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Income maximisation ('deeming')



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Minister for Social Security Senator Graham Richardson

IN C O M E M A X IM IS A T IO N ( 'D E E M IN G 1 )

The Minister for Social Security, Senator Graham Richardson, today reaffirmed the Government's decision to apply a 10% deeming rate on cash and low interest bank accounts held by pensioners and beneficiaries.

"The financial community has responded well to the new deeming rules," Senator Richardson said, "There are at least 29 accounts currently offering 10% or more at call on amounts over $2,000. Over a third of these are special accounts designed

specifically for pensioners’ needs.

"In addition to these accounts, there are many term deposits and other high yielding investments returning more than 10%," Senator Richardson said.

The 10% deemed rate of interest will be kept under constant review. The Minister pointed out he had the power under the legislation to lower the rate.

"If interest rates continue to fall, then I will obviously have to look very seriously again at lowering the rate".

The new arrangements will apply from March this year and have been introduced to encourage pensioners to maximise the use of their savings. Only one in nine pensioners and beneficiaries - ■ . about 300,000 out of 2.8 million people - are likely to have

'their pension or benefit affected.

"All of these people can be better off," Senator Richardson said. "The new rules are a win for pensioners and taxpayers.

"I have been monitoring the situation carefully since the Budget. While interest rates have fallen, pensioners can easily obtain 10% interest at call on small to moderate deposits. ' '

"Pensioners across the country should have no difficulty finding a suitable account with an institution near to where they live. Most should be able to do so with the institution they already bank with".

The Minister said that pensioners should be careful to choose investments that suited their needs. "The special accounts may not suit all pensioners. For example, pensioners who are less concerned with immediate access to all of their savings can easily and safely earn over 10%," Senator Richardson said.

Safe, convenient, higher yielding investments with banks, such as term deposits, can be taken out for periods as short as 30 d a y s · I COMMONWEALTH

! PARLIAMENTARY LIBRARY I MICAH . . . / 2

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Accounts that pay 10% on the total balance, such as those available from the Commonwealth Bank and the National Australia Bank, obviously give a better overall return than those paying 10% only on the balance above $2,000. '

Senator Richardson stressed that the legislation provides that the first $2,000 ($4,000 for pensioner couples) is not subject to the 10% deeming rate. "This allows pensioners to hold reasonable amounts for everyday expenses and emergencies, without having to tie up their savings.

The existing pension income test free areas are $40 a week (single pensioners) and $70 a week (couples). This means that pensioners with no other assessable income can have up to $20,800 (single pensioners) or $36,400 (couples) without their pensions being affected. Over 85% of pensioners will not be

affected at all".

"Also, pensioners don’t need to worry about their fringe benefit cards. The Government has guaranteed that pensioners who held a fringe benefit card on Budget night (21 August 1990), or have since become eligible for one, will

not lose their card in the future if they invest their savings to obtain more interest".

CONTACT: GREGG BORSCHMANN (06) 2777560

ATTACHMENT A: At call accounts currently offering 10% or more.

ATTACHEMENT B: Questions and answers about deeming on cash and deposits.

6 FEB 1991

PAGE 3

ATTACHMENT A

AT CALL ACCOUNTS PAYING 10% P.A. - AS AT 01 FEBRUARY 1991

The following at call accounts pay at least 10% o .a. on funds over $2,000 as at 01/02/91 (other conditions are attached). There are other institutions offering similar interest rates.

INSTITUTION TYPE OF ACCOUNT

OVER $2000 % pa

FIRST $2000 % pa

Maior National Ranks

Commonwealth Bank Security Plus 10.00 10.00#

National Australia Bank Personal Retirement 10.00

;

H O O

O I t

Westpac Passbook Saver 10.00 0.00

- Pension Option

Note The ANZ Bank has indicated that it will introduce an account by March that will pay 10% on balances of $2,000 and over.

