Deeming is Changing – will this affect you?
Tuesday, June 10, 2014
Deeming is used to calculate a persons’ income in relation to their qualification for a Social Security aged pension, benefit or allowance payment.
Under the current Age Pension rules, if you own financial investments, such as shares and term deposits, and you plan to claim the Age Pension, then that ‘income’ calculated for the financial assets you own, under the Age Pension income test, is not the actual income earned on those investments. The income counted from financial investments when working out your eligibility for the Age Pension is known as ‘deemed income’. Deemed income is an assumed rate of return even when that rate isn’t necessarily what you actually earn on your investment. The idea is that deeming encourages you to earn more income from your investments and reduces the extent that your pension payments may vary.
From 1 January 2015, the current deeming rules will be extended to include superannuation account-based income streams so that long term income streams will then be classified as financial investments. This will mean at that point all financial assets will be assessed under the same deeming rules and superannuation account-based income streams will be included in the calculation of income which may affect the aged pension allowance.
The good news is, all products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change superannuation pension products. Superannuation pensions in place before 1 January 2015 will continue to be assessed under the current Age Pension income test rules for super pensions.
Certain ‘trigger’ events however could result in a pre Jan 1 2015 income stream being assessed under the new rules and include:
- you lose your entitlement to an income support payment
- your income stream is rolled over to another pension provider or fund
- two or more of your income streams are consolidated.
It is important to discuss these upcoming changes with a financial adviser and timely to review your current investment strategy and make any appropriate changes prior to January 1st 2015.
This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor