Why Your Actual Investment Income May Not Matter to Centrelink
Many retirees are surprised to learn that Centrelink often doesn’t care how much income their investments actually earn.
Instead, Centrelink applies a system known as deeming, using Centrelink deeming rates to estimate income from financial assets.
Whether your bank account earns 1%, 5% or 10%, Centrelink may assess your income using a completely different figure when determining your Age Pension entitlement.
Understanding how deeming works is essential for retirees, particularly those holding cash, term deposits, managed funds, shares and other financial investments. For many Australians, understanding deeming is an important part of broader retirement planning.
A misunderstanding of the deeming rules can lead to confusion about Age Pension entitlements, investment decisions and retirement income strategies.
What Are Centrelink Deeming Rates?
Deeming is a method used by Centrelink to estimate the income earned from certain financial investments.
Rather than assessing the actual income you receive, deeming assumes income from your financial assets earns a set rate of income, with that deemed amount worked out using a prescribed rate of return known as a deeming rate.
This deemed income is then used under the Age Pension income test.
In simple terms:
Centrelink assesses what it believes your investments should earn, not necessarily what they actually earn.
Why Does Centrelink Use Deeming?
The deeming system was introduced to simplify the Age Pension assessment process and encourage retirees to make investment decisions based on their needs rather than purely on Centrelink outcomes. Investment decisions should generally align with long-term retirement objectives rather than pension outcomes alone.
Without deeming, Centrelink would need to continually monitor:
Interest received
Dividend payments
Managed fund distributions
Investment returns
Deeming creates a standardised approach that applies broadly across financial investments.
What Financial Assets and Investments Are Subject to Deeming?
Common assets subject to deeming include:
Bank accounts
Savings accounts and term deposits
Cash management accounts
Listed shares and securities
Managed investments
Listed investment companies
Account-based pensions commenced after 1 January 2015, with some superannuation fund balances included under certain conditions
Bonds and debentures
For Centrelink purposes, these are assessed as financial assets.
How Do Deeming Rates Work?
Centrelink applies two deeming rates:
5.1 Lower deeming rate
A lower rate is applied to the first tier of investments, and the current deeming rates set this at 1.25%, including the first $64,200 for singles and the first $106,200 of combined financial assets for couple pensioners.
5.2 Higher deeming rate
A higher rate is applied to any balance over the relevant threshold, and the higher deeming rate is currently 3.25%, so assets over $64,200 earn 3.25% deemed income.
The thresholds differ depending on whether you are single or assessed on joint financial assets.
While rates and thresholds can change over time, the current deeming rates have been frozen since July 2022.
Lower Deeming Rate
Applied to financial investments up to a certain threshold.
Upper Deeming Rate
Applied to financial investments above that threshold.
This means the first portion of your investments is deemed at a lower rate, while the balance is deemed at a higher rate.
The thresholds differ depending on whether you are:
Single
A member of a couple
Because deeming rates and thresholds can change over time, retirees should ensure they are working with current figures.
Example: How Deeming Works
Assume Peter is single and has:
$300,000 in financial investments
Savings accounts
Term deposits
Managed funds
Centrelink does not examine the actual income generated.
Instead, it applies the relevant deeming rates to calculate deemed income from Peter’s financial assets. The government assumes those assets earn the applicable deemed rates regardless of the actual investment return.
If Peter’s investments earn:
1% interest
4% interest
8% investment returns
Centrelink’s income assessment may remain exactly the same.
This often surprises retirees who assume lower investment returns will automatically increase their Age Pension.
What Happens If Your Investments Earn Less Than the Deeming Rate?
This is where many retirees become frustrated.
If your investments earn less than the deemed rate, you still won’t get extra pension support because Centrelink may assess a higher fortnightly income figure for pension purposes.
The reverse can also happen: if your investments earn more than the deemed rate, the extra return usually does not reduce your pension any further because only the deemed amount is counted.
Example
Margaret keeps $500,000 in a low-interest savings account earning 1%.
Her actual income is:
$5,000 per year
However, Centrelink may deem her investments to earn significantly more than this.
As a result:
Centrelink assesses a higher income figure.
Age Pension entitlements may be reduced. Many retirees underestimate how retirement income and Centrelink outcomes interact.
Actual income received may be substantially lower than deemed income.
What Happens If Your Investments Earn More Than the Deeming Rate?
The opposite can also occur.
If your financial investments earn more than Centrelink’s deemed amount, the extra return is generally yours to keep. Additional investment earnings do not increase the assessed income or count as other income under the pension assessment.
Example
John has:
$500,000 invested in diversified investments
Average returns of 8%
His actual income exceeds Centrelink’s deemed income assessment.
In this case:
Centrelink still only applies the deemed income amount.
Additional investment earnings do not increase the assessed income.
This can be a significant advantage for some retirees.
Why Deeming Matters for Age Pension and Retirement Planning
Many retirees make investment decisions based on perceived Centrelink outcomes.
However, because of deeming, deeming rates important to understand because they affect Age Pension eligibility and age pension payments:
Moving from shares to cash may not improve Age Pension entitlements in every financial situation.
