About 1 million Australians will receive a cash boost of up to $804 a year, after the Government announced long-anticipated changes to so-called deeming rates.

Key points: The deeming rate will decrease from 1.75 per cent to 1 per cent for financial investments up to $52,000 (single pensioners) and $86,000 (couples)

The deeming rate will decrease from 1.75 per cent to 1 per cent for financial investments up to $52,000 (single pensioners) and $86,000 (couples) The upper deeming rate will be cut to 3 per cent

The upper deeming rate will be cut to 3 per cent The changes mean single pensioners will see up to $804 extra a year in their pockets, and couples $1,053

Seniors groups and Labor have been lobbying the Government to cut the official deeming rate, which is used to calculate how much a pensioner earns on their financial assets — regardless of the actual return.

That calculation is then used for the pension income assessment and therefore affects how much someone receives through their pension.

Labor had argued the current rate was short-changing pensioners, saying deeming rates were meant to be set with regard to returns available in the market.

On Sunday, the Government bowed to that pressure, with Families and Social Services Minister Anne Ruston announcing the deeming rate on the first $51,800 of a single pensioner's financial investments — and the first $86,200 of a couple's — would drop from 1.75 per cent to 1 per cent.

The deeming rate for balances above those amounts will change from 3.25 to 3 per cent.

It means couples whose income is assessed using deeming will receive up to $1,053 extra a year, while singles could pocket up to $804 extra a year.

"We're strengthening the arm of about 1 million welfare recipients, including 630,000 pensioners," Treasurer Josh Frydenberg told ABC's Insiders program.

"This is about lowering the deeming rates, which will be good for them."

The move is expected to cost the Government $600 million across the next four years.

But the Opposition's Social Services spokeswoman, Linda Burney, said the rate cut did not go far enough.

She argued the deeming rate should be more in line with the Reserve Bank interest rate, which is currently at 1 per cent.

The cash rate was 2.25 per cent when the current deeming rates were set in 2015.

"This is too little too late, and seniors groups and retiree groups are saying very clearly this morning the way the Government has moved and the amount the Government has moved is simply not good enough," she said.

"The best the Government has been able to do today is make a move of less than 0.25 per cent in the upper rate, and 0.75 per cent in the lower rate.

"The cash rate is 1 per cent, the Government has not moved on deeming rates for four years, they have made a lot of money on the back of retirees."

However Mr Frydenberg defended not cutting the upper deeming rate below 3 per cent.

"What's important to understand is — it's not a linear equation between or comparison between the cash rate and the deeming rate, because the deeming rate applies to a whole suite of assets," he said.

"So it applies to bank deposits and a term deposit, could be at 1.75 per cent today, but it could apply to superannuation returns, and that's averaging around 5.5 per cent — or to yields on ASX 200 stocks, which are averaging about 4.5 per cent."

'It's an insult to every pensioner out there who's battling'

Denis Reid says the Government is being hypocritical by not matching the deeming rates to the official cash rate. ( ABC News: Marco Catalano )

But New South Wales pensioner Denis Reid accused the Government of ripping off pensioners.

"For the Government to come out and say they'd give us $800? It's nothing," he said.

"It's an insult to every pensioner out there who's battling.

"I'd go as far as to say it's thieving, it's just so unfair."

Mr Reid accused the Government of being hypocritical by not bringing the upper deeming rate down to 1 per cent.

"They're telling banks to pass interest rates on to consumers — and here they are criminally knocking you off!"

"It doesn't take a mathematician to know it's made flat to stack but the stack's not going to be very high when you're stacking it."

However the Council on the Ageing Australia said the announcement was largely welcome news for those who were eligible.

Chief executive Ian Yates noted the announcement would not affect 75 per cent of age pensioners.

"Those calling for the full cut in the cash rate to be applied to deeming need to be honest about how many pensioners are affected, and about the fact that if the Government replaced the deeming rate with actual earnings the majority of part pensioners would be worse off," he said.

"We appreciate the frank and constructive discussions we have had over the last week with relevant ministers in the Morrison Government and the positive outcome that has resulted."

The changes will also benefit those receiving other income-tested payments, including the Disability Support Pension and Carer Payment, as well as Newstart.

Eligible Australians will see the extra money come into their bank accounts from the end of September, in line with the regular indexation of the pension.

The payments will be backdated to July 1.



