Deeming rates have remained unchanged since 2015 but official interest rates have fallen from 2.25 per cent to 1.25 per cent with the Reserve Bank of Australia signalling they will fall even further. At the time of their last move, Mr Morrison said the reduction would cost the budget $200 million a year in extra pension payments.
National Seniors chief advocate Ian Henschke said part pensioners were being hit hard by the government which was failing to reduce deeming rates.
He said while the recent fight over franking credits had affected about 10 per cent of his organisation’s membership, deeming rates was affecting the other 90 per cent.
“This is just another example of the government using pensioners as a milch cow,” he said.
“It’s hypocritical of the government, which was telling the banks to pass on all of the recent cut in official interest rates but at the same time they hold the deeming rate at the same level it’s been since 2015.”
Mr Henschke said pensioners were being hit twice, as they received less income from their deposit investments as interest rates fell and then again because the unadjusted deeming rate hit their pension payments.
He said instead of the government setting the deeming rate, the Reserve Bank should be given responsibility as it did not have a financial interest in keeping them artificially high.
Council on the Ageing chief Ian Yates said holding the deeming rate at its current level was clearly a money-play from the government.
“Of course it is a budget bottom line thing,” he said.
Mr Yates said he had lobbied both Labor and Coalition ministers over the past decade to establish an independent benchmark that would see the deeming rate reassessed every three months, but both sides of politics had rejected it.
“If government has an objective benchmark then we will all know what that is and they will all have to do it,” he said.
“It would be set by Parliament and put into a bill.”
Most part-pensioners hold cash in term deposits or at-call accounts. The best available term deposit in Australia at present is 2.55 per cent for holdings of at least $50,000.
None of the big four banks offers such a good rate with analysts expecting all institutions to lower their rates in coming weeks.
Social Services Minister Anne Ruston has been waiting nearly two weeks to make a decision on whether the rate should be adjusted, as the Reserve Bank signals another rate cut is imminent – further eroding returns for pensioners.
Senator Ruston requested a report from the department immediately after the central bank cut rates on June 4.
“The minister is in regular contact with the department and is considering advice,” a spokesman said.
Any change, however, would most likely to be held until September as it and March are the traditional months in which pension rates are modified.
Treasurer Josh Frydenberg said while interest rates had fallen, the government also had to take into account other investments.
“You have to understand it applies not just to deposits but takes into account other assets like stocks where there may be a greater return than having money in the bank. It’s worked out across the board,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age.
Matthew Knott a reporter for The Sydney Morning Herald and The Age based in the United States.