Deeming Rules and How They Affect Your Age Pension

What Are Deeming Rules?

Deeming rules are used by Services Australia (Centrelink) to calculate how much income your financial assets are assumed to earn — regardless of what they actually earn. This deemed income is used in the Age Pension income test to determine your pension rate. The purpose of deeming is to ensure that pensioners cannot increase their pension by arranging their investments to produce low or no income.

How Deeming Rates Work

The government sets two deeming rates — a lower rate applied to the first portion of your financial assets, and a higher rate applied to the portion above the threshold. The thresholds and rates are reviewed regularly (usually in March and September). For example, the first $60,400 of financial assets for a single pensioner might be deemed at 0.25%, and amounts above that at 2.25%. These rates change over time based on economic conditions. Check the Services Australia website for current rates.

What Assets Are Deemed?

Financial assets subject to deeming include bank accounts, cash, term deposits, shares, managed funds, bonds, and superannuation once you reach Age Pension age. Your home is not counted as a deemed asset. If you have a superannuation pension or annuity, different rules may apply depending on the product type and whether it is classified as a financial asset for deeming purposes.

How Deeming Affects Your Pension

The deemed income is added to any other income you receive (such as part-time work) to calculate your total income under the income test. If your total deemed income exceeds the income-free area, your Age Pension is reduced by 50 cents for every dollar over the threshold. If you have significant financial assets, the reduction can be substantial. The assets test may also apply independently.

What to Check in Your Advice Document

If you are approaching Age Pension age, your SOA, ROA, or CAR should address how deeming rules affect your retirement income strategy. Your adviser should explain how different asset allocations, account-based pensions, and spending strategies interact with the deeming rules. Simply minimising declared income without considering deeming may not achieve the intended result.

How Deeming Rules Work

Deeming is a set of rules used by Services Australia (Centrelink) to calculate the income from your financial investments for Age Pension purposes. Instead of using the actual income your investments earn (which can vary and be manipulated), deeming assumes your financial assets earn a set rate of return. This applies to financial assets such as bank accounts, term deposits, shares, managed funds, and superannuation (once you reach Age Pension age).

The deeming rates are set by the government and are adjusted periodically to reflect the economic environment. There are two deeming rates: a lower rate applied to the first threshold amount of financial assets, and a higher rate applied to amounts above the threshold. For 2025-26, the lower deeming rate is 0.25% and the higher rate is 2.25%. The threshold is $60,400 for a single pensioner and $100,200 for a couple combined.

Impact on Age Pension Entitlements

Deeming can work for or against you depending on your investment strategy. If your investments earn less than the deeming rate (such as cash in a low-interest bank account), the deeming rules may attribute more income to you than you actually receive, potentially reducing your Age Pension. Conversely, if your investments earn more than the deeming rate (such as growth-focused managed funds), the deeming rules may attribute less income, potentially increasing your pension.

This creates opportunities for strategic asset allocation. Pensioners who hold growth assets with higher total returns but lower income distributions (such as Australian shares with fully franked dividends or growth-focused ETFs) can achieve better overall outcomes than those holding cash or term deposits, because the deeming rate may be lower than the actual total return. Your adviser should model these effects as part of a comprehensive retirement income strategy.

Exempt Assets and Planning Opportunities

Certain assets are exempt from deeming, including your primary home, most personal effects and household contents, and specific funeral investments. Some special assets like the principal place of residence of a severely disabled person are also exempt. Understanding which assets are exempt can help structure your investments to maximise Age Pension entitlements.

Strategies to optimise Age Pension under deeming rules include: using the primary home exemption (which is not subject to deeming), considering mortgage offset accounts (which reduce assessable financial assets), and carefully timing withdrawals from super. However, the superannuation reforms mean that once you reach Age Pension age, your super balance is assessable under deeming if you are in accumulation phase, or under actual income rules if you are in pension phase — each has different effects.

Frequently Asked Questions

Does deeming apply to my superannuation?
Yes, if you have reached Age Pension age. Your super balance is counted as a financial asset under the assets test, and the deeming rates are applied to calculate the income from your super. This applies whether you are still working or fully retired.

What is the difference between deeming and actual income assessment?
Under actual income assessment, Centrelink uses the real income your investments produce. Under deeming, a set rate is applied regardless of actual earnings. Account-based pensions from super are assessed under actual income rules (not deeming), but a minimum amount is assumed even if you draw less.

Can I avoid deeming by putting my money into super?
Once you reach Age Pension age, your super is still subject to deeming (if in accumulation) or actual income rules (if in pension phase). Simply holding money in super does not exempt it from the Age Pension means test, though the treatment differs between accumulation and pension phase.

Does deeming apply to the Age Pension assets test or income test?
Deeming is part of the income test for Age Pension. Your financial assets are also assessed under the assets test separately. You are assessed under both tests, and the lower entitlement applies. A comprehensive strategy addresses both tests simultaneously.