B25/1993 (1) - BUDGET 1992 INITIATIVES TO CHANGE THE TREATMENT OF MANAGED INVESTMENTS FOR SERVICE PENSION PURPOSES | Compensation and Support Reference Library, Departmental Instructions, 1993

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B25/1993 (1) - BUDGET 1992 INITIATIVES TO CHANGE THE TREATMENT OF MANAGED INVESTMENTS FOR SERVICE PENSION PURPOSES

Document

DATE OF ISSUE: 4 May 1993

(1) - BUDGET 1992 INITIATIVES TO CHANGE THE TREATMENT OF MANAGED INVESTMENTS FOR SERVICE PENSION PURPOSES

(2) - AUTOMATED TRANSFER OF MANAGED INVESTMENT DATA

TABLE OF CONTENTS

PART A - PREAMBLEParas

Introduction1-5

Background6-9

Who Will be Affected?10

Implementation11

PART B - LEGISLATIVE AND POLICY CHANGES

The New Rules For Managed Investments Assessed On An12-14

Ongoing Basis

Existing Rules For "Saved" Managed Investments Assessed On Realisation15-18

New Superannuation and Roll-over Investment Rules19-22

Legislation23-24

Summary of Key Legislative Changes:

.Definitions25

.Managed Investments Assessed On An Ongoing Basis26

.Saved Managed Investments Assessed On Realisation27

.Superannuation Fund Investments28-30

Client Advices31-35

PART C - SYSTEM CHANGES

Agreement Between DSS And DVA Regarding The Automated

Transfer of Managed Investment Data (MIDAT)36-41

Changes To PIPS:42-46

.New PIPS PP.FE Fees Sub-screen47-51

.New PIPS PP.PF Profit Screen52-55

.Funeral Bond Products Will Now Be Data Collected On PIPS 56-57

Automatic Reassessment Of Managed Investments:58

.Fortnightly Reassessment Program59-60

.Global Full Reassessment Program61-63

Post-Implementation Daily and Fortnightly Advices64-65

Training:66-67

.Guides for Processing Staff68-70

Client Queries:

.Accuracy of Performance Data71-72

.Client Enquiries on the Rate of Return73-78

Contact Officers79

ATTACHMENTS

Attachment A - Overview Of The Managed Investment Rules

Attachment B - Sample Of March 1993 Quarterly Advice

(shows new MI table)

Attachment C (i) - Fortnightly MI Auto Reassessment Program:

Automatic Cases

Attachment C (ii) - Fortnightly MI Auto Reassessment Program:

Manual Cases

Attachment D - New "Managed Investment Profits/Losses Assessed On

Realisation" Table For Inclusion In Client Payment Advices

Attachment E - 'Rate Of Return' Methodology For Managed Investments

Assessed On An 'Ongoing' Basis

PART A - Preamble

INTRODUCTION

The purpose of this instruction is to outline the changes to the income test relating to the assessment of Managed Investments for pension purposes, as announced in the 1992 Budget.

2.The changes affect the income test treatment of Managed Investments assessed on an ongoing basis.  From 1 April 1993, these investments will no longer be classified as "Market Linked Investments" or "Accruing Return Investments".  They will have their income calculated as an annual rate of return allowing positive and negative income to be offset with entry and exit fees allowed as a deduction.

3.An overview of the operation of the new Managed Investment rules is shown at Attachment A.

4.In addition to the Budget 1992 changes, changes have also been made to the way in which Managed Investment data is collected by and transferred from the Department of Social Security to Veterans' Affairs.

5.DSS has engaged a private company to provide the bulk of the data required by DSS and DVA to assess income and asset values on managed investments held by our clients.  The result is that DVA will be provided with a more accurate and up-to-date supply of investment data on which to calculate the income and asset values of Managed Investments.

BACKGROUND

6.A joint DSS/DVA Investment Income Review took place during 1991/92.

