Lend a helping hand

Retiree groups are calling for a fair go for the elderly, whom they say are losing out from interest rate cuts.

Retiree groups are calling for a fair go for the elderly, whom they say are losing out from interest rate cuts.

While most of the focus of the rate cuts by the Reserve Bank has been on the benefits to home buyers through lower mortgage rates, for those living off their savings, it is another story.

Not only are retirees earnings less on their savings in safe investments such as term deposits, but retiree groups say their members are being short-changed by the government because the "deeming" rates have not be changed for 2? years, while the interest rate paid by banks on cash deposits has fallen.

Those receiving means-tested Centrelink benefits, such as the age pension, are deemed to have earned a certain rate of interest on their money held in term deposits, shares and managed funds, regardless of the actual interest rates earned.

Deeming rates make the calculation of income from investments easy.

Historically, the deeming rates have always been a bit lower than retirees can actually earn on safe investments such as term deposits.

But while the Reserve Bank has lowered the official cash rate by 1.5 percentage points during the past year, the deeming rates remain unchanged from March 2010.

For a pensioner couple, the deeming rate is 3 per cent on savings up to $75,600 and 4.5 per cent on the amount above that. Government data from 2010, the latest available, shows age pensioners, on average, hold about $46,000 of deemed financial assets such as cash term deposits, shares and managed funds.

On average, investors were receiving 5.9 per cent on term deposits of $50,000 two years ago and are now receiving 4.55 per cent, data from RateCity shows.

The chief executive of National Seniors Australia, Michael O'Neill, says deeming rates need to be changed to reflect the changes in the market.

"It's time for the federal government to step up, match interest rate movements and lower social security deeming rates," he says.

The government has made a concession to pensioners by increasing the threshold at which the higher deeming rate applies. The threshold has been gradually increased to $75,600, from $70,000 in March 2010.

The effect of the higher threshold is that pensioners are able to earn an extra $5600 with a deeming rate of 3 per cent, rather than 4.5 per cent. However, that is a benefit of a little more than $50 and insufficient to compensate for the lower interest rates, says a director of the Association of Independent Retirees, Robert Curley.

"The call is for the government to lower the deeming rates to truly match what retirees are actually earning," he says.

Access to the age pension and the level of pension payments is governed by an income and assets test.

Curley suspects the government might be reluctant to lower the deeming rates because that would increase age pension payments to some pensioners and gain access to a part pension for retirees who do not qualify at present.

The deeming rate is also used for other means-tested government payments.

The Minister for Families and Community Services, Jenny Macklin, is responsible for setting the deeming rates used by Centrelink. A spokeswoman for Macklin says the government has increased the pension, introduced a new pension supplement, improved the seniors' work bonus and improved the indexation system.

The department has advised Macklin that returns equal to, or greater than, the upper deeming rate are available from financial institutions.

The spokeswoman says changes in official interest rates are just one of the factors taken into account when setting deeming rates.

Changes in deeming rates depend on the returns available from a range of investments, such investment accounts, shares and managed investments, not just term deposits, she says.

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