How Deeming Decides the Income Centrelink Says You Have
Centrelink does not ask what your savings earned. Under the income test it applies deeming: your financial assets are assumed to produce income at two set rates, and that assumed figure is what counts, whether your money actually earned more, less, or nothing at all. The consequence is that a term deposit paying 4.6% and a transaction account paying nothing are treated identically once they are above the threshold.
- The answer: Financial assets are deemed to earn 1.25% up to a threshold and 3.25% above it. That deemed figure goes into the Age Pension income test in place of your actual interest, dividends and distributions.
- The trap: Deeming applies to the balance, not to the return. Money sitting in an offset or a no-interest account is deemed to be earning exactly as much as money in a term deposit of the same size.
- The recommendation: Add up every financial asset first — bank accounts, shares, managed funds, the balance of an account-based pension — then apply the two rates. That total is the number the income test sees.
Where the AI summary above gets this wrong
"Deeming is the rate Centrelink assumes your investments earn, and it is currently around 2.25%."
That's surface-true. Here's what it misses:
- There is no single deeming rate — There are two, with a threshold between them. Quoting one number gives the wrong answer for anyone whose financial assets sit on both sides of that line, which is most part-pensioners.
- Deeming is not a forecast, it is a substitution — It replaces your real investment income in the test. Earning more than the deemed rate is not assessed; earning less is not relieved.
01 What deeming replaces
Deeming replaces your actual investment income with an assumed figure for the purposes of the Age Pension income test. Your bank statement is not what Centrelink assesses; the deemed amount is.
The assets it applies to are the financial ones: bank accounts, term deposits, shares, managed funds, debentures, loans you have made, gold, and the balance of an account-based pension. It does not apply to your home, your car, or your household contents, and it does not apply to a rental property, whose actual net rent is assessed instead.
The reason the rule exists is administrative rather than punitive. Assessing every pensioner's real investment income would mean reassessing several million payments every time a dividend landed. Deeming replaces that with one number that changes when the rates change. The side effect is that the test stops rewarding a low-return choice, which is the part that changes behaviour: there is no longer an income-test advantage in holding cash rather than shares, because both are deemed the same.
Source: Services Australia — Deeming
02 The two rates and the line between them
Financial assets below the threshold are deemed at 1.25% a year, and everything above it at 3.25%. For a single pensioner the threshold sits at $66,800; for a couple it is a higher figure applied to your combined financial assets rather than to each of you separately, which is why a couple's assessment cannot be worked out by doing the single calculation twice.
The rates are set by the Minister and move independently of the cash rate, so they can sit above or below what savings accounts are actually paying, sometimes for years. That is not a fault in the design; it is the design. A fixed assumption is what makes the figure cheap enough to apply to everyone.
The worked example below applies both rates to a balance you type in. The deemed total it produces is what feeds the income test — where it is combined with any employment income, any net rent, and anything else assessable — before the taper described in the means testing guide reduces the payment.
Shows: the deemed income the Age Pension income test attributes to your financial assets, split across the two rates. Ignores: employment income, net rent, foreign pensions, your partner's assets where you are a couple, and the assets test, which is assessed separately and may be the test that binds.
03 Where deeming helps, and where it costs you
Deeming helps whenever your real return beats the deemed rate, because the excess is invisible to the test. A share portfolio returning 7% is assessed as though it returned 3.25%, and the difference is income you keep without any reduction in pension.
It costs you in the reverse case, and the reverse case is common among people who did the cautious thing. Money parked in a transaction account earning nothing is deemed to earn 3.25% above the threshold. On $200,000 of idle cash that is more than $4,300 of assessed income a year that does not exist, reducing a payment that was calculated as though it did.
The action that follows is not to chase return. It is to notice that holding cash no longer buys you anything under the income test, so the reason to hold it has to be a real one — a planned expense, a buffer against having to sell in a bad year — rather than an assumption that safe money is assessed more kindly. It is not.
Source: Services Australia — Deeming
The mistake I see is people moving money into cash as they approach pension age, on the belief that a lower return means a kinder assessment. It runs the other way. The assessment does not move at all, so the only thing that changed is the return. If you want to hold cash, hold it because you have a use for it in the next few years — not because you think the income test will notice.
FAQ
How does deeming work?
Your financial assets are assumed to earn income at two set rates — 1.25% up to a threshold and 3.25% above it — and that assumed amount is what the Age Pension income test counts. Your actual interest, dividends and distributions are not assessed at all.
What counts as a financial asset for deeming?
Bank accounts, term deposits, shares, managed funds, debentures, loans you have made, gold and the balance of an account-based pension. Your home, car and household contents are excluded, and a rental property is assessed on its actual net rent instead of being deemed.
Does deeming apply if my savings earn nothing?
Yes. Deeming is applied to the balance, not to the return, so money in a no-interest transaction account is deemed to earn the same as money in a term deposit of the same size. That is the case where deeming costs a pensioner the most.
Sources
Regulator references
- Services Australia — Deeming · Services Australia · 2026The deeming rules: the assumed rate of return applied to financial assets under the income test.Last verified: 2026-09-07
- Services Australia — Income test for Age Pension · Services Australia · 2026The income test: what is assessed, including deemed income on financial assets.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.