Other Banks

Advance Bank Pensioner Direct 10.00 vni 1

ChaseAMP Bank Optimizer Cheque 10.00 10.00#

Challenge Bank Pension Saveguard 10.00 0 -6%

Bank of Melbourne Bank of Melbourne (Vic) (Vic)

Investment Passbook Cash Management 10.00 10.23

10.00 10.23

R & I Bank (WA) Pensioner Saver 10.00 10.00+

State Bank (NSW) State Money Wise 10.00 10.00

State Bank (SA) Pensioner Saver 10.00 ni 1

Note The State Bank Of Victoria have indicated that they will introduce an account by March that will pay 10% on balances of $2,000 and over.

Other Financial Tnstitut ions

Capital Building Society (VIC) Retirement Investment 10.00 4.00

CPS Credit Union (ACT) High Interest Cheque 10.00 10.00

CPS Credit Union (ACT) Travel Account 10.00 10.00

CPS Credit Union (ACT) Redifunds Plus 10.75 10.75

C.U.P.E. Friendly Society (QLD) Cash Management 10.00 10.00**

Home PBS (WA) Pensioner Benefit 10.00 4.00

IOOF PBS (Vic) Income Protection Plan 10.00 10.00

(Ccr.t >

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Other Financial Institutions (Cont)

Over 50's Building Society (Vic) Pension Protector 10.00 8.

Permanent Building Society (WA) Pensioner Plus 10.00 5 .

Police & Nurses Credit Union Pension Club Account 10.00 5 .

Queensland Teachers Credit Special Savings Account 10.00 8.

Queensland Country Credit Queensland Country Credit Smart Saver Account Bonus Trust Account

10.00 11.00 4 -

4 .

Queensland Professional Credit Savings 2001 Account 10.00 4 .

Suncorp (QLD) Super Nest Egg 10.00 10 .

St. George PBS (NSW & ACT) Pensioner Protector 10.00 5 .

Town & Country PBS (WA) Maxi Rate Account 10.95 10 .

Victorian Savings & Loans Pensioner Account 10.00 6 .

Wide Bay Capricorn (QLD) Pension Friendly 10.00 ni 1

# This rate only if total balance is over $2,000, otherwise nil.

+ This rate only if total balance is over $2,000, otherwise 4% pa.

* This rate only if total balance is over $2,000, otherwise 5% pa.

** - If balance under $5000 then first $1000 is 8% and remainder 10% - If Balance over $5000 pays 12.25% on total balance - If balance over $20,000 pays 12.50% on tot a T balance

00

00*

00

00

8% 00

00

00#

00

95

00

-lit 7 3

PAGE 5

MAJOR NATIONAL BANKS

COMMONWEALTH BANK : SECURITY PLUS

- minimum deposit or withdrawal $500

- interest rate of 10% on total balance if balance $2,000 or more, otherwise nil interest

- free of all bank charges

- deposits must be lodged for one month to earn interest

■ , - interest calculated daily and paid quarterly

' " . - minimum opening balance $2,000

NATIONAL AUSTRALIA BANK : INVESTMENT PASSBOOK

- minimum balance $1.00

- no interest paid if balance drops below $2,000

‘ . - if balance over $2,000 interest rate is 10% pa on whole

balance■ otherwise nil

- interest paid yearly on minimum monthly balance

■ - no restriction on amount of withdrawal or deposits

·--·/. -.v. · · ; ■ ' · = ,Vv · - direct credit facility

WESTPAC : PASSBOOK SAVER - PENSION OPTION

- minimum balance $1.00

- tiered interest rate from 1 March 1991 $1.00 to $1,999 nil $2,000 and up, 10.00%

- - normal interest rates apply until 1 March 1991

" OTHER BANKS .

ADVANCE BANK : Pensioner Direct

- tiered interest rate $1.00 to $1,999 nil .

