When 74-year-old Sydney pensioner Carol Bennett checked her bank account after the March 20 payment cycle, something felt off. The deposit was smaller than expected. “It wasn’t huge,” she said, “but when you live fortnight to fortnight, every dollar counts.”
Carol is among thousands of Age Pension recipients across Australia who are feeling the effect of an updated deeming rate applied from March 20, 2026. The change is part of a scheduled policy review tied to broader interest rate movements, but for many retirees it arrived with little warning and an immediate impact on their income.
Here is what deeming rates are, why they changed, who is affected, and what you can do about it.
What Are Deeming Rates and Why Do They Exist?
Deeming rates are one of the more technically opaque parts of the Age Pension system, but their effect on fortnightly payments is very concrete. Understanding how they work is essential for any retiree with savings, investments, or superannuation.
The system works like this: instead of assessing what your financial assets actually earn, Services Australia applies a standard assumed rate of return, the deemed rate, and treats that assumed income as your income for the purposes of the pension income test.
It does not matter whether your savings account is earning 2 percent or 5 percent. The system applies the deemed rate and assesses the resulting figure as your income. If that assessed income exceeds the income-free threshold, your pension payment reduces accordingly.
Deeming applies to savings accounts, term deposits, shares, managed funds, and account-based pensions you are drawing from in retirement. It is a broad net that catches most financial assets held by Age Pension recipients.
What Changed on March 20, 2026
The update applied on March 20 involved increases to both the lower and upper deeming rates, following a policy review that aligned the rates more closely with prevailing market interest conditions.
Both the lower rate, which applies to assets up to a certain threshold, and the upper rate, which applies to assets above that threshold, moved upward. The changes applied immediately to both new and existing Age Pension recipients.
A spokesperson for the Department of Social Services described the rationale: “Deeming ensures consistency and fairness across the system by applying standardised income assumptions. Adjustments reflect broader economic conditions.”
The connection to interest rates is the core logic. When the Reserve Bank of Australia raised interest rates in previous years, the implicit assumption was that retirees’ savings were earning more. Deeming rates are eventually adjusted to reflect that assumption, even if individual retirees’ actual portfolios do not match the deemed returns.
The Problem With That Logic
The official justification is internally consistent, but it rests on an assumption that does not hold for all retirees equally. Deeming assumes your money is earning the deemed rate. For retirees holding term deposits or shares in a rising rate environment, that may be roughly accurate.
For retirees holding conservative cash savings, particularly those in basic savings accounts or those who moved to defensive positions out of risk aversion, actual returns may be well below what the deeming rate assumes.
Geelong retiree Brian Cooper, 72, describes his situation plainly. “They’re assuming I’m earning more than I actually am,” he says. His savings account earns less interest than the new deemed rate implies. “So my pension goes down, even though my real income hasn’t gone up.”
Financial planner Rebecca Shaw frames the structural issue clearly: “The system assumes higher returns in line with market conditions, but not every retiree can access those returns without taking on risk.” Chasing higher returns to match deemed rates means accepting investment volatility that many retirees are neither financially nor psychologically positioned to absorb.
Who Is Most Affected by the March 20 Change
Not all Age Pension recipients will see their payments affected equally. The impact is concentrated in specific circumstances.
Pensioners most likely to see a reduction are those with moderate savings balances assessed under the income test, part-pensioners who are already close to income test thresholds, couples with combined financial assets in the middle range, and individuals drawing from account-based pensions that are subject to deeming.
Retirees receiving the full Age Pension with minimal financial assets are the least affected. If your financial assets are below the deeming threshold, the rate change has limited impact on your assessment.
The group experiencing the most noticeable effect is part-pensioners with moderate savings, precisely the people who saved responsibly throughout their working lives but not enough to be fully self-funded. They are caught in the middle range where deeming rate movements translate most directly into payment reductions.
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How the Mechanics Actually Work
Walking through the process step by step makes the impact clearer. The sequence from assets to payment reduction works as follows.
Services Australia identifies your total financial assets. The lower deeming rate is applied to the first portion of those assets up to the threshold, and the upper rate is applied to the remainder. The total calculated figure becomes your deemed income for the purposes of the pension income test.
That deemed income is compared to the income-free threshold that applies to your household type. If deemed income stays below the threshold, there is no reduction. If it exceeds the threshold, pension payments reduce at the legislated taper rate for every dollar above the limit.
The key insight is that a modest increase in the deeming rate can push deemed income over the threshold for retirees who were previously just inside it, producing a disproportionately large payment reduction relative to the rate change itself.
The Real Impact on Real Households
Margaret and Alan Woods, both 70, receive a part pension while supplementing their income with superannuation drawdowns. The March 20 deeming rate increase pushed their assessed income over the relevant threshold.
“With the new deeming rate, our assessed income rose,” Margaret explained. “That pushed our pension down again.” For a couple managing carefully on a combination of super drawdowns and part pension, the fortnightly reduction is not abstract. It affects grocery budgets, energy bill management, and the buffer available for unexpected costs.
Their situation illustrates the compounding difficulty facing retirees in 2026. Cost-of-living pressures remain elevated across energy, insurance, groceries, and healthcare, while a deeming rate change is simultaneously reducing their pension income. The two pressures are moving in opposite directions to their financial wellbeing.
Before and After: How the Change Affects Different Scenarios
| Scenario | Before March 20 | After March 20 | Impact |
|---|---|---|---|
| Lower deeming rate applied | Lower assessed income | Higher assessed income | Possible pension payment reduction |
| Upper deeming rate applied | Moderate income assumption | Greater income assumption | Reduced part pension for many |
| Full pensioner with minimal assets | Minimal change | Minimal change | Little to no effect |
| Part pensioner with moderate savings | Stable fortnightly payment | Reduced payment | Noticeable fortnightly drop |
Exact impacts vary significantly depending on asset levels, household status, and whether assets sit above or below specific thresholds. The table above illustrates patterns rather than specific dollar amounts.