7.The aim of the Review was to:

              .              simplify the income test treatment of various types of investments; and

              .              improve equity in the treatment of clients who hold different types of               investments.

8.In the August 1992 Budget, changes were announced to the treatment of Managed Investments.  The changes announced extend from this Review.

9.It should be noted that several other Budget initiatives relating to superannuation investments resulted from the same Review.  As there are a number of areas that overlap, this Departmental Instruction (DI) should be read in conjunction with the recently issued DI number B20/93 (titled "Budget 1992 Initiative To Extend Current CPSB Exemption Rules To All Superannuation Funds").

WHO WILL BE AFFECTED

10.All clients with Managed Investment records recorded on PIPS will have the new managed investment rules initially applied to their assessment by a global type

Automatic Managed Investment Reassessment Program run in conjunction with the March 1993 quarterly advice run.  As at March 1993 there were some 33,000 assessments Australia-wide recorded as holding Managed Investments.

IMPLEMENTATION

11.The effective date for Managed Investment changes was 1 April 1993.  This was also the effective date for a number of other Budget changes and the March Quarterly advices.

PART B - The New Rules

THE NEW RULES FOR MANAGED INVESTMENTS ASSESSED ON AN ONGOING BASIS

12.Prior to the Budget changes, all Managed Investments were categorised as either "Market Linked Investments" or "Accruing Return Investments" and different income test assessment rules applied to each category.

13.From 1 April 1993, the difference in income test treatment between Market Linked Investments and Accruing Return Investments for investments assessed on an ongoing basis was removed.

14.All Managed Investments that were assessed on an ongoing basis will now have the following assessment rules:

(a) The 11% Maximum Rate Of Return and 0% Minimum Rate Of Return Ceilings Used For Calculating MLI Income Have Been Abolished.

Income will now be calculated by multiplying the investment's current asset value by its "rate of return".  The calculation of the rate of return will take into account any rise or fall in the value of the investment over the previous 12 months and any income distributions made by the investment during the same period.  The methods used for calculating the rate of return on managed investments assessed on an ongoing basis are documented at Attachment E.

(b) Negative Rates Of Return Will Be Offset Against Any Ongoing Income Held Against Other Managed Investments.

Any negative income produced as a result of a negative rate of return will be allowed to be offset against any other ongoing income produced by other Managed Investments.  This includes positive rates of return and cents per unit (CPU) dividend income, but not realised profit or losses calculated on investments assessed 'on realisation'.

(c) Exit Fees Will Be Allowed As A Deduction.

Exit fees will be allowed as a deduction for 12 months following full or partial withdrawal from an investment that is assessed on an ongoing basis.  This is in addition to the deduction currently allowed for entry fees when making an investment.  This rule does not apply to investments assessed on realisation.

EXISTING RULES FOR "SAVED" MANAGED INVESTMENTS ASSESSED ON REALISATION

15.The new managed investment rules do not apply to Managed Investments that are currently assessed on realisation.  Managed Investments which are assessable on realisation include Market Linked Investments purchased prior to 9/9/88, friendly society bonds purchased prior to 1/1/88, or Accruing Return Investments purchased prior to 1/1/88 that did not allow partial withdrawals to be made.

16.The assessment rules for these investments remain unchanged. Income is only assessed when the investment is realised, that is when it is sold, surrendered, transferred, gifted, fully or partially withdrawn, or it matures.  The profit component is then held in the pension assessment for 12 months from the date the investment was realised.  Realised losses will be offset against realised profits on these investments, but only when the 12 month assessment periods overlap.

17.In the case of MLIs which were purchased prior to 9 September 1988, any dividends paid will be held as ongoing income in addition to profit being assessed on realisation.  The only rule that has changed is that any cents per unit (CPU) dividend income will be included in the offsetting provisions that were announced in the Budget.

