The Greens are calling for a Senate inquiry into how the government sets the pension and welfare rates, with leading advocacy groups saying changes to the deeming rates don't go far enough.
The federal government on Sunday announced it would cut deeming rates which are used to estimate how much some pensioners earn on their financial investments.
Treasurer Josh Frydenberg says pensioners could now receive up to $804 more per year, with the decision to cost about $600 million without hurting the budget's bottom line.
"We're strengthening the arm of around one million welfare recipients," he told ABC's Insiders program on Sunday.
Mr Frydenberg said the rate applied to bank deposits, superannuation returns and to yields on stocks, affecting about 630,000 pensioners and nearly 350,000 people receiving other income-tested payments.
Families and Social Services Minister Anne Ruston said affected pensioners would receive up to $40.50 extra per fortnight for couples and $31 for singles.
The deeming rate on the first $51,800 of a single pensioner's financial investments - and the first $86,200 of a couple's - will drop from 1.75 per cent to 1 per cent.
The deeming rate for balances above those amounts will go from 3.25 per cent down to 3 per cent.
Senator Ruston said the rate was decided by looking at a range of financial assets and determining what the likely return would be.
But advocacy groups, including National Seniors Australia and the Combined Pensioners and Superannuants Association, want the government to explain how it arrived at the new rate.
"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," NSA's Ian Henschke said.
"Unless we have a clear understanding of the policy decision making process, this looks arbitrary and even if we do understand the process, it should be set by an independent authority."
The Greens will refer the issue to a Senate inquiry when parliament resumes next week.
But Labor's family and social services spokeswoman Linda Burney said the opposition had to consult the sector before offering support for such an inquiry.
She also said she is "agnostic" as to whether or not the rates are set by an independent authority, saying it's a decision for the government.
But Ms Burney said pensioners continued to be short-changed by the coalition.
"This lowering of the deeming rates today is far too little and far too late," she told reporters in Sydney.
"It has been four-and-a-half-years that they have been dudding pensioners by charging inflated deeming rate."
Council on the Ageing's Ian Yates said the cut was needed as interest paid on savings and term deposits have been hurt by the central bank's decision to cut the cash rate.
"We look forward to further discussions on how the deeming rate might be set in the future to remove the current level of uncertainty," he said in a statement.
Mr Yates also pointed out that deeming rates did not affect 75 per cent of pensioners.
The payments will start from the end of September, but will be backdated to July 1.
The move also affects people on the disability support pension, carer payment, the parenting payment and Newstart.