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Differentiating between Temporary and Long Term Severe Financial Hardship

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Last amended: 30 April 2014

Difference between long term and temporary hardship

The following table illustrates the practical difference between temporary and long-term severe financial hardship.

If

then the financial hardship is considered

the person's financial position has suffered substantially as a result of factors such as:

  • bushfire,
  • drought,
  • illness of the proprietor,
  • a downturn in the industry or sector of the industry,

and improvement in their financial position is likely in the future

Temporary

improvement in the person's financial position is not likely in the foreseeable future

long term

Impact of temporary hardship

Where a person's financial hardship is considered temporary, it would be unreasonable to expect the person to radically restructure asset holdings to alleviate their situation. Consideration should also be given to the fact that the temporary hardship affecting a business is likely to have reduced the value of the assets concerned. Therefore the question of appropriate valuation of the assets under the assets test should be considered. Although there are situations where a person is not expected to sell property, they may be able to sell other assets to alleviate any hardship. It is at the discretion of the Commission to decide whether the hardship is long term or temporary.

Indication of long term hardship

A long-term hardship situation is one where improvement in the person's financial position is not likely in the foreseeable future. The person would then normally be expected to re-arrange financial affairs to try and improve their own financial position. To do this the person would be expected to realise non-liquid assets which are of significant value, e.g. caravan, boat, second car, additional land, holiday home and life assurance policy. Where the total value of these realisable assets, combined with other readily available assets is below, the maximum single annual rate of service pension for non-partnered cases or the maximum combined annual rate of service pension for partnered cases, as per the rate calculator, the person would not be expected to realise them before the hardship provisions can be applied.