Pensioners stand to receive less interest from their investments from late next month, if they are not careful.
"Deeming" rates will reduce on March 20 and, if past practice is a guide, deeming accounts offered by financial institutions will be lowered to match the new, lower deeming rates.
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Part-pensioners and full-pensioners will have some money invested in term deposits, and other cash accounts and perhaps even in shares.
This money is deemed by the government to earn a certain interest rate regardless of the actual interest rate.
Deeming is two tiered. For a couple, the first $79,600 of "financial investments" is deemed to earn 2 per cent a year. Assets over $79,600 are deemed to earn income of 3.5 per cent a year.
The government changes the deeming rates from time to time to keep them more or less in step with the actual returns that can be earned.
With interest rates moving lower, the government will lower the deeming rates to 1.75 per cent and 3.25 per cent from March 20.
It will mean a small increase for part-age pensioners for whom the income test is the reason they are not receiving the full pension. Their pension payments will increase as they will be deemed to be earning less on their investments.
The increase, on average, is less than a $100 a year. Though, there will also be an indexation increase in the pension that takes effect on March 20.
Many financial institutions provide "deeming" accounts. They do not usually have the word "deeming" in their names, but they are transactions accounts that pay the deeming rate.
They can be attractive for pensioners because they usually have no account-keeping fees and a free number of withdrawals can be made each month. They can usually be accessed at bank branches, ATMs and online and inquiries can be made by phone.
Justine Davies, finance editor at Canstar, says the last time the deeming rate was reduced all of the 70 deeming accounts on its database reduced their interest rate within two months of the government announcing the change.
Pensioners can earn whatever they like on their investments and are free to invest in any sort of cash accounts, term deposits or shares. Deeming is not a restriction on how much can be earned.
Deeming accounts usually pay three tiers of interest. Typically, it is 0.5 per cent on the first $2000, then the current deeming rate of 2 per cent on the next amount of saving up to the "single person" deeming tier of $48,000. It is 3.5 per cent for amounts above that.
But after the institutions adjust for the new deeming rates, most money in the accounts will be earning 1.75 per cent. Some online saving accounts pay a base rate of 2.5 to 3 per cent.
These savers are online access only and may come with fees or restrictions, so they may not suit everyone. Term deposits are paying 3 per cent. And just like deeming accounts, these better-paying alternatives are also covered by the government's deposit guarantee.
