Pensioner Deeming Account

Personal Investment

Wednesday July 31, 1996

JANELLE CARRIGAN

GOLD Town & Country

SILVER State Bank of NSW

BRONZE Advance Bank

From the start of the financial year pensioners have been subject to a new social security income test. Any retirees who receive a pension (either full or in part) as well as income from investments are affected by the new way of assessing financial investments. The income test bundles a range of assessment rules, with retirees' assets now assessed under one scheme.

The new test includes income on bank accounts (including pensioner deeming accounts) credit union accounts, cash, term deposits, government bonds, mortgage loans and managed investments. Assets not covered under the scheme include the family home, home contents, cars, boats and standard life insurance policies.

Instead of evaluating assets individually, assessable income will assume to be earning a set rate of interest. For a single person the first $30,000 of financial investments will assume to be earning 5 per cent a year. Any amount above $30,000 will assumed to be earning 7 per cent.

For a couple, the first joint $50,000 will assume to be earning 5 per cent, with the balance of investments earning 7 per cent. So a pensioner deeming account's main purpose is to offer this interest rate, or higher, to fall in line with government assessments.

And any assets earning above this rate, will be income earned without penalty. If for example, a share portfolio is earning 11 per cent a year, the most that can be assessed is 7 per cent. Conversely, leaving money in a low interest rate savings account will "short change" the holder because assets are being valued at a higher rate.

As the repercussions of these changes start to take hold, pensioners may place more importance on growth investments, moving away from lacklustre low interest bearing accounts.

For pensioners holding a deeming account, interest rates take priority over most other account features. Accordingly, we weighted 56 per cent of the points in favor of interest rates. Fees, another important aspect of pensioner deeming accounts, were weighted at 18 per cent.

Only four banks entering this category are fee-free, suggesting that many banks may be forced to review the structure of their accounts in the coming months. To calculate a standard monthly charge on an account, with a minimum monthly balance of $499, we asked the following question: what are the fees with two ATM withdrawals from a customer's own machine, two ATM withdrawals from other banks' ATM, three Eftpos transactions, three over-the-counter withdrawals with a personal cheque, three over-the-counter cash withdrawals using an ATM card, two cheque withdrawals, six cheque withdrawals (three using one withdrawal slip and three using separate slips) one periodic payment to another bank and four direct credits.

Although this scenario sounds exhausting, total transactions add up to about 24, taking into account social security payments, investment income and other daily withdrawals.

The regional banks took out all the medals this year, with Town & Country Bank winning gold again for its Goldstar Pensioner Deeming Account. A combination of consistently high interest rates and no fees has created one of the bank's most competitive products. State Bank has come in again at second placing, offsetting relatively high fees with high-performing interest rates.

Major banks may have to pick up their performance; of the four majors, Westpac ranks the highest at seventh position. But ANZ was one of the first to announce moves that it would pay more than the deemed rate of interest from July. Its High Performance Passbook Deeming account will pay 7 per cent interest on all balances, offering pensioners the potential to earn extra interest without penalty.

The new rate can make quite a difference. For example, a single person with $35,000 in an account, would be deemed to be earning $1500 interest (5 per cent) on the first $30,000 and $350 (7 per cent) on the other $5000. The new ANZ account would, in fact, be paying $2450.

Pensioner deeming
 placings
 Bank                   Interest        Fees    Features        Terms &
Total
                        rates                   conditions points
 Town and Country Bank  385.35  40      81      69.3    100
 State Bank of NSW              393.82  33      57      47.7    92.33
 Advance Bank           385.35  38      45      49.5    89.96
 Bank of Melbourne              215.83  40      54      38.7    60.55
 Bank of Queensland     215.83  38      45      31.5    57.38
 Bank of Western                148.2   30      57      27.9    45.71
 Westpac                        93.13   38      69      60.3    45.24
 Commonwealth   115.36  38.2    63      43.2    45.12
 Trust Bank of Tasmania 103.66  36      51      63.9    44.22
 Bank of South Australia        105.52  31.5    39      54.9    40.12
 National Australia             89.52   31.5    57      51.3    39.84
 Metway                 36.13   40      78      67.5    38.5
 Challenge Bank                 69.89   33.8    60      48.6    36.88
 Adelaide                       100.89  32.5    33      32.4    34.53
 ANZ                    71.84   40      42      39.6    33.6
 St George              36.13   36.5    54      44.1    29.65
 Bendigo Bank           33.6    36.5    48      43.2    28.02
 Bank NZ                        No entry
 Citibank Limited               No entry
 ING                    No entry
 QIDC                   No entry
 QIDC                   No entry
 Weightings: Rates 56%, Fees 18%, Terms & Conditions 17%,
 Features 9%
Source:CANNEX

© 1996 Personal Investment

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