When 74-year-old Melbourne retiree Graham Walters reviewed his latest Age Pension statement, he noticed something subtle but worrying. His bank savings hadn’t changed much — yet his assessed income had increased.
“I didn’t earn more,” he says. “But they calculated it differently.”
In 2026, changes to deeming rate settings are beginning to affect how income from financial assets is assessed under the Age Pension income test. While the system is designed to reflect market conditions, higher deeming rates could reduce payments for some asset-owning retirees — even if their actual earnings remain modest.
Here’s how the new pension formula works — and why asset owners should pay close attention this year.
What Are Deeming Rates?
Deeming rates are used by Centrelink to estimate how much income you earn from financial assets, regardless of the actual interest or returns you receive.
Instead of assessing your real earnings, the government “deems” your assets to generate income at a set rate.
Financial assets include:
- Bank savings.
- Term deposits.
- Shares.
- Managed funds.
- Account-based pensions.
- Some superannuation balances (if over pension age).
A fictionalised Services Australia spokesperson said, “Deeming simplifies the system and ensures consistent income assessment.”
What Is Changing in 2026?
In recent years, deeming rates were held artificially low during periods of ultra-low interest rates.
In 2026:
- Deeming rate settings are being reviewed.
- Higher rates may apply as market interest rates normalise.
- Asset income assessments may increase.
- Some pensioners may see reduced part-rate payments.
While the exact rate depends on government settings, the shift reflects broader economic adjustments.
Economist (fictionalised) Dr. Laura Bennett explains, “As interest rates rise, deeming rates tend to follow.”
How Deeming Affects Your Pension
Under the income test:
- Centrelink calculates deemed income from your financial assets.
- That deemed income is added to other income.
- If total income exceeds the income-free area, your pension reduces.
Importantly, you are assessed on the deemed amount — not what you actually earn.
If deeming rates increase:
- Your assessed income rises.
- Your pension may reduce.
- Even if your actual bank interest stays modest.
Graham says, “My savings didn’t grow much, but the formula changed.”
Comparison: Low vs Higher Deeming Rates
| Scenario | Lower Deeming Rate | Higher Deeming Rate |
|---|---|---|
| $200,000 in savings | Lower assessed income | Higher assessed income |
| Pension impact | Larger payment | Reduced payment |
| Real bank interest | May be similar | May be similar |
The formula change can affect payments even without lifestyle changes.
Who Is Most at Risk?
Pensioners most likely to feel the impact include:
- Part-rate Age Pension recipients.
- Retirees with moderate savings.
- Self-funded retirees near eligibility thresholds.
- Couples with combined financial assets.
Full-rate pensioners with minimal assets are less affected.
High-asset retirees above cut-off limits are unaffected because they already receive no pension.
Why the Government Uses Deeming
Deeming was introduced to:
- Prevent manipulation of investment returns.
- Encourage efficient investment decisions.
- Simplify administration.
- Ensure fairness across asset types.
Rather than monitoring actual interest rates across thousands of accounts, deeming creates a standardised approach.
Policy analyst (fictionalised) Mark Davies notes, “Deeming treats similar assets consistently.”
Real Stories Behind the Shift
Graham holds $250,000 in savings and investments.
“I keep it conservative — I’m not chasing high returns.”
With higher deeming rates, his assessed income increases slightly, reducing his part-rate pension.
Meanwhile, pensioner Margaret, with minimal savings, is unaffected.
“My pension stayed the same.”
This highlights how asset levels determine impact.
Interaction With the Assets Test
The Age Pension is determined by both:
- The income test.
- The assets test.
Whichever test produces the lower payment applies.
Even if deeming reduces your pension under the income test, the assets test may still determine your rate.
Understanding both tests is essential.
What Pensioners Should Do in 2026
If you have financial assets:
- Check your current deeming rate.
- Review your Centrelink income estimate.
- Monitor savings balances.
- Consider financial advice.
- Assess whether investment structure suits your needs.
Small changes in asset allocation may influence long-term planning — but changes should be made cautiously.
Dr. Bennett warns, “Pension decisions should not override sound investment strategy.”
Could Deeming Rates Change Again?
Yes.
Deeming rates are reviewed periodically and may adjust depending on:
- Reserve Bank decisions.
- Market interest rates.
- Economic conditions.
- Federal budget policies.
Future increases or decreases are possible.
Q&A: Deeming Rate Changes 2026
1. What are deeming rates?
They are assumed income rates applied to financial assets.
2. Does it matter what interest I actually earn?
No, Centrelink uses the deemed rate.
3. Can higher deeming rates reduce my pension?
Yes, if you are on a part-rate pension.
4. Are full-rate pensioners affected?
Generally not, if assets are low.
5. Do shares count as financial assets?
Yes.
6. Does my home count?
No, the family home is exempt.
7. Can I avoid deeming by changing banks?
No, deeming applies regardless of institution.
8. Should I withdraw savings to keep my pension?
Major financial decisions require careful advice.
9. When do the new rates apply?
From the date set in the current review year.
10. Where can I check my assessed income?
In your Centrelink online account.
In 2026, changes to deeming rates are quietly reshaping pension outcomes for asset-owning retirees.
While the adjustments reflect broader economic conditions, they may reduce payments for some part-rate recipients — even without changes to real earnings.
For pensioners like Graham, understanding the formula is now just as important as watching market returns.
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