Nick Bruining: Budget change to deeming rate means you can pocket millions and still get a part-pension

Last week’s special Federal Budget had little in it for seniors that hadn’t already been announced. But a seemingly minor change in the Centrelink deeming rules could result in seniors with multimillion-dollar properties being eligible for a pension while they downsize. The Government announced that the lower deeming rate of 0.25 per cent will apply to the entire proceeds of the sale of a primary dwelling while waiting to be used to build or buy a new home. Previously, it announced that the existing 12-month exemption from the asset test would be extended to 24 months and, in some circumstances, for up to three years. The application of the lower deeming rate to the total proceeds only affects people who might be affected by Centrelink’s income test. Until last Tuesday night, some or all of the amount could have been deemed at the higher rate of 2.25 per cent a year. Under Centrelink’s income test, a single can earn up to $190 a fortnight of Centrelink assessable income before the pension is reduced at the rate of 50¢ per dollar. For couples, the combined income-free area is $336 a fortnight. Assessable income includes net rental receipts, employment income, foreign income and the deemed income on financial assets. Financial assets include bank accounts, shares and superannuation assets. If, for example, a single decided to downsize from their western suburbs home and pocketed $2 million from the sale, they could park it in a term deposit earning 3 per cent a year while searching for their new home. Under the change announced last week, the deemed income on that $2m set aside for a new home works out to be $5000 a year — or $192 a fortnight — even though the actual interest earned on the investment could be $60,000 a year. Under the revised rules, a couple could receive more than $30m from the sale of their family home and still receive a part-pension from Centrelink for two years. While there is no ability to add additional money to the sale proceeds, there is no specific requirement to spend all of the money on the new home or in a specific period of time. Many of the so-called initiatives announced last week were leftover sweeteners from the May Federal election. The then-Opposition had matched a number of announcements targeting seniors made by the Morrison government in its bid for re-election. These include a reduction to the superannuation downsizer eligibility age from 60 to 55, a dramatic increase in the Commonwealth Seniors Health Card income test limits and the freezing of Centrelink’s deeming rates until July 2024. The Bills are already before Parliament and expected to pass with minimal change before the end of the year.