What are deeming rates for superannuation?

Deeming is a set of rules that are used by the government to estimate the income earned from investments in different financial assets. The underlying assumption is that financial assets earn a set rate of income, irrespective of the actual returns. 

Some of the financial assets where deeming is applicable include: 

• Term deposits and bank accounts
• Amount in a super fund during the accumulation stage not paying a pension
• Managed loans, investments, and debentures
• New account-based income streams like a pension
• Listed securities and shares

Deeming is a simple way to assess income from financial investments. All investments are assessed at the same rates, reducing the extent to which income support payments may vary when different people hold different financial assets. 

For example, if you invest $1000 in shares of Company A, while someone else invests the same amount in a term deposit, the same deemed rates are applicable if your age and situation are the same. 

If your investment generates higher returns than the deeming rate, the additional amount will not count as your income for the purpose of the income test. This means your age pension entitlements will not be affected by the performance of your investments. On the flipside, if the return you’re earning on an investment is lower than the deeming rate, the government may assume your income is higher than what it actually is while calculating your eligibility for age pension. 

As deeming rules assume the same rate of interest across a range of financial assets, it provides you with an incentive to choose high-performing investments that are best-suited to your needs without worrying about how your returns will impact your age pension. 

Deeming is used by the government to assess your income and determine how much pension you’re eligible to receive. 

There are two types of deeming rates; a higher deeming rate and lower deeming rate. The latter is applicable on the proportion of your portfolio amounting to the government-set threshold limit. All balance amounts exceeding this threshold are assumed to earn income at the higher deeming rate. 

The deeming rates for superannuation and other financial assets at the time of writing are as follows: 

• If you’re single: The first $56,400 of the assets is deemed at 0.25 per cent and any amount exceeding this limit is deemed at 2.25 per cent.
  
  
• If you’re a couple and at least one of you receives the pension: The first $93,600 of combined investments in financial assets is deemed at 0.25 per cent and all amounts over this threshold are deemed at a rate of 2.25 per cent.
  
  
• If you’re a couple but neither of you is eligible for a pension: The first $46,800 of each of your own and joint financial assets is deemed at 0.25 per cent. Any amount beyond this is deemed at 2.25 per cent. 

If the actual returns on your investments in financial assets exceed the returns calculated as per the deeming rates, the additional earnings are not included in your income. Based on actual market performance, the Department of Social Services sets the superannuation deeming rates and the deeming rates for other financial assets.

A super account is only considered a financial asset when you reach the qualifying age for the age pension or 60 if you’re eligible for a service pension. At this stage, the amount in your super is deemed to earn a certain income based on the balance as of July 1 every year. The deemed income is regardless of the actual payments you may be drawing from your super account as income. 

Deeming rates were offered to encourage pensioners to invest in high-return financial assets as many individuals were seeking to maximise their pensions by minimising the returns on investments. Investing in financial assets that offer higher returns when compared to term deposits and bank accounts is possible. It is recommended you consult a qualified financial adviser to discuss various available options and maximise your benefits.