Helen Polley (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Human Services, Senator Ludwig. Can the minister please explain to the Senate why the government has lowered the deeming rates and what effect this will have on pensioners receiving payments through Centrelink?

Joe Ludwig (Queensland, Australian Labor Party, Manager of Government Business in the Senate) Share this | Link to this | Hansard source

I thank Senator Polley for the good question. The instability in the world financial markets has taken its toll on the investments held by Australian pensioners. The failure and diminishing value of investments affect both the income and the assets of Centrelink customers. The government are closely monitoring the global financial impact. We have taken a number of concrete steps to ease the financial pressure on pensioners. Recent decreases in the official interest rate to 5.25 per cent mean that the social security system needs to be adjusted to take account of the decreased returns on deposits or other investments. Deeming rates are set to reflect returns on investments available to pensioners and other income support recipients.

On 9 November 2008, Minister Macklin announced that the government will lower the social security deeming rates by one per cent. The changes will be delivered by Centrelink, as the primary service delivery agency for government that is responsible for payments of the order of $60 billion per year. The deeming rules are a central part of the social security income test and are used to fairly assess incomes for financial products. Deeming assumes financial investments are earning a certain amount of income regardless of the income they actually earn. However, as interest rates fall, the return available from cash based deposits will also fall as banks lower interest rates.

The government’s decision acknowledges that many pensioners and social security recipients who also rely on own-source income have been adversely affected by the global financial crisis. This is a simple and fair way to assess the income from investments and will reflect the recent reduction in interest rates and the impact of the global financial crisis. The deeming rates will be lowered from four per cent to three per cent for the first $41,000 of a single pensioner’s financial investments, or $68,200 for a couple, and from six per cent to five per cent for the balance over these amounts. This is good news for those Centrelink customers who are part pensioners.

As a result of these changes, less income will be assessed in respect of financial investments for Centrelink customers. Centrelink customers whose rate of payment is currently impacted by the amount of income they receive from financial investments will receive an increase in payment. The changes will come into effect from 17 November 2008 and will be applied to customers’ payments automatically. Customers do not have to contact Centrelink. These measures will apply to all payments, allowances and income support supplements paid by Centrelink and the Department of Veterans’ Affairs.

The lowering of the deeming rates means that part-rate pensioners paid under the incomes test with financial investments—mainly in term deposits, shares, managed investments and other accounts—may receive an increase in their pension payment to reflect the reduction in their assessable income. It also means that some self-funded retirees whose deemed earnings meant that they were ineligible for a part-pension now may be eligible. This may be the case where their deemed earnings previously placed them just above the allowable income limits. Again, individual results are heavily dependent on individual circumstances. Self-funded retirees who think they may fall within this group should contact Centrelink. They should not—and I encourage them not to—self-assess. Pensioners already paid the maximum rate will have no change to their pension payments. The government will of course continue to act decisively to maintain the integrity and fairness of the social security system in the face of the ongoing events in the financial markets and the wider community. (Time expired)

Helen Polley (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

Mr President, I have a supplementary question for the minister. What else is the government doing to help pensioners affected by the financial global crisis?

Joe Ludwig (Queensland, Australian Labor Party, Manager of Government Business in the Senate) Share this | Link to this | Hansard source

I thank Senator Polley for the supplementary question. It does bring us to what the government is also doing in this area. In light of recent declines in the value of shares and managed investments, the government has also instructed Centrelink to undertake a system-wide re-evaluation of all shares and other financial assets held by pensioners, to ensure that the new value of their holdings is used to determine the rate of pensions they receive. The re-evaluation took place on the weekend of 1 and 2 November, and pension payments were affected from 3 November. Market data from mid-October has been used to update these assessment values. It ensures that pensions take into account recent market fluctuations. The process has updated the records of more than 840,000 customers who receive a pension from Centrelink, most of whom are age pensioners. The Australian government has taken action to ease the financial pressure on pensioners whose investments have taken a hit from the global— (Time expired)