Why This Matters More in 2026 Than in Other Years
The timing of the deeming rate increase is particularly difficult because the broader financial environment for retirees is already under strain.
Energy bills remain significantly above pre-crisis levels. Insurance premiums have risen sharply. Grocery prices have not returned to where they were before the inflationary period. Healthcare out-of-pocket costs continue to grow. These are the categories that make up the bulk of a retiree’s spending.
Into that environment, a fortnightly pension reduction of even $20 to $50 is not a trivial adjustment for someone budgeting precisely. It represents genuine spending capacity that needs to come from somewhere, and for retirees with no ability to increase income, that somewhere is usually a further reduction in an already constrained lifestyle.
The Broader Policy Debate Around Deeming
The deeming system has been debated for years, and the arguments on both sides are legitimate. Understanding them helps retirees contextualise what happened on March 20.
Supporters of deeming argue that it simplifies pension administration, prevents manipulation of reported income through strategic restructuring of returns, and creates consistency across recipients regardless of how they choose to hold their assets.
Critics argue that deeming disadvantages cautious investors who hold conservative assets for legitimate risk-management reasons. It creates situations, like Brian Cooper’s, where the assumed income is simply not what the retiree is earning. And it applies the same rate regardless of whether a retiree has the financial sophistication or risk tolerance to actually achieve those returns.
Advocacy groups for retirees have consistently argued that deeming rates should track actual average returns available to conservative investors rather than broader market interest rates, which often overstate what cautious savers can realistically earn without accepting investment risk.
What You Can Actually Do
Deeming rates are set nationally and cannot be individually negotiated with Services Australia. But there are practical responses available to affected retirees.
Review the accuracy of your reported assets. If your pension payment changed unexpectedly, verify that all assets and income are reported correctly. Errors in reporting can produce payment changes that have nothing to do with deeming rates, and correcting them can restore entitlements.
Assess whether your investment allocation still makes sense. If your assets are earning significantly less than the deemed rate, speaking with a financial adviser about whether a different allocation could improve actual returns without exceeding your risk tolerance may be worthwhile. This is a personal decision that should not be rushed, but it is worth examining.
Use Services Australia’s online estimators to understand how your current assets interact with current deeming rates and what the implications are for your fortnightly payment.
Monitor future policy announcements. Deeming rates can be revised if economic conditions change. Several periods in recent history saw rates frozen or reduced in recognition of the impact on retirees. Future reviews remain possible, particularly if advocacy pressure around the fairness of current rates continues to build.
Frequently Asked Questions
1. What are pension deeming rates in plain terms? They are assumed rates of return that the government applies to your financial assets when calculating your income for the Age Pension income test. Your actual returns do not matter for this calculation.
2. Did deeming rates actually increase on March 20, 2026? Yes. Both the lower and upper deeming rates were updated following a policy review, and the new rates applied immediately to all Age Pension recipients.
3. Will every Age Pension recipient see their payment reduced? No. The change primarily affects part-pensioners with moderate financial assets. Retirees receiving the full pension with minimal financial assets are largely unaffected.
4. Does deeming consider what my investments actually earn? No. Deeming applies a standard assumed rate regardless of actual returns. A retiree earning 1.5 percent on savings and one earning 5 percent are assessed identically if their asset values are the same.
5. Are bank savings accounts subject to deeming? Yes. Savings accounts are included in the assets assessed under deeming, along with term deposits, shares, managed funds, and account-based pensions.
6. Is my superannuation account subject to deeming? Yes. Once you reach Age Pension age, superannuation income streams such as account-based pensions are assessed under deeming rules as part of the income test.
7. Can I appeal or challenge the deeming rate change? You cannot challenge the rate itself, as it is set nationally. You can review whether your assets and income are reported accurately with Services Australia, and you can seek a reassessment if you believe your payment calculation contains an error.
8. How often are deeming rates reviewed? They are reviewed periodically based on broader economic conditions, particularly movements in official interest rates. There is no fixed schedule, but reviews typically follow significant changes in the prevailing interest rate environment.
9. Why are deeming rates increasing now? The adjustment reflects the interest rate rises that occurred in previous years. The policy logic is that higher market interest rates mean retirees’ savings are assumed to be earning more.
10. Could payments increase again in the future? Yes. Future indexation adjustments and potential deeming rate reviews could alter payment levels. If interest rates fall significantly, deeming rates may be revised downward, which would reduce assessed income and potentially increase pension payments.
11. Does the assets test also still apply alongside deeming? Yes. Both the income test and the assets test apply simultaneously, and whichever produces the lower pension payment determines your actual entitlement. The March 20 change affects the income test through deeming; the assets test operates separately.
12. Are full Age Pension recipients significantly affected? Those receiving the full pension with minimal financial assets are largely unaffected, as their deemed income remains well below the income-free threshold. The impact is concentrated among part-pensioners.
13. Could future policy changes reverse the deeming rate increase? Yes. Deeming rates have been frozen or reduced in the past in response to low interest rate environments or advocacy pressure. Future economic conditions could prompt a reversal, though this is not guaranteed.
14. Should I restructure my assets to reduce the deeming impact? Major asset restructuring decisions should be based on long-term financial planning, not short-term responses to deeming rate changes. Speak with a qualified financial adviser before making any significant changes to your investment structure.
15. Where can I get help understanding my specific payment situation? Contact Services Australia directly by phone or through myGov for a personalised explanation of how deeming affects your payment. For strategic advice about investment allocation and pension optimisation, consult a qualified financial adviser who specialises in retirement planning.