BY WEALTH ADVISER
Introduction: What Are Deeming Rates—and Why Should You Care?
Retirement security is a top priority for every Australian planning their later years. One of the most important but often overlooked rules influencing how much Age Pension you receive is the Government’s “deeming rate.” With changes to those rates coming in September 2025, taking the time to understand what they mean can make a real difference to your financial wellbeing.
Deeming rates are how the Government estimates the income earned from your savings and investments for the purpose of the Age Pension income test. Rather than checking the exact return on every account or asset, a standard rate is “deemed” across almost all financial assets. This process streamlines assessments, yet has practical consequences— especially as the rules change. The upcoming increase marks the end of a multi-year freeze and will impact retirees across Australia, making now the perfect time to get informed.
How Deeming Rates Work: Simple Rules, Big Implications
Deeming rates apply to a range of financial assets such as savings accounts, term deposits, listed shares, managed funds, superannuation (in certain circumstances), some account-based pensions, and bonds. The family home is excluded.
From 20 September 2025, there will be two main rates:
• The lower rate will rise to 0.75% (up from 0.25%), applied to the first $64,200 of assets for singles and $106,200 for couples.
• The higher rate will move to 2.75% (up from 2.25%), applied to asset value above those thresholds.
This means, for example, if a single retiree has $100,000 in savings and investments, the first $64,200 is “deemed” to earn 0.75%, and the remaining $35,800 at 2.75%. The total “deemed income” is added to other income streams (such as part-time work), and if it exceeds the income test free area, the pension is reduced.
The policy aims for fairness by treating all retirees similarly, regardless of where or how their money is invested. If your assets earn more than the deeming rate, you’ll keep the excess—if they earn less, the Government still uses the deemed figure.
Why Are Deeming Rates Changing in 2025?
For the past several years, deeming rates have been frozen, even as interest rates and the broader economy shifted dramatically due to the pandemic. This freeze protected Age Pensioners from increases in the cost of living and ensured their assessed incomes remained lower than actual returns for many.
From September 2025, rates are rising to more closely match current market conditions and returns available on savings and investments. This change means more income will be assessed for many retirees, which may reduce part or full Age Pension amounts—though the Government is also increasing pension payments to help offset rising living costs.
The Impact on Your Age Pension
How much retirees are affected depends on the size of their savings and investments, and how close they are to the income or asset test thresholds.
For retirees with modest financial assets, the change in rates might have only a minimal effect. However, those with significant savings or close to the pension cut-off could see their Age Pension reduced—sometimes by as much as $13 per fortnight for each extra $1,000 of income over the threshold.
To help offset these impacts, Age Pension rates themselves are increasing. From September 2025, the maximum rate for singles will increase by about $30 per fortnight, and for couples by $44.80 per fortnight. These boosts will apply automatically, but may not fully offset higher “deemed” incomes for everyone.
Practical Examples
Let’s see how the new rules could change things for two common situations:
Example 1: Single Retiree
• Has $80,000 in savings and investments.
• Under the new rates, their first $64,200 is deemed at 0.75%, and the remaining $15,800 at 2.75%.
• The resulting deemed income is added to any other income for the pension means test.
Example 2: Couple
• Joint assets of $120,000.
• First $106,200 deemed at 0.75%, remaining $13,800 at 2.75%.
• Both are assessed on their share, and the couple’s combined pension may be reduced if their income (real or deemed) is above the couple’s free area.
Why Does the Government Use Deeming Rates? Deeming rates offer several advantages:
• They simplify pension assessments and reduce paperwork for retirees.
• They reward prudent investing—if you earn above the deeming rate, you keep the difference.
• They ensure the system is fair by avoiding case-by-case assessments—and limit opportunities for manipulation.
However, there are downsides. When real returns are low, some may find they’re assessed as “earning” more than they actually receive. Others may see more of their income sheltered under the deeming system than would be possible if assessed individually.
Who is Most Affected—And Is the System Fair?
Not everyone is impacted equally. Those with investments that consistently outperform the deemed rate are effectively rewarded, while conservative investors may feel penalised. Still, simplicity and fairness were the aims of this reform in 1996, and feedback from pensioners is considered during major changes. The most significant impacts in 2025 will be for:
• Retirees with large financial asset holdings, especially if close to the income test caps for pension eligibility.
• Anyone depending on the minimum Age Pension whose deemed income now exceeds the threshold.
• Those with low-yield or defensive portfolios that may not keep pace with the increased deeming rate.
Overall, while the system isn’t perfect for everyone, it’s designed to give clear rules and treat similar cases alike.
For retirees with modest financial assets, the change in rates might have only a minimal effect. However, those with significant savings or close to the pension cut-off could see their Age Pension reduced—sometimes by as much as $13 per fortnight for each extra $1,000 of income over the threshold
What Can Retirees Do? Practical Steps to Stay on Track
With change comes opportunity. There are steps every retiree—or soon-to-be retiree—can take to maximise Age Pension and retirement income:
1. Review Your Financial Assets
Catalogue all relevant accounts and investments. Online calculators (such as from AMP, SuperGuide, and Services Australia) can help estimate new “deemed” income and potential pension amounts.
2. Update Your Details with Centrelink
Ensure all information is current—especially if you’ve recently closed, opened, or changed investments. Accurate asset reporting ensures you receive what you’re owed.
3. Consider Your Investment Strategy
While chasing returns just to beat the deeming rate isn’t always wise, a professional adviser can help you identify products (like annuities or special account-based pensions such as AMP’s Super Lifetime Boost) that may optimise your pension entitlement.
4. Factor in the Age Pension Increase
Calculate how much of the September 2025 pension increase will be offset by higher deemed income, and adjust your retirement budget if necessary.
5. Plan Ahead if Not Yet Retired
Even if you’re planning for retirement in a few years, familiarise yourself with asset and income test rules now and model different scenarios for your superannuation or investment holdings.
6. Seek Quality Advice
Every retiree’s situation is unique. A trusted adviser can help you navigate changing policy, understand the full impact of new rules, and take action proactively.
Coping with Future Changes
The only certainty in retirement planning is change. Governments adjust rules, economic conditions shift, and personal circumstances evolve. Keeping informed, planning ahead, and regularly reviewing strategies with an adviser can help you preserve wealth and peace of mind no matter how deeming, pensions, or other rules move in the years ahead.
Remember, the Age Pension is just one part of your financial future. Whether you’re aiming to maximise entitlements or simply avoid nasty surprises, a little preparation can go a long way.
References
• What are deeming rates and how 2025 changes could affect your retirement plans. AMP. (2025).
• Deeming rates (2025–26) and calculator for the Age Pension. SuperGuide. (2025).
• Deeming – Age Pension. Services Australia. (2025).
• Deeming rates are increasing. Services Australia. (2025).
• 4.4.1.10 Overview of deeming | Social Security Guide. Department of Social Services. (2025).
• Will a deeming rate change cost you? National Seniors Australia. (2025).
• Age Pension Increase from 20 September 2025. Yield Financial Planning. (2025).
• Age Pension – 4 major changes applying from 20 September 2025. SuperCentral. (2025).
