How Deeming Works
Centrelink applies a two-tier system:
- Below the threshold: Your assets are deemed to earn 1.25% per year
- Above the threshold: The excess is deemed to earn 3.25% per year
This deemed income is then used in the Age Pension income test. If your deemed income (plus any other assessable income) exceeds the income free threshold, your Age Pension is reduced by 50 cents for every dollar over the threshold.
Example: Single with $400,000 in Financial Assets
Deemed income calculation:
- First $64,200 × 1.25% = $802.50
- Remaining $335,800 × 3.25% = $10,913.50
- Total deemed income: $11,716 per year
This $11,716 is added to any other assessable income (wages, rent, foreign pensions, etc.) and tested against the income test threshold to determine Age Pension entitlement.
What Assets Are Subject to Deeming?
Deeming applies to all "financial assets," which includes:
- Superannuation (account-based pensions)
- Bank accounts (savings, cheque, term deposits)
- Shares and managed funds
- Bonds and debentures
- Listed securities
Deeming does NOT apply to:
- Your family home (exempt from both asset and income tests)
- Income from employment
- Rental income from investment properties (assessed separately)
- Foreign pensions (assessed at actual amount)
- Some annuities and allocated pensions (special rules apply)
When Deeming Helps You
Deeming can work in your favor if your actual returns exceed the deemed rates:
Example: High Returns
You have $400,000 in super earning 8% per year (actual return: $32,000).
Centrelink deems this to earn only $14,496 (1.25% / 3.25% tiered).
Your Age Pension is calculated using the lower deemed income ($14,496), not your actual earnings ($32,000). You keep the extra $17,504 without it affecting your pension.
This is why deeming can be advantageous during bull markets or for investors with growth-focused portfolios.
When Deeming Hurts You
Conversely, deeming can disadvantage you if your actual returns are lower than the deemed rates:
Example: Low Returns
You have $400,000 in super in a conservative cash fund earning 2% per year (actual return: $8,000).
Centrelink deems this to earn $14,496.
Your Age Pension is reduced based on $14,496 of deemed income, even though you only actually earned $8,000. You're penalized for income you didn't receive.
This is a particular concern during low-interest-rate environments or for retirees in very conservative investments.
Run your own numbers
Use SuperCalc Pro to test your retirement plan with Australian super, Age Pension rules, and historical market stress tests.
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