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Home Features Pensions and asset deeming: the real reform needed
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TAGS Pension, asset deeming, federal budget
Reform of asset deeming must go beyond recent changes proposed by the government. It’s a modest budget saving and doesn’t ensure the pension goes to those who need it most.
Most of the 530,000 income support recipients who will be hit by proposed changes to asset deeming in the federal budget will be those with a moderate amount of assets. Those at the top end of town will be left largely unscathed.
For the age pension in particular, deeming is a very important — though little understood — aspect of Australia’s income support system. Deeming essentially assumes (deems) a set rate of return on pensioners’ financial assets. This deemed income is then means-tested along with other forms of income, thereby reducing pension entitlements.
Under the current regime, the first $48,000 of a single age pensioner’s assets are deemed to earn a return of 2%, while assets beyond this are deemed to earn 3.5%. The government proposes moving the threshold down from $48,000 to $30,000.
The deemed return is considerably lower than the returns pensioners would receive on investments in financial markets. Deeming therefore reduces the impact of the income means test, raising pension payments and widening pension eligibility beyond what it would be if the actual income that were earned were means-tested.
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Matthew Taylor is a research fellow in the economics program at The Centre for Independent Studies. He has previously worked for a number of universities and government agencies.
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