Deeming Rate Changes 2025: What It Means For Your Age Pension

If you're one of the nearly 3 million Australians relying on some form of government pension, you've likely encountered the term "deeming rates." While it might sound like complex financial jargon, understanding its deeming rates meaning is crucial for anyone receiving or planning to receive the Age Pension. As we approach mid-September 2025, these rates are set for a significant adjustment, signalling a return to pre-pandemic financial landscapes and potentially altering your fortnightly payments.

This article will demystify deeming rates, explain the upcoming changes in 2025, and provide practical insights into how these adjustments could impact your Age Pension entitlement. We'll also offer actionable steps you can take to prepare for what's ahead.

Understanding Deeming Rates: What It Means For Your Age Pension Eligibility

At its core, deeming rates are Centrelink's method for calculating an assumed income from your financial assets. This isn't about what your investments actually earn – whether they're soaring with a 10% gain or dipping into negative territory – but rather a hypothetical rate set by the government. This 'deemed' income is then factored into your Age Pension Income Test.

To determine your Age Pension eligibility and payment amount, Centrelink assesses your overall financial situation using two primary evaluations:

The Assets Test: This looks at the total value of your assets (excluding your primary residence) and compares them against certain thresholds.
The Income Test: This assesses your total assessable income, which includes employment earnings, superannuation withdrawals, and importantly, your deemed income from financial assets.

Centrelink applies both tests and uses whichever one results in a lower pension payment. For many part-pensioners, particularly those with modest financial assets but a valuable family home, the Assets Test is often the primary determinant. However, for others, especially with higher financial assets, the Income Test and the associated deeming rates can significantly influence their entitlements.

What Assets Are Subject to Deeming?

Deeming rules apply to a range of financial assets that are typically expected to generate income. These include:

Bank savings accounts and term deposits
Most account-based pensions (allocated pensions)
Superannuation accounts once you reach Age Pension age (currently 67)
Direct shares, Exchange Traded Funds (ETFs), and managed investments

What Assets Are NOT Deemed?

It's equally important to understand what assets are excluded from deeming, as this can play a role in your overall financial planning:

Your family home (your primary residence)
Investment properties
Lifestyle assets such as your car, home contents, and caravans
Superannuation accounts if you are below Age Pension age

The crucial takeaway is that for deemed assets, Centrelink uses a predetermined interest rate, irrespective of your actual investment performance or the interest you might be drawing from an account-based pension. This ensures a consistent and equitable assessment across all pensioners, regardless of how they choose to invest their financial assets.

The Upcoming Shift: Deeming Rate Changes in 2025

For an extended period, particularly since 2020, deeming rates have remained frozen at historically low levels. This measure was introduced to provide financial stability to retirees during the initial economic uncertainty of the pandemic and has persisted despite rising cash rates in recent years. However, this period of low, stable rates is drawing to a close.

The Australian government has indicated a move towards gradually returning deeming rates to pre-pandemic levels as inflationary pressures ease. The first significant adjustment is slated for mid-September 2025. From this date, deeming rates for both single and couple pensioners will rise by 0.5%.

This isn't a one-off adjustment. The government has already signalled that further changes are likely, with the next potential increase pencilled in for March 2026. To put this into perspective, pre-pandemic deeming rates in 2018/19 ranged from 1.75% for lower thresholds to 3.25% for higher thresholds. The current rates are significantly lower, highlighting the magnitude of the shift now underway.

This gradual increase reflects a broader economic normalisation, moving away from the emergency settings that necessitated ultra-low rates. For pensioners, it means a need to reassess how their financial assets are viewed by Centrelink and the potential impact on their Age Pension.

How Will Rising Deeming Rates Affect Your Age Pension?

