Deeming is how Services Australia calculates assessed income from financial assets — applying a standard rate regardless of what those assets actually earn. The current rates (from 20 March 2026) are 1.25% on balances up to $64,200 (single) or $106,200 (couple), and 3.25% above. When your investments earn more than the deeming rate, your assessed pension income is lower than your actual earnings.
If you receive the Age Pension — the means-tested government payment administered by Services Australia — your entitlement is determined by two tests: an assets test and an income test. Services Australia pays whichever produces the lower payment. Most retirees know roughly how the assets test works. Fewer understand the income test's central engine: a system called deeming.
Deeming is, in Services Australia's own words, "a set of rules used to determine the income your financial assets create. It assumes these assets earn a set rate of income, no matter what they really earn" (Services Australia, https://www.servicesaustralia.gov.au/deeming?context=22526, retrieved 5 May 2026). Rather than tracking what your bank account or share portfolio actually paid you in dividends and interest, the government applies a standard rate to the value of your financial assets and treats the result as your assessed income from those assets. It is the notional return — not the real one — that flows into your income test calculation.
The reason deeming exists is practical and fair. Without it, retirees could simply park all their money in low-yielding accounts to minimise their assessed income and maximise their pension, regardless of whether that was the right financial decision. Deeming removes that distortion. Services Australia notes a direct benefit: deeming "provides an incentive to invest, as any interest rates achieved above the deeming rates don't count as income" (Services Australia, https://www.servicesaustralia.gov.au/deeming?context=22526, retrieved 5 May 2026). The system creates a level playing field between retirees who invest in cash and those who hold shares — both are assessed the same way, based on the value of their financial assets rather than what those assets happen to earn.
The deeming structure uses two rates, separated by a threshold. The lower rate applies to the first tranche of your combined financial assets up to the threshold; the upper rate applies to everything above it. The rates and the thresholds move on different clocks, which is a common source of confusion: the rates (1.25%/3.25%) are set by Ministerial determination and last changed on 20 March 2026; the thresholds are indexed separately and reviewed on 1 July each year. Current rates and thresholds, effective 1 July 2026 (Services Australia, https://www.servicesaustralia.gov.au/deeming?context=22526, verified 11 August 2026):
| Rate / threshold | Single | Pensioner couple (combined) | Non-pensioner couple member |
|---|---|---|---|
| Below threshold rate | 1.25% | 1.25% | 1.25% |
| Above threshold rate | 3.25% | 3.25% | 3.25% |
| Threshold amount | $66,800 | $110,600 | $55,300 (each) |
Important: the 1.25%/3.25% rates rose materially in 2025-26 — from the long-running 0.25%/2.25% pandemic-era freeze (effective May 2020 to September 2025) up to 0.75%/2.75% from 20 September 2025, then to 1.25%/3.25% from 20 March 2026, where they currently remain. The rates are set by the Minister for Social Services — they do not change automatically with the cash rate or through indexation, and can be adjusted by Ministerial determination at any time. The threshold amounts are indexed separately and were last updated on 1 July 2026, rising from $64,200 / $106,200 / $53,100 to the current $66,800 / $110,600 / $55,300 shown above.
Only financial assets are subject to deeming. Services Australia lists the main types as "savings accounts and term deposits, managed investments, loans and debentures, listed shares and securities, some income streams, [and] some gifts you make" (Services Australia, https://www.servicesaustralia.gov.au/deeming?context=22526, retrieved 5 May 2026). For couples, this includes the superannuation balances of both partners — but only once each has reached Age Pension age (currently 67). A younger partner's superannuation is not counted in either the assets test or the deeming calculation at all, until the day they qualify. Non-financial assets — investment properties, vehicles, household contents — are assessed under the assets test only and are not deemed.
One of the most important things to understand about deeming is when it helps you and when it works against you. If your investments are earning more than the applicable deeming rate — which has been the case for many cash and term deposit holders during the 2022–2025 period, when market rates ran well above the deeming rates — then your pension income test is calculated on a lower figure than your actual earnings. The government taxes you notionally on less income than you received. That is a quiet advantage that many retirees overlook. Conversely, when actual returns fall below the deeming rate — for example, in a very low interest rate environment — retirees are assessed on more income than they actually received, which can reduce their pension entitlement. The current deeming rate environment is worth checking with your adviser, since a Ministerial rate change could shift the income test position of any cash-heavy client.
For a practical sense of how the income test interacts with deemed income: a homeowner couple receives a pension free area of $380 per fortnight combined, meaning their first $380 in assessed income per fortnight has no effect on their pension. Above that, the pension reduces by 25 cents for each dollar of assessed income over the free area. The income test entirely cuts off payment when combined fortnightly income reaches $4,000.80 (Services Australia, https://www.servicesaustralia.gov.au/income-test-for-age-pension, retrieved 5 May 2026). For most homeowner couples in the $400,000 to $1.2 million asset range, the assets test is the binding constraint — but it is worth confirming which test applies to your specific situation, since that is where any planning will have the most effect.
Pre-1 January 2015 grandfathering applies for account-based pensions held by income support recipients immediately before that date. These pensions are assessed under the older "deductible amount" method rather than deeming, often producing materially lower assessed income (DSS Guide 3.9.3.31, https://guides.dss.gov.au/social-security-guide/3/9/3/31). Critically, the grandfathered treatment is lost permanently if the pension is commuted and restarted, the income support payment lapses, or the pension is rolled over to a different fund. (See the related account-based-pensions-retirement and account-based-pension-transfer-between-funds articles for the full grandfathering mechanics — including the separate, stronger CSHC grandfathering rule.)