Lower investment returns do not automatically increase pension payments or reflect your future income.
Investment choices should be based on broader financial goals.
Changes in current deeming rates can significantly affect pension income, and some pensioners may lose income if rates increase after the freeze.
This is one reason why retirement planning should consider both:
Centrelink outcomes
rather than focusing on one in isolation.
Deeming and Account-Based Pensions
Many retirees assume account-based pensions receive special treatment, but for income support assessments under the Age Pension income test they may be treated as financial assets.
For pensions commenced after 1 January 2015, account-based pensions are generally subject to deeming under the Age Pension income test. Understanding what happens to superannuation at retirement is equally important.
This means:
Pension withdrawals are not assessed as income.
The underlying account balance is deemed instead.
This change significantly simplified Centrelink assessments but also changed the way many retirement income streams are treated.
Common Mistakes Retirees Make
Holding Excess Cash
Many Australians make retirement planning mistakes by focusing solely on Centrelink outcomes. For example, many retirees move substantial amounts into cash because they believe lower returns will improve their Age Pension position.
Because of deeming, this strategy often fails to produce the expected outcome.
Focusing Only on Centrelink
Maximising Age Pension entitlements is important, but it should not come at the expense of long-term investment performance and retirement sustainability.
Not Reviewing Asset Structures
The way investments are held can affect both:
The income test
The assets test
Comprehensive advice often identifies opportunities that are not immediately obvious, but the best structure depends on your individual circumstances and broader circumstances.
Deeming and the Assets Test
It’s important to remember that deeming only affects the income test.
Your investments are also assessed under the assets test. Your family home is generally exempt from the assets test.
Centrelink generally applies whichever test produces the lower Age Pension entitlement.
As a result, retirees need to understand both tests when assessing potential pension outcomes.
Why Professional Advice Can Add Value
The interaction between:
Deeming rates
Age Pension rules
Superannuation
Account-based pensions
Investments
Retirement income strategies
can be surprisingly complex.
A strategy that improves one area may negatively affect another. Balancing Age Pension outcomes with retirement sustainability is often more complex than it first appears.
A licensed financial planner can provide expert advice to help ensure your retirement assets are structured efficiently while supporting both lifestyle goals and Centrelink eligibility, with recommendations that reflect expert advice tailored to your financial situation.
Frequently Asked Questions
What is Centrelink deeming?
Deeming is a method Centrelink uses to estimate income from financial investments when assessing Age Pension entitlements, using the government’s deeming rate to work out income from financial assets.
Does Centrelink use my actual investment income?
Generally no. Centrelink usually applies deeming rates rather than assessing actual investment earnings.
What investments are subject to deeming?
Bank accounts, term deposits, shares, managed funds, account-based pensions, accounts and term deposits, and many other financial investments are typically subject to deeming and assessed as financial assets.
If my bank account earns less interest, will my Age Pension increase?
Not necessarily. Centrelink may continue to assess income using the applicable deeming rates rather than your actual earnings.
Can I beat the deeming rate?
Yes. If your investments earn more than the deemed rate, Centrelink generally still only assesses the deemed amount.
Are account-based pensions deemed?
Most account-based pensions commenced after 1 January 2015 are subject to deeming under Centrelink’s income test.
Does deeming affect the assets test?
No. Deeming applies to the income test. The underlying asset value is separately assessed under the assets test.
Do deeming rates change?
Yes. The federal government can review and adjust deeming rates and thresholds from time to time, with the deeming rates set by the Minister for Social Services. The deeming rates set for Age Pension calculations are influenced by market conditions, including interest rates. A freeze on deeming rates has been in place since July 2022. If the article is being read as current through that date, the rates will increase by 0.50% on 20 September 2025.
Can investment decisions affect my Age Pension?
Absolutely, retirees should assess both pension outcomes and broader retirement goals before restructuring assets. However, the interaction between investments, deeming, the income test and the assets test should be considered carefully before making changes. Whether you receive a part payment or the full age pension can be affected by deemed income, with the first $64,200 for singles assessed at the current 1.25% lower rate and any amount above that threshold assessed at the current 3.25% higher rate.
Should I seek advice before restructuring investments?
In many cases, yes. Changes intended to improve Centrelink outcomes can sometimes produce unintended consequences elsewhere in a retirement plan. Before making major changes, seek further information and check official contact details through Services Australia.
Final Thoughts
Centrelink deeming is one of the most misunderstood aspects of the Age Pension system, and it can also affect the income test for various government benefits, income support payments and support payments.
Many retirees assume their pension entitlement is determined by the actual income their investments generate. In reality, Centrelink often applies a deemed rate of return regardless of whether those investments earn more or less.
Understanding how deeming works can help retirees make more informed decisions about investments, superannuation, retirement income and Age Pension strategies.
Rather than chasing Centrelink outcomes alone, the goal should be to create a retirement plan that balances income, growth, flexibility and long-term financial security.
At Money Path, we help retirees understand Centrelink rules, retirement income strategies, superannuation and investment structures so they can make confident decisions about their financial future, including how deeming may influence eligibility for other income support payments or a payment.