The direct impact of rising deeming rates is straightforward: a 0.5% increase means that the assumed income Centrelink attributes to your financial assets will be higher. This increase in your 'deemed income' could have several consequences for your Age Pension:

Reduced Fortnightly Payments: If your deemed income increases, it pushes your total assessable income higher under the Income Test. Once your income exceeds the allowable 'income free area', your Age Pension payment is reduced by a certain taper rate (currently 50 cents for every dollar over the threshold for singles, and 25 cents per dollar for each member of a couple).
Shift from Full to Part Pension: For those on the cusp of the full Age Pension, a rise in deemed income could push them over the threshold, moving them to a part Age Pension.
Loss of Eligibility: For individuals whose income is already close to the cut-off point for a part pension, higher deeming rates could mean losing their Age Pension entirely.

An Illustrative Example

Let's consider a hypothetical example to demonstrate the effect of a 0.5% increase. Suppose a single pensioner has $500,000 in financial assets that are subject to deeming. Under the current rates, their deemed income might be, for instance, approximately $10,042 per year (based on current thresholds of 0.25% for the first $60,400 and 2.25% for the remainder).
With a 0.5% increase across both tiers (meaning the lower rate rises to 0.75% and the higher rate to 2.75%):

The deemed income on the first $60,400 would increase by $302 (from $151 to $453).
The deemed income on the remaining $439,600 ($500,000 - $60,400) would increase by $2,198 (from $9,891 to $12,089).

This means an overall annual increase in deemed income of approximately $2,500 (from $10,042 to $12,542). This additional deemed income of $2,500 per year, or roughly $96 per fortnight, directly impacts their Age Pension. At a taper rate of 50 cents per dollar, this could lead to a reduction of around $48 per fortnight in their Age Pension payment. This figure aligns closely with the example from our source, which states that for $500,000 in financial assets, $12,500 will be counted under the new rates.

This example highlights that even a seemingly small percentage increase can translate into a tangible reduction in your Age Pension payments, impacting your overall retirement income.

Preparing for the Changes: Actionable Steps for Pensioners

While the deeming rates are set by the government, understanding their implications and proactively planning can help you manage your financial outlook. Here are some actionable steps:

Review Your Financial Assets: Take stock of all your financial assets. Clearly identify which ones are subject to deeming and their current value. This will give you a clear picture of the base on which deemed income is calculated.
Estimate the Impact: Use online calculators (Centrelink often provides these, or your financial planner can assist) to estimate how a 0.5% (or potentially higher, with future increases) rise in deeming rates could affect your specific situation. This foresight is invaluable.
Understand the Interplay with the Assets Test: Remember that Centrelink uses the test that results in the lower pension. If you're currently primarily affected by the Assets Test, the deeming rate changes might have less immediate impact unless your financial assets are substantial. However, if you're closer to the Income Test thresholds, the changes will be more pertinent.
Consider Your Overall Investment Strategy: While deeming rates don't care about your actual returns, your investment choices still matter for your overall financial health. If you're currently heavily invested in assets with very low actual returns (e.g., extremely low-interest savings accounts), it might be worth discussing with a financial advisor whether your asset allocation is optimal, keeping in mind both actual returns and Centrelink implications.
Seek Professional Financial Advice: This is arguably the most crucial step. A qualified financial planner specializing in retirement planning and Centrelink rules can provide tailored advice. They can help you understand the precise impact on your Age Pension, explore strategies to optimise your financial arrangements (within Centrelink rules), and ensure you're making informed decisions about your retirement income.
Stay Informed: The government has indicated further adjustments are likely in March 2026. Keep an eye on official Centrelink announcements and financial news to stay abreast of any new developments.

Conclusion

The upcoming deeming rate changes in 2025 mark a significant shift from the prolonged period of stability. Understanding the deeming rates meaning and how they interact with your Age Pension is essential for maintaining control over your retirement finances. While the rise of 0.5% might seem small, its cumulative effect on your deemed income can lead to tangible adjustments in your fortnightly Age Pension payments.

By taking proactive steps to review your financial situation, estimate the impact, and seek expert advice, you can navigate these changes confidently. Staying informed and prepared will empower you to manage your retirement income effectively and ensure you continue to receive your rightful entitlements.