Worked strategy example #1 — full pensioner with mostly cash savings
Margaret, 72, single homeowner, has $180,000 in financial assets (term deposits + savings). She receives the full Age Pension. At the current threshold, her deemed income: $66,800 × 1.25% + ($180,000 − $66,800) × 3.25% = $835 + $3,679 = $4,514/year. That sits well under the single income free area (a figure from the income test, not the deeming rules — this article uses the FY2025-26 figure of $5,668/year = $218/fortnight × 26, not re-verified this pass and worth confirming against the current income-test article before relying on it), so the income test gives a NIL reduction either way. Her pension comes through the assets test. Neither the March 2026 rate rise nor the July 2026 threshold indexation changes that outcome for her — her balance is small enough that the deemed income stays under the income free area regardless.
Worked strategy example #2 — couple with substantial financial assets, taper zone
Robert and Helen, both 76, couple homeowners, $580,000 in combined financial assets. At the current (1 July 2026) threshold: deemed income = $110,600 × 1.25% + ($580,000 − $110,600) × 3.25% = $1,383 + $15,256 = $16,638/year = ~$640/fortnight. Income free area for couple = $388/fortnight (FY2025-26 figure, not re-verified this pass — confirm the current figure before relying on the exact reduction amount). Excess = ~$252/fortnight. Income-test pension reduction = ~$126/fortnight.
Three points in time show what actually moved and why. Pre-March-2026 (old rates 0.75%/2.75%, old threshold $106,200): deemed income $13,827/year = ~$532/fortnight, reduction $72/fortnight. March–June 2026 (new rates 1.25%/3.25% from 20 March 2026, threshold still $106,200 pending its 1 July review): deemed income $16,726/year = ~$643/fortnight, reduction $127.50/fortnight. From 1 July 2026 (same rates, threshold indexed to $110,600): reduction ~$126/fortnight — the indexation gave them back about $1.50/fortnight, a small partial offset against the much larger rate-driven increase.
Net effect since before March 2026: Robert and Helen's income-test reduction has risen from $72/fortnight to about $126/fortnight — an extra ~$54/fortnight, or roughly $1,400/year of pension, almost all of it from the March 2026 rate rise rather than the July threshold indexation. This is real money out of household budget, with no change in their underlying financial position. The dynamic is the same for any retiree with a meaningful balance above the threshold.
If you would like to check where you currently stand, Services Australia publishes the current deeming rates and an online income estimator at servicesaustralia.gov.au. The Department of Social Services (dss.gov.au) publishes Ministerial announcements when deeming rates change. A licensed financial adviser can model both the assets test and income test for your specific circumstances and identify which one is currently determining your payment.
Sources
Key takeaways
- Deeming applies a standard rate to the value of financial assets — not their actual earnings — removing the incentive for pensioners to park money in low-yielding accounts purely to minimise assessed income.
- Current deeming rates (effective 20 March 2026): 1.25% on balances up to $64,200 (single) or $106,200 (couple), and 3.25% above — materially higher than the pandemic-era rates of 0.25%/2.25% that held from May 2020 to September 2025.
- Deeming works in a pensioner's favour when actual investment returns exceed the applicable deeming rate — only the notional deeming-rate income is assessed, not the higher actual return.
- Account-based pensions held before 1 January 2015 by income support recipients may be assessed under the older 'deductible amount' method — grandfathered treatment that is permanently lost if the pension is commuted, the support payment lapses, or the pension is rolled over.
- The March 2026 deeming rate increase can cost a couple with substantial financial assets above the threshold up to $1,430+ per year in reduced Age Pension — a significant real-money impact from a single Ministerial determination.
Frequently asked questions
What are the current deeming rates for the Age Pension?
The current deeming rates (effective 20 March 2026, per DSS Social Security Guide 4.4.1.10) are 1.25% on financial assets up to $64,200 for singles or $106,200 combined for a pensioner couple, and 3.25% on amounts above those thresholds. These are significantly higher than the pandemic-era rates of 0.25%/2.25% that applied from May 2020 to September 2025, then briefly 0.75%/2.75% from September 2025. The threshold amounts are indexed and reviewed on 1 July each year; the rates are set by Ministerial determination and can change at any time — always check the current rates at servicesaustralia.gov.au.
Which assets are subject to deeming for the Age Pension income test?
Financial assets are subject to deeming — this includes savings accounts, term deposits, managed investments, loans and debentures, listed shares and securities, some income streams, and in some cases gifts made above the allowable thresholds. For couples, the superannuation balances of both partners are included once each has reached Age Pension age (currently 67). Non-financial assets such as investment properties, vehicles, and household contents are assessed under the assets test only and are not deemed.
Can deeming actually benefit an Age Pension recipient?
Yes — when your actual investment returns exceed the applicable deeming rate, deeming works in your favour. Your assessed income is lower than your real income, meaning your Age Pension is higher than it would otherwise be. This was particularly relevant during the 2022–2025 period when cash and term deposit rates ran well above the then-current deeming rates. Conversely, when actual returns fall below the deeming rate — common in very low interest rate environments — you are assessed on more income than you received, which reduces your pension.
What is the pre-January 2015 grandfathering rule for account-based pensions?
Account-based pensions held by income support recipients before 1 January 2015 may be assessed under the older 'deductible amount' method rather than deeming — often producing significantly lower assessed income. This grandfathered treatment is permanently lost if the pension is commuted and restarted, if the income support payment lapses even briefly, or if the pension is rolled over to a different fund. The consequences of inadvertently losing grandfathered status can be severe and irreversible, so specialist advice is essential before making any changes to a pre-2015 account-based pension.