$2,000 and up, 10.00%

- - interest calculated daily and paid 6 monthly

- funds immediately at call

- free cheques

- opening balance $500

- only available to people over 55 years

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(Cont)

PAGE 6

CHALLENGE BANK - Pension Safegaurd

- tiered interest rate ' '

$1.00 to $199 = nil ;

$200 to $1,999 = 6% pa · !

$2,000 and up, 10.00% 1 '

- no minimum withdrawal or deposit ' _

- minimum opening balance $2,000

CHASEAMP BANK: Optimizer Cheque

- Pays 10% on total balance if balance over $2,000, otherwise nil interest ■ ■ . ■

- Fees - Customer Initiated Transactions : 65 cents

- Monthly fee of $2.50 if balance less than $2.50

- no restriction on amount of withdrawal or deposit

BANK OF MELBOURNE : INVESTMENT PASSBOOK

- funds at call 30 days after deposit . .

- for the first 30 days the minimum balance must be $1,000, /

it can then drop to below $1,000 and still attract 10%. ■ . ■

BANK OF MELBOURNE : CASH MANAGEMENT ACCOUNT

- funds at call ■■·.--

- interest rate varied weekly · ■

- no restriction on amount of withdrawal or deposits -

R & I - Pensioner Saver . ■ '

- tiered interest rate . . . ■

$1.00 to $1,999 4.00% $2,000 and up, 10.00% on full balance · ■ . -

- minimum deposit or withdrawal $500 . .

STATE BANK NSW : STATE MONEY WISE . . .

- funds available at call :

OTHER BANKS (Cont)

- interest calculated daily and paid monthly

- N.B. interest linked to "deemed" rate but naid on total

- Account only available to people over 55 years or in receipt of DSS or DVA pension

- no restriction on amount of withdrawal or deposits

(Cont)

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STATE BANK SA : Pensioner Protector

- tiered interest rate $1.00 to $1,999 ni1% $2,000 and up, 10.00%

interest rate linked to "deemed rate"

- interest calculated monthly and paid annually

- no bank charges

- no minimum balance or withdrawal

OTHER BANKS (Cont)

CAPITAL BUILDING SOC : RETIREMENT INVESTMENT

- only available to pensioners ·

- tiered interest rate $1.00 to $1,999 = 4% pa $2,000 and up, 10.00%

CPS CREDIT UNION : TRAVEL ACCOUNT

- interest calculated daily and paid 6 monthly and paid on total balance

- minimum balance $1.00

- no restriction on amount of withdrawal or deposit

CPS CREDIT UNION : HIGH INTEREST CHEQUE ACCOUNT

- $2 per month account keeping charge

- first ten chegues per month free, then 30 cents a cheque

- no restriction on amount of withdrawal or deposit

- interest calculated on minimum monthly balance and paid twice yearly, and paid on total balance

CPS CREDIT UNION - Redifund

- interest calculated daily and paid monthly

- minimum balance $1,000

- account only available to people over 50 years or retired

minimum withdrawal $400

(Cont)

PAGE 8

OTHER FINANCIAL INSTITUTIONS (Cont)

C.U.P.E. Friendly Society (QLD)

- no minimum deposit or withdrawal

- If balance under $5000 then first $1000 is 8%, remainder 10% If balance over $5000 pays 12.25% on total balance If balance over $20,000 pays 12.50% on total balance

HOME PBS (WA)

- $2,000 is required to open the account

- interest calculated on minimum monthly balance and paid 6 monthly

- Free of FID and BAD tax

- Free counter-cheques if balance is $2000, otherwise $2 per cheque

- tiered interest rate $1.00 to $1,999 = 4% pa $2,000 and up, 10.00%

IOOF Income Protector­

- 12 month free membership to Aust. Retired Persons Assoc.

- 12 payment of ambulance subscription

- .discounts on health, home and general insurance

10 interest on full balance (interest rate guaranteed for 1 year from when account is opened

OVER 50's BUILDING PBS : Pension Income Protector

- tiered interest rate $1.00 to $1,999 8.00% $2,00-0 and up, 10.00%

- interest calculated daily and paid quarterly

(Cont)

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PERMANENT BUILDING SOCIETY - Pensioner Plus

- Interest rate is 10% pa on total balance if balance over $2,000 otherwise 5%pa.

