C09/2001 CHANGE TO DEEMING RATE (JULY 2001)

DATE OF ISSUE:  22 JUNE 2001

CHANGE TO DEEMING RATE (JULY 2001)

Purpose

The purpose of this departmental instruction is to provide policy advice relating to a change in the deemed interest rates applicable to financial assets effective 1 July 2001.

Related Documents

This departmental instruction should be read in conjunction with the: Stateline, June Quarterly SI to SSO (All States) dated 19 June 2001; and Departmental Instruction, C06-2001, June 2001 Statutory Increase Advice Letter, Payment Summary and Medicare Levy Exemption Certificate Mailout date 21/06/2001.

JEANETTE RICKETTS

BRANCH HEAD

INCOME SUPPORT

Legislation

Division 3 of Part IIIB of the Veterans' Entitlements Act 1986 contains the rules relating to deemed income from financial assets. Section 46J of the Veterans' Entitlements Act 1986 provides that the below threshold rate and the above threshold rate are the rates applicable for the purposes of Division 1B or Part 3.10 of the Social Security Act 1991. Section 1082 of the Social Security Act 1991 provides that the Minister for Family and Community Services must determine the below threshold rate and the above threshold rate via disallowable instrument.

Determination

On 12 June 2001, the Minister for Family and Community Services determined that the deeming threshold rates should be reduced.  Social Security (Threshold Rates) Determination 2001 refers.  The determination varies the threshold rates for Division 1B of Part 3.10 of the Social Security Act. The disallowable instrument also revoked the Social Security (Threshold Rates) Determination 2000.

Announcement

The change to the deemed interest rates was announced by the Minister for Family and Community Services on 20 June 2001.

Revised Deeming Rates

From 1 July 2001 the: Below Threshold rate will reduce from  3.5% to 3.0%; and Above Threshold rates will reduce from 5.5% to 4.5%.

Deeming Thresholds

From 1 July 2001, the deeming threshold are being increased as follows: Not a member of a couple will increase from $31,600 to $33,400; Partnered Combined will increase from $52,600 to $55,800. This increase is due to annual indexation and has occurred separately to the Minister's determination in relation to the below and above threshold rates of interest applicable to the income testing of financial assets.

Impact

The combined impact of these changes for reduced rate income support pension recipients is an increase in pension.

Action

Changes to pension processing systems has been undertaken.  Changes to procedural and pensioner information such as FactSheets, Clik is currently underway. The advice letters that will be issued for the June Quarterly Statutory Increase reflects the new deemed income rates and thresholds.

Q&As	A modified version of Q&As prepared by the Department of Family and Community Services are set out at attachment A.

Attachment A

INFORMATION ON JULY 1 REDUCTION IN DEEMING RATES

Q1. What are the new deeming rates from 1 July 2001?

The lower deeming rate will be 3%, and the higher deeming rate will be 4.5%.  These deeming rates will apply as follows:

• 3% for the first $33,400 of total financial investments held by a single income support pensioner;
• 3% for the first $55,800 of total financial investments held by a pensioner couple;

Note: The $ figures above are the increased deeming thresholds from 1 July 2001.  The d — eeming thresholds are the maximum investment amount assessed at the lower deeming rate.

The deeming thresholds are indexed annually from 1 July in line with the cost of living.

Q2. What are the deeming rates and who decides them?

The deeming rates are used to assess income from financial investments for pension and allowance purposes.  The deeming rates are set by the Minister for Family and Community Services.

Q3. Why has the Minister for Family and Community Services (Senator Amanda Vanstone) decided to reduce the deeming rates?

Senator Vanstone advised that she took into account reductions in interest rates, and general decreases in the returns available to people from a range of widely available investments.

The deeming rates are used in place of actual returns to assess income for social security payments.  They therefore need to be realistic.

Q4. How will my pension payment be affected by the reduction in the deeming rates?

The reduction in deeming rates will cause increases in payments for most pensioners who currently receive a reduced payment under the income test.

The reduction in deeming rates will not affect payments to pensioners who currently receive a full pension.  This is because their assessed income will continue to be below the income test free area.

Q5. Why did the Minister for Family and Community Services (Senator Vanstone) choose 1 July as the date for the deeming rates reduction?

This date was chosen for the change in deeming rates because it coincides with other changes that automatically take effect from 1 July.  The other changes (in addition to the increase in the deeming thresholds) are cost of living increases in the income and assets test free areas.  This will increase payments to income support pensioners receiving a reduced payment.  It should be simpler for pensioners if all of these changes are made at the same time.

Q6. How much can I have in financial investments before my payment is reduced?

At the new deeming rates and thresholds, single or widowed pensioners whose only source of income is from financial investments can have up to $75,800 in financial investments and still receive the full pension under the income test.

Pensioner couples whose only source of income is from financial investments can have up to $134,100 in financial investments and still receive the full pension under the income test.

These amounts are lower for people with other sources of income.

Q7. I have some money in a deeming account.  Will the interest rate on this account change?

You would need to ask your financial institution.  This is because financial institutions decide the interest rates on the accounts they offer.  This includes the accounts that are often referred to as “deeming” accounts – because the financial institution has decided to pay interest rates that are generally based on the deeming rates.

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