Aged hit by pension changes to deeming tax
PENSIONERS may never fully recover losses made during the global financial crisis and have “every right” to be outraged if their benefits are cut because of an increase in the deeming rate for investments.
Aged-care advocates hit back yesterday at news that the government would revise the pension deeming rate because of Australia’s strengthening economy, saying that many part-pensioners were already doing it tough due to massive cuts to their superannuation and investments during the financial downturn.
“Some of these people lost up to 50 per cent of their investments, and the reality is, due to their age, they will never see it regained during their lifetime,” said Anne-Marie Elias from the Council of the Ageing in NSW.
The deeming rate, currently set at a maximum of 3 per cent, is the interest rate pensioners are assumed to earn on investments and is used to calculate their income and how much pension they get.
However, hundreds of thousands of part-pensioners expecting a rise this week of up to $29 a fortnight for singles could instead face a cut of up to $50 because the deeming rate is to rise to 4.5 per cent.
Ms Elias said many of these “rises” would never reach the pockets of pensioners as banks “would not necessarily” pass on interest rate increases.
“The reality is a $50 cut could make a huge difference (to pensioners) . . . most of them aren’t, by any means, wealthy and are on a fairly tight budget,” Ms Elias said.
The chief executive of Aged and Community Services Australia, Greg Mundy, echoed Ms Elias’s comments, saying the government needed to reassess to what extent interest rate rises were being passed on.
“They need to routinely check they are setting the rate right,” he said.
“If the government has the policy setting wrong, then of course pensioners have a right to be very angry.”
Pensioners may be worse off despite rise
Pensioners will still get more money later this month despite a rise in the pension deeming rate, the federal government says.
Families and Community Services Minister Jenny Macklin said the new pension deeming rate would still be lower than when the Labor government came to office.
“When the Budget pension rise and indexation are taken into account, single pensioners on the maximum rate are up to $100 a fortnight better off than they were in August last year,” she said in a statement on Saturday.
Pension increases come into effect on March 20, with a single person on the top rate receiving an extra $29.20, taking it up to $701.10 a fortnight, and a couple on the top rate receiving an extra $44, taking their pension to $1057 a fortnight.
But the government has also lifted the deeming rate, again with effect from March 20. That’s the nominal interest rate used to calculate earnings on pensioners’ investments under the income test.
The lower deeming rate will increase from two to three per cent for investments up to $42,000 for single pensioners or $70,000 for a couple.
The rate will increase from three per cent to 4.5 cent for balances over these amounts. These rates apply, even if the actual return is much higher.
The Weekend Australian newspaper on Saturday reported that pensioner advocates were warning that many of the 700,000 part-rate pensioners would be worse off.
That was because they would be caught between the cut in the pensions and the failure of banks to pass on rising interest rates for cash deposits, it said.
Ms Macklin said pensioners, like all Australians, understood rates of return moved up and down, and the bank term deposit interest rate now stood at around six per cent.
Prime Minister Kevin Rudd said the government was implementing the single biggest increase in the aged pension in the scheme’s 100-year history.
“We are proud of that fact that we’re able to increase the single aged pension by such a large amount in last year’s budget,” he told reporters.
But Opposition Leader Tony Abbott said pensioners would feel ripped off as the government was giving with one hand and taking with the other.
He said the problem was that government policies were putting artificial upwards pressure on interest rates.
“If the Rudd government wasn’t engaged in this spending spree, we wouldn’t have the impact on interest rates and we wouldn’t have pensioners having a pension increase on the one hand and a pension cut on the other hand,” he said.
Millions of pensions about to be hit by rate rises
- From: The Australian March 13, 2010
Pension rise hit by rate rises -report
Pensioners expecting a pension rise may face a cut due to the govt’s belief in the economy’s strength.
Pensioners expecting a pension rise may face a cut due to the govt’s belief in the economy’s…
HUNDREDS of thousands of pensioners expecting a pension rise next week may instead face a cut because of the Rudd government’s belief in the strength of the economic recovery.
Millions of Centrelink notifications of the government’s pension rise of $29 a fortnight for single pensioners and $44 a fortnight for couples from March 20 are being sent out.
However, pensioners are discovering their payments may be cut back by as much as $50 a fortnight because the income from investments and interest on cash deposits are estimated to rise.
Pensioner advocates warn that many of the 700,000 part-rate pensioners will be worse off because they will be caught between the cut in the allowances and the failure of banks to pass on rising interest rates for cash deposits, The Weekend Australian says.
Community Services Minister Jenny Macklin last weekend announced the pension rises promised in the budget last year but also lifted the interest rate to calculate earnings on pensioners’ assets from a maximum 3.0 per cent to 4.5 per cent.
“As the economy recovers from the global economic crisis, rates of return on investments are also beginning to increase,” she said.
“As a result, the deeming rates, which are used to assess income from a range of financial investments held by pensioners and other income-support recipients, will also increase on March 20 from the record low levels during the global financial crisis.”