18.The pre 1 April 1993 policy rules for these "saved" investments remain unchanged in relation to the following:

(a) top-ups to pre 1/1/88 Friendly Society Bonds;

(b) additions to pre 9/9/88 MLIs;

(c) first in first out rules for saved MLIs with pre & post 9/9/88 components;

(d) offsetting realised losses and gains on investments assessed on realisation;

(e) switching/transfer/assignment/gifting/full or partial withdrawal and maturity rules still apply in determining whether a realisation has occurred; and

(f) calculating realised profits or losses using the Managed Investment Withdrawals Worksheet Form D2702.

NEW SUPERANNUATION AND ROLL-OVER INVESTMENT RULES

19.Changes to the treatment of superannuation products were also announced in the 1992 Budget and also took effect from 1 April 1993.

20.The changes extended the exemption rules that previously applied to Compulsorily Preserved Superannuation Benefits (CPSBs) to all superannuation investments including Approved Deposit Funds, and Deferred Annuities until the investor reaches pension age.

21.As a result of the changed rules, all superannuation investment products for clients must now be data collected on the PIPS PP.MI Managed Investments Screen regardless of the client's age.

22.Full details relating to the new treatment of superannuation fund investments are contained in the previously mentioned Departmental Instruction number B20/93.

LEGISLATION

23.The assessment rules related to Managed Investments are contained in Part III Division 8 of the Veterans' Entitlements Act 1986.  Division 8 (Ordinary Income Test - Investment Income) has been significantly amended to include the new Budget 1992 rules and Part I s5J (Investment Income Definitions) has also been amended.

24.These changes are contained in the Veterans' Affairs Legislation Amendment Act (No. 2) 1992 and were effective from 1 April 1993.

SUMMARY OF KEY LEGISLATIVE CHANGES

Definitions

25.Section 5J of the VEA has been amended as follows:

.new definition of "Managed Investment"ss5J(1)

.new definition of "Investment Product"ss5J(1)

.new definition of "Superannuation Fund Investment"

replaces the old `Compulsorily Preserved Superannuation

Benefit' definitionss5J(1)

.new definition for "Listed Security" i.e., shares - but not

effective until  30 September 1993

Managed Investments Assessed On An Ongoing Basis

26.In relation to Managed Investments assessed on an ongoing basis, Part III Division 8 of the VEA has been amended.  New Sub-division AA - Managed Investments  s46AA deals with all the rules for Managed Investments assessed on an ongoing basis and now contains the following clarifications:

.detailed definitions and explanations of the "Annualised Rate Of Return" s46AD & s46AE clarify the use of the previous 12 months' performance (positive or negative); or if the product has been in existence less than 12 months the rate is extrapolated and annualised for a whole 12 month period.

."Offsetting" negative and positive returns s46AB & s46AC.

.new section on "Investment and Disposal Costs"  s46AF i.e., entry and exit fees allowed as a deduction for 12 months from the date incurred.

.restates that "Actual Returns On Ongoing Managed investments Are Not Income"  s46AG.

Saved Managed Investments Assessed On Realisation

27.Those sections of Part III Division 8 of the VEA that relate to saved Managed Investments assessed on realisation have been preserved as follows:

(a) retain "on realisation" 12 month profit rules for Saved Pre 1.1.88 ARIs:               "Subdivision B - Accruing Return Investments

Investments Made Pre 1.1.88 With Friendly Societies or

  Where No Partial Access Was Allowed"    sections 46B to 46BB;

(b) retain "on realisation" 12 month profit rules for Saved Pre 9.9.88 MLIs:               "Subdivision C - Market Linked Investments

Investments Made before 9.9.88"    sections 46J to 46K.

Important Note: in both cases above, when assessing Managed Investments "on realisation", profit is referred to in terms of the "assessable return" and "assessable period".  Both of these terms are defined in ss5J(1) and support the principle of the "assessable period" used on the new MIWW - Managed Investment Withdrawals Worksheet as follows:

."assessable return"  - is so much (if any) of the amount of the return as is attributable to the person's `assessable period'.

