Age Pension payment changes

The Federal Government has announced changes to Age Pension payments from 20 September 2025, including a lift on the previously frozen deeming rates by 0.5% and an increase to the Age Pension of up to $29.70 for singles and $22.40 each for couples.

It comes as the Federal Government adjusts deeming rates to better reflect the returns older people receive for their investments. In a win for common sense, the Minister for Social Services, Tanya Plibersek, has listened and only modestly increased deeming rates in the short term.

Deeming rates only affect the Age Pension Income Test. It is an estimation of the income that a pensioner could receive from their savings and investments, regardless of how they are invested.

As an example, even if a pensioner puts all their cash in a savings account and earns no interest from it, Centrelink assumes that money could earn a certain amount of income, which determines the amount of pension they receive under the income test.

The benefit of deeming rates is that it avoids pensioners having to constantly report earnings and encourages them to put their savings into an investment that earns a higher rate of return. So, putting it in a no-interest savings account is not generally a good idea, but having it in higher yielding investments, like super, could provide a better outcome overall because deeming rates are generally lower than the returns from this type of investment. 

Historically, when interest rates increased, deeming rates increased accordingly. This reduced the amount of pension someone was entitled to. 

But when the freeze on deeming rates occurred, interest rates skyrocketed. This was a good thing—it shielded many pensioners from cost-of-living pressures because their payments did not fall in line with rising interest rates and investment returns.

An investment-savvy pensioner during this time could have seen their financial investment earnings grow more than Centrelink’s deeming rates as well as keeping more of their pension payments.

But an end to the freeze poses a sticky political problem for the Federal Government. Given the current cash rate has risen to around 3.5%, an abrupt end to the freeze would substantially increase deeming rates, clawing back billions from age pensioners, but that’s billions pensioners would no longer receive in their Centrelink payments.

In June this year, Minister Plibersek signalled that the Federal Government would review deeming rates. Seniors’ organisations, such as National Seniors Australia (NSA) and COTA, took the opportunity to meet with the minister to argue that any dramatic increase would see a sudden fall in pension payments with a distressing impact on pensioners.

NSA told the minister now is not the time to radically increase deeming rates. We argued that a slow and steady approach, combined with transparency in setting new rates, is needed to avoid unintended consequences.

“Any change to deeming rates should be introduced in a measured, incremental, and transparent way. We don’t want a situation where older Australians, struggling under cost-of-living pressures, are hit harder,” Mr Grice said.

While we appreciate the budget pressures on the Federal Government, we believe that any transition must be handled carefully to avoid unnecessary hardship on pension recipients who could face declines in payments at a time that living costs remain high.

Despite what is being said in the media, the impact of lifting the freeze won’t just be felt by the 475,000 income tested pensioners. It will also be felt by full-rate pensioners who may become part-rate pensioners, many for the first time.

We were relieved when the minister announced that deeming rates will only rise by 0.5% when pension is indexed on 20 September, but there is still concern about the next steps given that
interest rates remain stubbornly high.

The current method of adjusting deeming rates is neither simple nor transparent. NSA wants a simpler approach to setting the rates. It should ideally be linked to changes in the RBA cash rate which largely reflect the returns available for investments.

This will ensure Australians know the pension is fair and adequate and that arbitrary changes are not being made at the expense of pensioners’ living standards.

NSA referred the following principles to the minister, as a fair way to adjust deeming rates as the freeze is lifted, to minimise the impact on pensioners:

• The Federal Government should avoid a radical change by lifting the freeze and applying the old method for setting deeming rates. As the graph below shows, there will be significant impact from a reset of deeming rates using the old method. The only practical solution is to provide a rational transition to a new method.
• To facilitate this, the government could consider increasing the above threshold rate (ATR) in a stepped approach to coincide with pension indexation. This should only be considered if indexation resulted in a commensurate increase in payments. 

Based on the latest projections from Westpac, we expect that the RBA cash rate will reach 2.85% by May 2026, meaning the cash rate and the upper threshold would be more closely aligned by this time. 

The minister has asked the Government Actuary to provide advice about how deeming rates should be set. Before this occurs, we need to first understand where pensioners savings are invested and for the government to have an open and transparent conversation with advocates and the community about this.

Once the above occurs, the government should then set out a clear and simple method for setting deeming rates in the future and put this out for consultation. Ideally, in our view, this should use the following parameters:

• ATR should be set as a relationship with the RBA cash rate and move up and down with the RBA cash rate. The RBA cash rate is easily understood by the general public as impacting on investment returns.
• Below threshold rate (BTR) could be calculated as a percentage of the ATR. This will ensure that the ATR does not fall below zero and limits the impact on low-income/wealth full-rate pensioners, who are at risk of shifting to a part-rate pension. 
• Deeming rates should ideally be revised every March and September in line with indexation. 

These include ASX shares, international shares, bonds, cash at the bank, and some superannuation income streams. Some financial assets, like investment properties, are not subject to deeming rules. Instead, you simply report the net rental income.

According to the Department of Human Services, by treating all financial investments the same, deeming rules:

• Encourage people to choose investments on their merit rather than on the effect the investment income may have on the person's pension entitlement
• Provide an incentive to invest in higher return investments, as any interest rate achieved above the deeming rates doesn’t count as income
• Create a simple way to assess income from financial assets, increasing predictability and reducing fluctuation in payments. 

From 20 September 2025: 

• The first $64,200 of your financial assets will be deemed to earn 0.75%
• Anything over $64,200 will be deemed to earn 2.75%.

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