Deeming Rates !

Part of the process of gaining the aged pension is having the applicants assets valued by Centrelink.  Those assets may consist of shares bought on the stock exchange, property or money held in the bank.  By rule of thumb those assets are deemed to be earning some sort of return for their owner and the government simply assesses that return by applying the " deeming rate "  to the value of the assets held by each pensioner.

In the present interest rate climate, this deeming rate is above the reality experienced in the market place.   The deeming rate for singles is presently 3.25% for assets over $ 51,200 and 1.75 % for assets below that level.  The Reserve Bank of Australia has just adjusted interest rates downward and there are indications that it still has further to fall.   This deeming rate has been unchanged since 2015.

At present, most financial institutions pay no interest at all on account balances below one thousand dollars and rates inch slowly upward until they pay just 2.55 % for holdings of at least $ 50,000.  Age pensioners are entitled to earn $ 168 a fortnight before their pension is affected.

It is even worse for part pensioners.  Many people who received a modest superannuation payout receive a part pension because of the value of their assets and because of this deeming anomaly they are punished by  having their income over valued.  All the indications are that interest paid on money held in bank deposits will fall further if the predictions of the Reserve bank become reality.

In the present interest rate climate, that 3.25% deeming rate is unachievable and its application heavily favours the government.  Pressure is building to place administration of the deeming rate in the hands of the Reserve Bank of Australia.   They meet on the first Tuesday of each month to set the interest rate for the nation and it would seem appropriate that this should also be where the decision on the deeming rate would be most appropriate.

Economists are expressing alarm at Australia's ever expanding consumer debt and it is evident that the old mantra about the benefits of saving money no longer applies.   The banks used to shower school kids with money boxes and promote savings clubs, but today they refuse to even count the change saved and are more likely to charge a fee for keeping an account open than pay interest on the savings.

The interest charged for borrowing money is calculated on the risk involved.   The lowest interest is where the loan is secured by a tangible asset and mortgage interest rates fit that bill.  The asset is the house and land secured as collateral for the loan.    The interest charged on credit card purchases is higher because there is no tangible collateral and repayment is entirely reliant on the integrity of the card holder.   Really high interest applies to what are termed " Pay day " loans which force some people to borrow to make ends meet week to week.  As the risk factor rises, so do the interest rates charged.

Fairness will not be achieved for pensioners until the deeming rate equates with reality.  The spotlight will be centred on the deeming rate until that is achieved.