."assessable period"  -  in relation to a person, means any period during which the person received:

(i) a service pension or a social security pension; or

(ii) a social security benefit;

except any such period that occurs before a continuous period of at least 2 years during which the person did not receive such a pension or benefit.

(c) new definition of "Realises An Investment"  ss5J(7) & (8).

Superannuation Fund Investments

28.In relation to superannuation fund investments, the VEA has been amended as follows:

.new definition exempting income prior to pension age for "Superannuation Fund Investments"  definition of Income  paragraph 5H(8)(i).

.new sub-definition exempting asset value prior to pension age for "Superannuation Fund Investments"  definition of Assets  paragraph 52(1)(f).

.new definition of "Investment" in relation to superannuation; "Realise", and "Realises An Investment"  ss5J(1).

.new "Sub-division D - Superannuation Fund Investments Before Pension Age" in Part III Division 8.

.new clarification of exempt status of the investment if person has not reached pension age  ss46S(1).

.new on realisation section on "Early Withdrawal From A Superannuation Fund" before pension age  s46SA.

29.The superannuation fund investment is not treated as being realised if rolled directly over into another superannuation fund investment or directly into a superannuation pension or immediate annuity.

30.When a person reaches pension age the normal Managed Investment legislation applies.

CLIENT ADVICES

1 April 1993 Implementation Advices

31.Information about the Managed Investment and Superannuation Budget initiatives was sent to approximately 33,000 clients as part of the March 1993 Quarterly Advices.  The advice also included a new, simplified Managed Investments table.

32.This table will also be included in all future daily advices for clients holding managed investments and all automatic managed investments reassessment run-related advices.  Copies of the March 1993 Quarterly Advice wording and new Managed Investments table are at Attachment B.

33.As is the case with a routine managed investment automatic reassessment run, the majority of cases processed by the March implementation run were able to be automatically reassessed and an automatic advice despatched for cases where pension was increased or decreased.

34.For the implementation run only, clients with a continuation pension rate also received an automatic advice.  Clients whose pension was cancelled as a result of the automatic reassessment run needed to be processed manually and issued with a manual advice.

35.Manual cases were produced where automatic reassessment was not possible. Affected cases were listed in a "Manual Variations Required" schedule as is the procedure for a routine managed investment automatic reassessment run.

PART C - The System

AGREEMENT BETWEEN DSS AND DVA REGARDING THE AUTOMATED TRANSFER OF MANAGED INVESTMENT DATA (MIDAT)

36.In addition to the Budget 1992 changes, changes have also been made to the way in which Managed Investment data is collected by and transferred from the Department of Social Security to Veterans' Affairs.

37.DSS has engaged a private company (ASSIRT Pty Ltd), to provide the bulk of the data required by DSS and DVA to assess income and asset values on Managed Investments held by our clients.

38.ASSIRT is a recognised investment research firm, which collects investment data on most managed funds.

39.DSS will be supplying this managed investment data to DVA as per the Agreement entered into with ASSIRT and in accordance with a Memorandum Of Understanding between DVA and DSS.

40.DSS will still have a role in researching and collecting data for a number of managed funds where the information cannot be provided by ASSIRT, and in instances where specific determinations need to be made in relation to legislative provisions e.g., in respect of failed or collapsed investments or to implement policy rulings or to correct major data errors.

41.The engagement of ASSIRT as the provider of investment data will have a positive impact on DVA clients in that DVA will be provided with more accurate and up-to-date investment data on which to calculate the income and asset values of Managed Investment.

CHANGES TO PIPS

42.The Managed Investment System has been enhanced to allow for the implementation of the Budget 1992 initiatives and to accommodate the automated transfer of Managed Investment data between DVA and DSS.

43.The changes made to the Managed Investment Database itself will not be apparent to processing staff, however, there are both visible and operational changes to the Managed Investment Screens in PIPS.

