Record low interest rates have hit retirees receiving government pensions, and those with lower savings are likely to be hurt the most.

Speaking to The New Daily, Combined Pensioners and Superannuants Association (CPSA) policy director Paul Versteege said retirees receiving an age pension stand to lose up to $215 a year in income as a result of the rate cut.

The loss of income is a product of Centrelink’s ‘deeming rates’. These rates are used by government as a guide to assess how much income pension recipients are likely to receive from investments each year, rather than using each pensioner’s actual investment returns.

However, these rates have not changed since 2015, when the Reserve Bank’s official cash rate was 2.25 per cent – 44.5 per cent higher than current record low cash rate set this week at 1.25 per cent.

That’s a worry for pensioners, because safe investments like term deposits have begun to pay less than the assumed rates of return.

Currently, single pensioners is 1.75 per cent per annum for the first $51,200 of financial assets. Anything above that threshold is assumed to earn 3.75 per cent each year.

For couples where one half receives a pension, the first $85,000 in combined financial assets is deemed to earn 1.75 per cent, and above that to earn 3.75 per cent. In cases where both people receive a pension, the first $42,500 is deemed to earn 1.75 per cent, with the 3.75 per cent rate kicking in beyond that.

For comparison, the average term deposit is today about 2 per cent.

While it’s difficult to work out exactly how many people this will affect, Mr Versteege said it’s more likely to be those with already lower retirement savings, as the deeming rates apply to retirees who receive their pension under the income test – not the asset test – and this cohort traditionally has less money set aside.

“We can safely say it’s going to be those people with low retirement savings that are affected by this,” he said.

Assessment criteria a secret

How the Department of Social Services decides what level to set deeming rates is unclear, as no metrics or criteria have been made available through the department’s website.

The New Daily reached out to the department for clarity on how the rates were set, but the department did not provide answers to any of the questions asked before deadline.

The CPSA has previously lodged a Freedom of Information request asking for a copy of the department’s assessment criteria, but these too have been knocked back.

“It’s quite strange,” Mr Versteege said. “When you look at pension indexation, they’re quite transparent about the process, but when you look at deeming rates – which have the same kind of effect on retirees – there’s this lack of transparency.”