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.
"It will mean more money in the pockets of older Australians," Ms Ruston said in a statement.
The move is expected to cost the Government $600 million across the next four years.
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