44.Branch Office staff have been provided with PIPS user guides which contain screen diagrams that list the visual and operational changes for each affected screen.

45.Existing PIPS screens which have been amended are as follows:

.PP.II - Investment Information, screens 1 and 2;

.PP.MI - Managed Investments;

.PP.TR - Trial Assessment;

.IQ.IA - Current SP Income/Assets Summary general inquiry screen.

46.In addition to the amended PIPS screens noted above, new screens have been added as follows:

.              PP.FE Fees sub-screen (can only be accessed through PP.MI); and

.              PP.PF Profit screen.

New PIPS PP.FE Fees Sub-screen

47.The new PP.FE Fees screen has been added as a sub-screen to the PP.MI Managed Investment screen. PP.FE has been designed to allow multiple entry and exit fees to be recorded for one product if the investor makes additions to and/or withdrawals from the investment.  The PP.MI will draw on PP.FE to display the total fee figure applicable for each managed investment recorded on PP.MI.

48.Note that it will be possible to have an investment recorded on the PP.MI screen that is a "FEE ONLY" investment i.e., it has been totally withdrawn or cashed but has an entry fee or exit fee recorded that is still valid because the 12 month period since the fee was incurred has not yet expired.

49.It is necessary to record "FEE ONLY" Investments on the PP.MI screen because the Fee Deduction is still applicable for 12 months and is a valid amount for offsetting against any other investments on the PP.MI screen; or any future investments that are data collected before the expiry of the 12 month fee deduction period.

50.It is important to note that exit fees differ from entry fees in that they will not be stored on the PP.II screen.  It will be the examiner's responsibility to determine if the client incurred an exit fee and to record the appropriate details on PP.FE.

51.If a client advises that an exit fee has been incurred within the past 12 months, the new legislation allows for that fee to be accepted as a deduction even though it was incurred prior to 1.4.93.

New PIPS PP.PF Profit Screen

52.The new PP.PF Profit Screen has been added to PIPS to allow data collection of profits and losses realised on managed investments assessed on realisation.

53.Profit recording has been moved from the existing PP.MI screen because realised profits and losses are not allowed to be offset against the ongoing income held against investments on the PP.MI screen.

54.Losses can now be recorded on the new PP.PF Screen as it will accept negative amounts.  It is important to record all losses in all cases as they will remain current for 12 months and are able to be offset against other profits should they be recorded some time later within the same 12 months.

55.Profits and losses will automatically be offset against each other on the new PP.PF screen.  If the overall sub-total is negative, that negative income will not be offset against any other income in the pension assessment.  (This will change when legislation becomes effective in September 1993 to allow a negative income sub-total for managed investments to be offset against income for shares.)

Funeral Bond Products Will Now Be Data Collected On The PIPS PP.MI Screen

56.The PIPS PP.II facility will now carry funeral bond investments and allow them to be data collected onto the PP.MI Screen. However, it will remain the examiner's responsibility to determine whether or not the funeral bond is exempt for Service Pension purposes - the PP.MI screen will not automatically perform this function.

57.There have been no legislative or policy changes to the current assessment rules for funeral bond products - refer to DI Nos. B42/90 and B20/93.

AUTOMATIC REASSESSMENT OF  MANAGED INVESTMENTS

58.The objectives of the automatic reassessment of Managed Investments remain: that is, to automatically reassess service pension where managed investments are held in the client's financial record and consequently reassess the rate of service pension paid.

Fortnightly Reassessment Program

59.In line with these objectives, the Managed Investment Automatic Fortnightly Reassessment Program and Managed Investment Automatic Profit/Loss Deletion Program will still operate after 1.4.93, but will include the additional function of automatically unexempting unitised superannuation fund investments held by clients when reaching pension age.  The pension assessment will be recalculated automatically and an automatic advice sent.

60.Functions able to be automatically performed by the fortnightly automatic reassessment program are shown at Attachment C.  This Attachment also details cases which will be rejected and will require manual action.