- no government duties

- no transaction or administration fee

- free counter cheque

- interest paid daily and paid six monthly

- minimum balance $5.00

POLICE & NURSES - Pension Club Account

- tiered interest rate $1.00 to $1,599 5.00% $2,000 and up, 10.00%

- interest calculated daily and paid annually

- no fees or charges

QUEENSLAND TEACHERS CREDIT UNION - Special Saver

- tiered interest rate $1.00 to $1,999 8.00% $2,000 and up, 10.00%

QUEENSLAND COUNTRY CREDIT : Smart Saver

- tiered interest rate '$1.00 to $999 4.00% $1,000 to $1999 8.00% $2,000 to $4,999 10.00%

$5,000 and up, 11.00%

QUEENSLAND COUNTRY CREDIT : Bonus Trust

- tiered interest rate $1.00. to $499 4.00% $500 to $999 8.00% $1,000 and up, 11.00%

QUEENSLAND PROFESSIONAL : Savings 2001

- minimum deposit, withdrawal or balance $1,000

OTHER FINANCIAL INSTITUTIONS (Cont)

(Cont)

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OTHER FINANCIAL INSTITUTIONS (Cont)

SUNCORP : Super Nest Egg

- tiered interest rate $2,000 to $9,999 10.00% $10,000 to $19,00 10.25% $2,000 to $49,999 10.75%

- minimum balance $2,000

- Minimum withdrawal $400

ST GEORGE : PENSIONER PROTECTOR

- tiered interest rate $1.00 to $1,999 5.00% $2,000 and up, 10.00% (see below for joint accounts)

- if the account is held jointly by a married couple tiered interest rate $1.00 to $3,999 5.00% $4,000 and up, 10.00%

- client may elect to forego the 5% interest paid on first $l,999/$3,999

- no charges other than normal government taxes

- no restriction on amount of withdrawal or deposits

- interest calculated daily and paid 6 monthly

- account only available to pensioners

TOWN AND COUNTRY : Pensioner Account

- Minimum opening deposit $2,000

- balance can drop below $2,000 but approval must be obtained from branch \ '

- interest calculated daily and credited quarterly

- minimum withdrawal $1,000

VICTORIAN SAVINGS & LOANS : PENSIONER ACCOUNT

- tiered interest rate $1.00 to $1,999 6.00% .

$2,000 and up, 10.00%

- interest calculated daily and paid annually

(Cont)

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ATTACHMENT B

QUESTIONS & ANSWERS ABOUT DEEMING ON CASH & DEPOSITS

From March 1991, DSS will assess income from cash and bank, building society and credit union deposits under different rules. The rules are quite simple.

. Income actually earned from the first $2000 (for single pensioners and beneficiaries) or the first $4000 (for married pensioners and beneficiaries combined) in cash and bank, building society and credit union accounts will be

assessed for Social Security and Veterans Affairs income test purposes at whatever rate of return it is earning. If the first $2000 or $4000 is not earning anything, then nothing will be counted. This happens now.

. Amounts over $2000 (single) or $4000 (married combined) which are earning less than 10% will have income assessed using a 10% interest rate. This is the new rule from March 1991.

. Amounts earning interest at more than 10% will have income assessed using the actual interest rate being earned. This is the same as happens now. ■

While Social Security beneficiaries eg unemployment beneficiaries, are also covered by the new rule, most interest in the new measures has come from pensioners.

The following questions are those most frequently asked by pensioners about the new arrangements.

I am a single pensioner. Am I allowed to have more than $2000 in my account?

