Deeming rates are the rates used by the Australian Government to estimate how much income you earn from certain financial investments when assessing eligibility for the Age Pension and other income-tested payments.
Rather than looking at the actual income generated by your investments, Centrelink applies deeming rates to your financial assets and assumes those assets earn a set rate of income. The resulting deemed income is then used under the Age Pension Income Test.
Deeming rules can have a significant impact on Age Pension entitlements because they affect how income from savings, bank accounts, shares, managed funds, and similar investments is assessed.
How Deeming Works
Rather than assessing the actual income generated by every bank account, shareholding, managed fund, or investment product, Centrelink (Services Australia) applies deeming rates to financial assets and calculates a deemed income figure.
The deeming system uses a lower rate up to a specified threshold and a higher rate above that threshold. The Australian Government sets these rates and reviews them periodically, with current rates and thresholds published by Services Australia.
Once deemed income has been calculated, that figure is generally used under the Age Pension Income Test instead of the actual income produced by the investment.
This means two retirees with identical financial assets may be assessed as having the same level of income, even if their investments generate different returns.
Which Assets Are Subject to Deeming?
Deeming applies to a broad range of financial assets held by retirees and Age Pension applicants. These commonly include bank accounts, savings accounts, term deposits, shares, managed funds, cash management accounts, debentures, and certain account-based pensions.
For Centrelink purposes, these investments are generally grouped together as financial assets and assessed under the same deeming framework.
Not every asset is subject to deeming. The family home, for example, is not treated as a financial asset under the deeming rules, although it may be relevant under other parts of the social security system.
Deeming and Superannuation
How superannuation is treated depends on age and circumstances. For people below Age Pension age, superannuation held in the accumulation phase is generally exempt from Centrelink assessment.
Once a person reaches Age Pension age and becomes eligible for assessment, most superannuation balances and account-based pensions are treated as financial assets and are subject to deeming rules.
Certain account-based pensions that commenced before 1 January 2015 may continue to receive grandfathered treatment under previous rules. In these cases, actual pension income rather than deemed income may still be used for Centrelink purposes.
Because these arrangements can be complex, retirees often seek financial advice before making significant changes to pension structures.
Why Deeming Rates Matter
Deeming rates play an important role in determining how Centrelink assesses retirement income. Because deemed income is used in the Income Test, changes to deeming rates can influence Age Pension entitlements even when actual investment earnings remain unchanged.
The deeming system can also affect eligibility for benefits such as the Commonwealth Seniors Health Card and may influence broader retirement planning considerations, including income projections and superannuation drawdown strategies.
For retirees who rely partly on government benefits and partly on investment income, understanding how deeming operates is often just as important as understanding how their investments perform.
Deeming Rates vs Actual Investment Returns
One of the most misunderstood aspects of deeming is that it ignores actual investment performance.
For example:
- A retiree earning 2% interest on a savings account may still be assessed using the deeming rate.
- A retiree earning 8% from a share portfolio may also be assessed using the deeming rate rather than the actual dividend income.
This approach removes the need for Centrelink to continually monitor investment earnings and simplifies administration.
However, it also means Age Pension outcomes can differ from the income an investor actually receives.
How Deeming Affects the Age Pension Income Test
The income calculated under the deeming rules forms part of Centrelink’s Age Pension Income Test. Rather than assessing what your investments actually earned during the year, Centrelink generally uses the deemed income figure when determining whether your income falls within the applicable thresholds.
Because the Income Test operates alongside the Asset Test, Age Pension eligibility is not determined by deemed income alone. Centrelink applies both tests and generally uses whichever produces the lower Age Pension entitlement. As a result, understanding deeming rates is only one part of understanding how Age Pension eligibility is assessed.
Common Situations Where Deeming Becomes Important
Retirees Holding Large Cash Balances
Retirees who keep substantial savings in bank accounts or term deposits are often surprised to learn that Centrelink may not use the actual interest earned on those accounts. Instead, income is generally assessed using the deeming rules, which can produce a different result from the return being received.
Investors Moving Into Retirement
As people transition from employment into retirement, they often move assets between superannuation, investments, and cash holdings. These changes can alter how deemed income is calculated and may affect Age Pension eligibility or future retirement income projections.
Market Volatility
During periods of low interest rates or changing investment returns, actual earnings may differ substantially from deemed income. This can create situations where a retiree’s Age Pension assessment changes very little despite significant movements in investment returns.
Current Deeming Rates
Deeming rates and thresholds are reviewed periodically by the Australian Government and may change over time.
Because current rates can be updated, retirees should refer to Services Australia for the latest deeming rates and thresholds when assessing their Age Pension position or retirement income projections.
Frequently Asked Questions
What are deeming rates?
Deeming rates are government-set rates used to estimate income from financial investments for Centrelink purposes. The calculated deemed income is used in the Age Pension Income Test rather than actual investment earnings.
Do deeming rates affect the Age Pension?
Yes. Deemed income forms part of the Age Pension Income Test and can influence whether you receive a full or partial Age Pension.
Are bank accounts subject to deeming?
Yes. Savings accounts, transaction accounts, term deposits, and most other cash investments are treated as financial assets and are subject to deeming rules.
Is superannuation subject to deeming?
For most people who have reached Age Pension age, superannuation income streams and account balances assessed by Centrelink are subject to deeming. Certain account-based pensions that commenced before 1 January 2015 may still receive grandfathered treatment.
Does Centrelink use actual investment returns for the Income Test?
No. Centrelink generally uses deemed income rather than actual investment returns when assessing financial investments under the Income Test.
The Bottom Line
Deeming rates are a key part of how Centrelink assesses income from financial assets. Rather than using actual investment earnings, the government applies a standardised formula to estimate income for Age Pension purposes.
Understanding how deeming works can help retirees make sense of their Age Pension assessment and the interaction between investments, superannuation, and government benefits. If your retirement planning involves Age Pension eligibility, a licensed financial adviser can help model how deeming rates may affect your broader retirement income strategy.
Related glossary terms
Age Pension
Age Pension Asset Test
Age Pension Income Test
Related articles
Financial Advice in Australia: What It Is, How It Works, and Where to Start
When Is the Right Time to See a Financial Adviser in Australia? By Life Stage
What Does a Financial Adviser Cost in Australia?
How Much Super Can I Withdraw at Preservation Age?
Transition to Retirement Strategies Explained