Global Full Reassessment Program

61.The Global MI Automatic Reassessment Program continues to operate in the same manner as the fortnightly reassessment runs, but it goes on to fully reassess all clients who hold Managed Investments, refreshing all product performance details for every Managed Investment i.e., rate of return, buy back and cents per unit.

62.Apart from the manual case types generated by the fortnightly reassessment program, any case containing an investment with a "SPECIAL" manual assessment type code will also be listed for manual action by the Global reassessment program.

63.It is envisaged that more frequent Global MI runs will be undertaken in the future.

It has been suggested (although not confirmed) that they may be run quarterly to coincide with the quarterly advices.  Further advice regarding this matter will be provided when the issue is settled.

POST-IMPLEMENTATION DAILY AND FORTNIGHTLY ADVICES

64.The new MI table is currently being revised to incorporate a number of suggestions made by Branch Office staff.  The revised version of the quarterly table is expected to be available commencing with the first post-implementation fortnightly automatic managed investment reassessment run, currently scheduled for 26 April 1993 for pay-day 13 May 1993.  (The ANZAC Day holiday will not interfere with the automatic running of the Managed Investment Reassessment Program.)

65.A new MI Profit/Losses Table will also be included in all advices commencing with the first daily advices to be produced on 15 March.  A sample of this table is at Attachment D.

TRAINING

66.To assist with understanding the changes which have been made, Investment Policy Officers (IPOs) were given training on 4/5 March to enable them to instruct staff in the changes which have been made to legislation, policy, procedures and systems.

67.IPOs were issued with guides and handouts to be made available to Branch Office staff.

Guides For Processing Staff

68.The Investment Policy Officer (IPO) in each state will continue to provide processing staff with a guide for processing the manual output produced from each Fortnightly and Global run.

69.The guide will list the specific products affected by the different types of manual reasons and will provided detailed procedural direction where appropriate.

70.DVA will still be able to update the DVA database directly in response to any client queries or if incorrect data is detected.

CLIENT QUERIES

Accuracy Of Performance Data

71.Any enquiries regarding the accuracy of the performance data provided by ASSIRT PTY LTD and DSS can be addressed through the existing network of Investment Policy Officers.  Guidelines to be followed by staff in the event of a query regarding data accuracy are as follows:

(a)Client query received on accuracy of the data.

(b)Processing staff provide an explanation of the managed investment rules and how the rate of return, buy back price or cents per unit figures are calculated.

(c)If processing staff require assistance in answering the enquiry, or the client is still dissatisfied after the explanation and is questioning the accuracy of the data, then the examiner should contact their Investment Policy Officer (IPO) who will direct the staff member on what course of action to take; or check the data to verify whether DVA/DSS is in error.

(d)If the data is in error, DVA can override the existing data with the correct data, and inform DSS of the error for subsequent correction on their next update.  It is not expected that this will be the case in the majority of cases.

(e)If the data is not in error, the Investment Policy Officer will provide direction to the staff member or client on the legislative basis for assessing the investment data in question.

(f)If the client remains dissatisfied, a right of appeal exists to the Repatriation Commission and then to the Administrative Appeals Tribunal.  The client is to be advised of his/her appeal rights.

72.Common queries about performance data often involve a misunderstanding by the client of how DVA/DSS calculate the following items:

"Rate Of Return"income calculated by using a `rate of return' based on the performance of the investment over the previous 12 months.VEA s46AD & s46AE.  The methods used for calculating the rate of return on managed investments assessed on an ongoing basis are documented at Attachment E.

"CPU - Cents Per Unit" income distributions declared by the investment over the previous 12 months.

Client Enquiries On The Rate Of Return

73.In the majority of cases where the client contacts the Department to query a rate of return on an investment, the most common source of confusion or basis for the enquiry is the method used to calculate the `annual rate of return'.

74.In many cases the client has correspondence from the company quoting monthly, quarterly, current crediting or interim rates of return.