Yes. All that has changed is that if you have more than $2000 in total in cash and accounts, and the total is earning less than 10% your income for pension income test purposes will be assessed using a 10% interest rate on the

amount over $2000. The allowance for the.first $2000 is for the first $2000 in total, not for the first $2000 in each account. For married couples, the allowance is $4000 before the 10% rate applies. But it should be stressed

that the $2000 is a ’floating' amount and can be continually 'topped up' to $2000 as the funds are used.

I am a single pensioner, and my only income is from low interest bank accounts. Will my pension be affected by the new rule?

No one will be affected if they have less-'than $2000 (single) or $4000 (married combined) in cash and low interest deposits.

Importantly pensioners with no income apart from their pension and bank, building society or credit union interest cannot lose any pension if they have $20,800 or less in cash and deposits whatever rate of interest, including zero

interest, is being earned currently. For pensioner couples the amount is $36,400. <<>

PAGE 13

questions and answers on deeming (contl

EXAMPLE 1 - SINGLE PENSIONER

Bill owns his own home and has one bank account with $15,000 at an interest rate of 6%. He has no other income. From March 1991, Bill will have, the following income assessed:

. the income received from the first $2000 is $120 a year ($2000 at 6%).

. the income assessed on the amount over $2000 is $1300 a year ($13,000 at 10%).

Bill’s assessable income from March 1991 will be $120 plus $1300, that is, $1420 a year. This is $27.30 per week. It is less than the amount of income a single pensioner is allowed to have before pension is reduced (the "free area") of $40 per week. So Bill’s full pension will continue.

Even if Bill had other income of up to $12.70 a week his total income would still be below the 'free area'.

EXAMPLE 2 - PENSIONER COUPLE

Stan and Doreen own their own home and have one bank account with $25,000 at 6%. They have no other income. ' From March 1991, they will have the following income assessed:

. the income received from the first $4,000 is $240 a year ($4,000 at 6%)

. the income assessed on the amount over $4,000 is $2,100 a year ($21,000 at 10%)

Stan and Doreen’s assessable income from March 1991 will be $240 plus $2,100, that is $2,340 a year. This is $45 per week. It is less than the amount of income a married pensioner couple is allowed to have before pension is '

reduced (the 'free area') of $70 per week. So Stan and Doreen’s full pension will continue.

Even if Stan and Doreen had other income of up to $25 a week they would still be unaffected.

NOTE: The majority of pensioners who have been asking about “the 10% rule" are in these situations, that is, their pension will not be affected at all.

Of course, even though the pensioners in the examples are not affected, they would still be better off if they did try to earn more interest.

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questions and answers on deeming ( r n n M

Can I escape the rule if I take my money out of my low interest account and hold it in cash?

No. The new rule applies to cash as well as accounts and you will have to declare such cash holdings over and above the amount you normally hold for everyday expenses. Also, it is much safer to hold your money in an account rather

than in cash.

I currently get less than 10% on some of my accounts. Do I have to get more?

You can leave them as they are if you wish. However, from March 1991, the income assessed for income test purposes from these accounts will increase - if the amount earning less than 10% is more than $2000 (single) and $4000

(married combined). ’

For most people, this will not affect their amount of pension. For others, it will and it will be in their interest to look at opportunities for getting a higher interest rate so as to achieve a higher total level of

income.

Should I try to get more interest from my accounts if they afe earning less than 10%?

While you are not required to obtain more interest, if you do, it can only help you because while your pension might be reduced (depending on your exact circumstances), your total after tax income will increase and you will have more money. The Government has introduced the new rules to encourage you to get more money from your savings. Other people get more interest from their money with banks. Why

shouldn't you?

41)83

Question?; anti answsrs on deeming front- Έ

I am a single pensioner with a superannuation pension of $50 a week and only slightly more than $2,000 of savings invested at 6%. How can I get 10%? What happens if 1 take out a few hundred dollars?

Your pension will be reduced slightly by. the new rules. However, a number of financial institutions, including major banks, have introduced special pensioner accounts which pay 10% at call on balances over $2,000 (see Attachment A) .

