Australia · Explainer

Deeming

The Age Pension income test does not ask what a client's financial assets earned. It attributes a return — 1.25% up to the threshold, 3.25% above it — and tests that figure instead. Here is the mechanism, and where the assumption cuts each way.

AU FY2026-27 Law Last reviewed 31 July 2026

What it is

Deeming is a rule for valuing income, not a tax and not a payment. Under the Age Pension income test, financial assets are assumed to earn a set return, and that assumed figure is what the test counts. What the assets actually earned does not enter the calculation at any point — there is no field for it.

Two rates apply. The lower rate runs up to the threshold; the upper rate applies to everything above it. For a couple there is one combined threshold applied to their combined financial assets, not one each.

Key figures

Deeming rate — lower
1.25%
Deeming rate — upper
3.25%
Deeming threshold — single
$66,800
Deeming threshold — couple, combined
$110,600

How it is worked out

The structure

deemed income = 1.25% × min( financial assets, threshold ) + 3.25% × ( financial assets − threshold )⁺

The threshold is $66,800 for a single client and $110,600 for a couple, combined. The result is an annual figure; the income test is run per fortnight, so it is divided by the number of fortnights in the year before it meets the $226 per fortnight free area for a single client.

Worked examples

Three clients. Every figure is computed by the calculator below — none of them is typed into this page.

Deemed income at three levels of financial assets
  Single, modest balance Single, typical balance Couple, combined
Financial assets $50,000 $200,000 $400,000
Threshold applied $66,800 $66,800 $110,600
Deemed at 1.25% $625 $835 $1,382.50
Deemed at 3.25% $0 $4,329 $9,405.50
Per fortnight $24.04 $198.62 $414.92
Effective rate 1.3% 2.6% 2.7%
Deemed income a year $625 $5,164 $10,788

The first client is entirely under the threshold, so the whole balance is deemed at 1.25% — $625 a year, not nil. The second has $133,200 above the threshold, which is what lifts the effective rate to 2.6%. The couple hold twice as much between them but get one combined threshold, so $289,400 of their balance is deemed at the upper rate. At $1,000,000, deemed income reaches $31,164 a year — an assumption, not a distribution, and payable to nobody.

Deeming calculator

Financial assets are bank accounts, term deposits, shares, managed funds, account-based pensions and the like — not the home, and not personal contents. For a couple, enter the combined figure: there is one combined threshold between them, not one each.

$400,000

Sets which threshold applies: $66,800 single, $110,600 combined.

Deemed income

$10,788 a year

$414.92 a fortnight — the unit the income test is applied in.

At 1.25% — assets up to the threshold
$110,600 → $1,382.50
At 3.25% — assets above it
$289,400 → $9,405.50
Threshold applied
$110,600
Effective rate across the whole balance
2.7%

Simplified illustration for education — not advice. Deemed income is what the income test counts; it is not what the assets earned.

Practical points

  • Chasing yield does not cost the pension. Because the assessment is fixed by rule, a client who moves from cash to a higher-returning portfolio keeps the extra income without any income test consequence. The reverse is the trap: de-risking to cash reduces real income and changes the assessment not at all.
  • The rate is not indexed, so it can move in either direction. Rates set by the Minister have been cut and raised before. A client whose part-pension is decided by the income test is exposed to a decision, not a formula — the next scheduled review is 20 September 2026.
  • It reaches past the Age Pension. The same rates and thresholds deem account-based pension balances for the Commonwealth Seniors Health Card income test, where there is no assets test to soften the result.
  • Deprived assets are deemed too. An amount assessed under the gifting rules stays in the assets test and is deemed under the income test, even though the client no longer holds it. Money given away can still be earning a deemed return on paper.
  • Check which test is binding first. Deemed income only matters where the income test is the one producing the lower rate of pension. For an asset-tested client, a change to deeming changes nothing — the assets test figures are the ones to work with.

Questions we get asked

Does deeming change if the investments actually earn more or less?
No. Deeming attributes an assumed return, and the income test uses that figure whatever the assets earned. A term deposit paying less than 1.25% is still deemed at 1.25%; a portfolio that returned far more than 3.25% is still deemed at 3.25% on the part above the threshold. The upside of the rule is that a good year does not reduce the pension.
Is the threshold an exemption?
No — and this is the most common error in a hand-worked figure. Assets below $66,800 for a single client are deemed too, at the lower rate. The threshold is where the rate changes, not where deeming starts.
Does a couple get two thresholds?
No. There is one combined threshold of $110,600 applied to the couple's combined financial assets, which is less than twice the $66,800 single threshold. Splitting a portfolio between two names changes nothing about the deemed figure.
What counts as a financial asset?
Bank accounts, term deposits, shares, managed funds, bonds, loans made to others, and account-based pensions. The family home is not a financial asset, and neither are personal contents or a car — those are assessed under the assets test, not deemed.
How often do the rates change?
There is no indexation formula: the rates are set by the Minister. The current pair took effect on 20 March 2026, and the next scheduled review is 20 September 2026. A change re-prices the income test for every client holding financial assets at once, which is why it is worth diarising rather than discovering.
Does deeming apply to anything other than the Age Pension?
Yes. The same rates and thresholds are used to deem account-based pension balances for the Commonwealth Seniors Health Card income test, where the limit for a single client is $101,105. That is why a self-funded retiree with no taxable income at all can still fail that test.

Sources

Sourced from the reference below. The figures on this page come from the same reference file as the Age Pension rates and thresholds page, so the calculator above cannot disagree with the table there.

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