75.In most cases a detailed explanation of the method used to calculate the `annual rate of return' will resolve the enquiry.

76.Where the client considers the rate held by the Department is still in error based on the "annual rate of return" principle, he/she should be requested to provide the Department with documentation from the Fund Manager to support that claim.

77.When the documentation is received, the Investment Policy Officer (IPO) should be consulted.  The IPO will direct the staff member on what course of action to take; or use the documentation to check whether DVA/DSS is in error.

78.If the client is still unhappy with the Department's action and/or explanation of the assessment methodology, advice should be provided about rights of appeal.

CONTACT OFFICERS

79.If Branch Officers require further assistance concerning the changes to managed investments they should first contact their Branch Investment Policy Officer.  If the Investment Policy Officer is unable to answer the query, then either the Project Manager or the Project Officer for Managed Investments should be contacted.  These officers are respectively Eddie Bolanac (contact number 02-2137875) and Martin Dibb (contact number 06-2896743).

PETER HAWKER

NATIONAL PROGRAM DIRECTOR

BENEFITS


THIS ATTACHMENT HAS BEEN RE-KEYED TO ENABLE IT TO BE LOADED ONTO THE GENERAL

ATTACHMENT A

OVERVIEW OF THE MANAGED INVESTMENT RULES

ASSESSED ONASSESSED ON AN

REALISATIONONGOING BASIS

"SAVED"

SAVED ARIsSAVED MLIsAll Managed Investments that

PRE 1.1.88PRE 9.9.88are NOT in the Saved Categories

Friendly SocietyAll MLIsAssess on an Ongoing basis using Bonds;              a `Rate Of Return' based on the

previous 12 months' performance)

If purchased andPre 9.9.88ie Current Value  x  Rate%

divided by 26  =  Fortnightly Income

ARIs with NO Assess On

access to partialRealisationNegative & Positive Rates Allowed

withdrawals

Note; AssessOffsetting of positive and negative

If  Purchasedany Cents Perfortnightly income allowed (CPU

Pre 1.1.88Unit (CPU)included for offsetting purposes)

dividends on an

Assess Onongoing basis.Entry & Exit Fees Allowed as a

RealisationDeduction for 12 months from date

incurred.

On realisation, profit/losses CANNOT

be offset against ongoing Income

VEA Part III Div.8VEA Part III Div.8VEA Part III Div.8

Subdivision BSubdivision CSubdivision AA

s46B to s46BBs46J to s46Ks46AA to s46AG

SUPERANNUATION FUND INVESTMENTS

(SUPER BONDS/FUNDS; APPROVED DEPOSIT FUNDS (ADFs); DEFERRED ANNUITIES (DAs)

PRIOR TO PENSION AGEAFTER PENSION AGE

Disregard for income and asset testsAssess under the normal Managed

purposes unless a withdrawal is madeInvestment Rules (as listed above).

(in which case profit will be calculatedNote: Different assessment rules

using the MIWW - Managed Investmentapply depending on the type of

Withdrawal Worksheet).investment and date of purchase.


ATTACHMENT B

SAMPLE OF MARCH 1993 QUARTERLY ADVICE (showing new MI table)

BRANCH OFFICE

Centennial Plaza

280 Elizabeth Street

Sydney NSW 2000

Postal Address:

GPO Box 3994,

JOHN B SMITHSydney NSW 2001

SARAH SMITH

1029 ANZAC AVENUETelephone:

HOMEBUSH BAY 2140Metropolitan residents:               213 7777

Country residents:

008 257251

15 March 1993

YOUR FILE NUMBER IS               NX543210

Dear Mr and Mrs SMITH

New provisions for roll-over and other superannuation funds

Monies you have in an Approved Deposit Fund, Deferred Annuity or other superannuation type fund will be disregarded under the income and assets tests from now until you reach the appropriate age (i.e. for veteran service pensioners, 55 years for females and 60 years for males; for all other service pensioners, 60 years for females and 65 years for males.).  This is an extension of exemption rules that previously only applied to Compulsorily Preserved Superannuation Funds.

