The lower deemed rate, which is currently 1.75 per cent, will drop to 1 per cent, and the higher deemed rate, which is currently set at 3.25 per cent, will drop to 3 per cent. The change will be backdated to 1 July 2019.

The superannuation industry and retiree groups have been very vocal about the impact of current deeming rates on retiree income, with deeming rates left unchanged since 2015, despite a series of cuts to the official cash rate.

The Council on the Ageing (COTA) said the reduction in deeming rates used for the aged pension income test was welcome news for over 600,000 part-rate age pensioners.

COTA chief executive Ian Yates said cuts to the cash rate have impacted the interest paid on savings and term deposits.

“Most banks are offering less than 1.0 per cent for savings accounts, but at least two of the big four are currently offering 1.75 per cent on term deposits over $5,000 for only six months, so many pensioners will be ahead on average between their savings account and term deposits together,” Mr Yates said.

Mr Yates said while pensioners with hundreds of thousands of dollars in term deposits will complain that they are still disadvantaged, he pointed out that more than two-thirds of age pensioners affected by the higher deeming rate are currently earning more than 3.25 per cent, with 70 per cent having market-linked investments such as shares, managed funds or superannuation funds that are returning over 5.0 per cent.

“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,” Mr Yates said.

National Seniors Australia said that while it welcomed the announcement, the changes did not go far enough.

“While we welcome the $600 million announcement today, the truth is the Morrison government still has its hands in pensioners’ pockets at a time when they can least afford it,” said National Seniors Australia chief advocate Ian Henschke.

“What the government is telling pensioners is that they are earning 3 per cent on their investments, when most term deposits are not even returning 2 per cent — how is that fair?”

Mr Henschke also said that deeming rates should be set independently, instead of being set by the government of the day.

“It’s too tempting to have the deeming rates controlled by governments who have been using this for too long as part of their budget-balancing process,” he said.

The Australian Council of Trade Unions said the government’s plan to cut deeming rates is “only tinkering around the edges”.

ACTU assistant secretary Scott Connolly said the government needs to go further by cutting the taper rate so that working people experience a fair retirement.

“Retirees will still lose out despite deeming rates being cut. The current asset taper rate is punitively high and causes some retirees to be worse off just for having superannuation savings,” he said.

“The asset taper rate undermines the integrity of the superannuation system by rendering pointless additional superannuation for many workers approaching retirement needing to draw a part pension.”