If you make a withdrawal and your balance falls below $2,000, you should tell Social Security or Veterans' Affairs about it. They will then only take the actual interest income you receive into account in calculating your pension and the deeming rules will not be used.

If your balance then goes back above $2,000 you only have to tell the Department about it if the balance goes up by more than $1,000 compared to the amount you last told the Department. This enables you to have your pension paid

into the account without it being affected by the deeming rules.

Why should I obtain more interest when this will only reduce my pension? "

Your pension would only be reduced if your income becomes higher than the free area of $40 a week (single) or $70 a week (for married couples). If you have no other income , such as superannuation pension or earnings from a part-time

job, this means that you can have savings of up to $20,800 invested at 10% or less (single pensioners) or $36,400 at 10% or less (married couples) without any loss of pension.

If your income is high enough to reduce your pension you lose only 50 cents of pension for each dollar of interest income. Taking this and and extra tax you may have to pay into account, you will still be better off if you invest at 10%-. as your total income will be higher than before.

If I obtain more interest, will I lose my fringe benefits?

No. The Government has announced that pensioners who had a Pensioner Health Benefit Card at the Budget date (21 August 1990) will not lose it. Even if the extra money they earn on their investments means they do not get any pension they will still keep their cards.

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PAGE 16

questions and answers on deeming, fcont-.')

People say higher interest rates are risky. Does the Government expect me to risk my savings?

Absolutely not. For example, you can simply obtain higher interest from your current bank. You do not have to make less secure investments. Many financial, institutions provide accounts that pay 10% or more and which are readily accessible and safe (see Attachment A for details).

Who can I turn to for information about higher interest accounts?

You could speak to the local branch of your bank/building society/credit union about what is available from them or ■

' shop around' and see what is available from their competitors. These institutions will have pamphlets and other written information and specialist staff to explain '

their products. If you have a lot of money to invest, you · .

may also wish to seek advice from an investment adviser. ’ . ' .

Also, Social Security offers a free Financial Information . . . -

Service for Pensioners (FISP) . FISP Officers can give you , ■ .; .: . . . .

advice on how income from different investments is treated for pension purposes. If you are having difficulty in ' ' · . A - ''V

finding out about the interest rates which are available, - ' : .

the FISP Officers will be able to help you. " ' · . ‘ ■

Am I still allowed to take money out of my accounts to buy things or to go on holidays?

Of course. Nothing has changed. There have never been any restrictions on spending your money. As you spend your money, your pension will be increased if you are not ' already receiving the maximum pension after you advise the

Department. However, if you give your money away to get a pension or get a higher rate of pension your pension could be reduced. In fact, the rules about this have been tightened to discourage pensioners from doing this.

Why has the Government used a deeming rate of 10%?

This rate was selected as it was representative of the interest rates available on smaller to medium deposits with major financial institutions. Most pensioners should be able to easily obtain 10% with the bank they have their

pension paid into. A number of banks have already adjusted their products to cater for the new arrangements and it is likely that others will follow (see Attachment A for details) .

The Minister for Social Security has the power to lower the 10%, and has given an undertaking that he will reduce the deeming rate if 10% is not generally available.

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questions and answers nn

Why were combined) the amounts of $2000 (single) and $4000 (married excluded from deeming rules?

The Government recognises that some money needs to be held in a readily accessible form (eg: a cheque account) for day-to-day living expenses and other unpredictable expenses (eg. car repairs or house maintenance).

How often do X need to tell Social Security about how much X have in cash and accounts?

When the new rules are introduced, you will only need to tell Social Security if the total amount in cash and accounts increases by more than $1,000 compared to what you told us last time. You do not need to tell Social Security about small deposits and withdrawals, including the payment of your pension into the account. However, if you withdraw

a significant amount to spend or if your savings reduce significantly because of a series of small withdrawals it is in your interests to tell Social Security because it may mean that your pension can be increased. ·

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