Plibersek axes Morrison-era deal to ringfence pensioner savings

Baby boomers’ pensions will be reduced as the Albanese government ends a three-year freeze and adjusts rates used to calculate how much retirees can earn on their cash investments before their payments are affected.

Social Services Minister Tanya Plibersek issued a statement on Tuesday afternoon during the government’s high-profile economic roundtable to reveal the end of a policy put in place by the Morrison government during the start of the COVID pandemic.

Under the change, the expected or “deemed” return on investments held by age pensioners – including self-funded retirees – will be lifted from 0.25 per cent to 0.75 per cent.

While the changes to individual age pensioners’ payments will vary based on their financial assets, the move comes as interest rates on savings accounts fall and is likely to enrage seniors who fought against sluggishly high deeming rates in 2019.

The three-year freeze ended on July 1, two months after the election.

Deeming is the process used by the government to calculate a uniform return on financial investments, such as savings accounts and term deposits, to simplify income rates when calculating pensions. Instead of requiring pensioners to provide their actual earned income on financial investments, a deemed rate is applied.

Current deeming rates, which Plibersek said had been kept “artificially low” since 2020, have remained well below real earnings from investments, inflating people’s pension payments.

She said the government kept this setting after the pandemic to “help shield age pensioners and other income-support recipients while the economy recovered”.

But bank deposit rates have lifted, largely in line with movements in the official cash rate, since the government put in place its deeming rate freeze.

While the Reserve Bank has cut the cash rate three times this year to 3.6 per cent, many banks are offering up to 4 per cent returns on term deposits holding more than $5000.

As of September 20, the base deeming rates will climb to 0.75 per cent for financial assets under $64,200 for singles and $106,200 for couples. All assets over those thresholds will be deemed to earn 2.75 per cent, an increase from the current rate of 2.25 per cent.

While the rates are increasing, they remain significantly lower than pre-pandemic rates of 3.25 per cent. In 2019, seniors advocates fought for a lowering of deeming rates which had remained steady for four years, despite falling interest rates cutting pensioners’ income from investments.

Plibersek signalled that deeming rates would continue to lift back towards their pre-pandemic levels.

“The social security system must be grounded in fairness, which is why we adjust supports as the economy changes,” Plibersek said.

“We’ll continue to make sure the system is there to support those who need it most, ensuring that everyone can make ends meet and no one gets left behind.”

The lift in the deeming rate will benefit the federal budget, as the government will pay out less in the age pension which is the single largest federal welfare payment.

The change to deeming rates coincides with increases to the aged pension, with the fortnightly base rate for singles increasing by $29.70, and couples increasing by $22.40 each. Other government benefits including JobSeeker and Commonwealth Rent Assistance will also be raised.

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