boost from indexation—estimated to be around $22.20 per fortnight for singles in early 2026—will help offset the losses caused by higher deeming assessments. However, for retirees with substantial financial assets, the “deeming drag” might outweigh the indexation gain, resulting in a net loss of disposable income. This makes careful budgeting and asset management more critical than ever for those in the “part-pensioner” bracket.
The Role of Investment Strategy
In an environment of rising deeming rates, the “performance gap” becomes a vital metric for household financial health. If a retiree’s actual investment return is higher than the deeming rate, they are effectively ahead, as the excess income is not counted by Centrelink. Conversely, if a retiree keeps their money in low-interest accounts that return less than the 1.25% or 3.25% deemed rates, they are being “taxed” on income they aren’t actually receiving. This policy design encourages pensioners to shop around for better high-interest savings accounts or term deposits. However, advocacy groups have raised concerns that older Australians who are less digitally literate may struggle to access the best online-only rates, leaving them vulnerable to the negative effects of the increase.
Long-term Planning and Household Resilience
For the average household, a change in deeming rates necessitates a review of the “rainy day” fund and long-term draw-down strategies. With electricity, medical, and grocery costs continuing to climb, every dollar of the Age Pension is earmarked for essentials. Families may need to look at “asset-testing” vs “income-testing” to see which one currently determines their payment rate, as the deeming increase only affects those limited by the income test. Seeking professional financial advice or using the government’s FIS (Financial Information Service) officers can provide clarity on whether shifting assets—such as paying down debt or improving the primary residence—might improve a household’s pension eligibility.
Conclusion: Navigating the New Normal
The 2026 deeming rate increase is a clear signal that the era of pandemic-related financial freezes is over. While the government frames this as a return to “normalcy” and market alignment, the immediate effect on household budgets is undeniable. Success in this new environment requires a proactive approach: monitoring bank rates, understanding the threshold limits, and preparing for the minor fluctuations in fortnightly income. By staying informed and ensuring that actual investment returns at least match the deemed expectations, pensioners can better protect their purchasing power and maintain their standard of living despite the policy shifts.
FAQs
Q1. Will my pension automatically go down because of the deeming increase?
Not necessarily. If your pension is currently limited by the “Assets Test” rather than the “Income Test,” a change in deeming rates may have no impact on your payment. Additionally, the regular pension indexation in March may offset the deeming change.
Q2. What assets are actually subject to deeming?
Deeming applies to most financial assets, including bank accounts, term deposits, shares, managed investments, and even some gifts that exceed the allowable limits. It does not apply to your primary home or most personal assets like cars.
Q3. Can I get an exemption from deeming if my investments fail?
Yes, in specific cases such as “failed investments” where capital is frozen or legally inaccessible, you can apply for a deeming exemption through Services Australia so that only actual (or zero) income is assessed.