Managed Investments

In the August 1992 Budget, changes were announced to the way in which managed investments are assessed for pension purposes.  The changes take effect from 1 April 1993 and are explained separately later in this letter.

Payment details

The amount of pension you receive each fortnight is set out below. Payment at this rate will be made on 1 April 1993.

PAYMENTS TO JOHN SMITH and SARAH SMITH

Service pension 100.00 100.00

Pharmaceutical Allowance     2.60     2.60

TOTAL FORTNIGHTLY PAYMENT$102.60$102.60

Telephone Allowance payment

Your quarterly Telephone Allowance of $6.60 each will be paid to you on 1 April 1993, in addition to that fortnight's pension payment. You must tell us if you cease to be a telephone subscriber.

Extension of Fringe Benefits

As part of the August 1992 Budget, it was announced that the income and assets tests for Fringe Benefits would be abolished from 1 April 1993. Therefore, you are now eligible for fringe benefits. Your new concession card/s and an information sheet telling you about fringe benefits are being sent separately.

Changes to Managed InvestmentsIn the August 1992 Budget, changes were announced to the way in which managed investments are assessed for pension purposes.  The changes take effect from 1 April 1993 and are as follows:

.Managed investments will no longer be categorised into "market linked investments" and "accruing return investments" (unless they were purchased prior to 9/9/88 or 1/1/88, respectively).

.The 11% rate of return ceiling used for calculating "market linked investment" income has been abolished.  Income will now be calculated for all managed investments by multiplying the investment's current asset value by its rate of return.  The "rate of return" - negative or positive - is calculated on the basis of the investment's performance over the immediately preceding 12 months.

.Any negative rates of return will be allowed to be offset against any ongoing income held against other managed investments.

.Exit fees incurred in realising a managed investment can be deducted from income received from that investment for a period of 12 months after the realisation occurred.  This is in addition to the deduction currently allowed for entry fees when making an investment.  Please note:

None of the changes described above apply to any "market linked investments" purchased prior to 9/9/88, friendly society bonds purchased prior to 1/1/88, or "accruing return investments" purchased prior to 1/1/88 that did not allow partial withdrawals to be made.  Income for these investments will continue to be assessed on realisation.

For service pension purposes, a managed investment is "realised" if it matures, or if it is sold, surrendered, transferred, gifted, or fully or partially withdrawn.

The income and asset details now recorded for all your managed investments are shown in the table below.

Managed Investments

Managed InvestmentUnitsAssetRate ofFeeIncome Per

ValueReturn/DeductionFortnight

CentsPer(Less Fee

Per UnitFortnightDeduction)

BT FINANCIAL SERVICES8,583$26,392.721.110N/A$36.64

SELECT MARKETS TRUST

INTERNATIONAL FUND

ROTHSCHILD AUSTRALIA4.000$11,200.000.210C$9.61$22.70

ASSET MANAGEMENT

INCREDIBLY SPECIAL

PRODUCT

AUSTWIDE MANAGEMENT7,000$31,000.00-10.76%N/A-$128.29

LTD - FLEXI PROPERTY

FUND GROWTH UNITS

IOOF ASSET MANAGEMENTN/AN/AN/AN/AN/A

LTD - FUNERAL BOND

Your right of review

If you do not agree with a decision affecting your rate of service pension, you may apply to have it reviewed by a delegate of the Repatriation Commission.  The Delegate may decide the original decision was correct, or may decide to change it.  If the decision is changed, your pension may be increased or reduced.

Any request for a review must be made in writing within three months of the day you receive this letter.  Your letter should state the specific grounds for your request for review.

Your obligations to the Department

Your obligations have been explained to you in previous advices. These obligations still apply, but the relevant income and asset levels may have changed; these are shown below.

You must tell the Department within 21 days if your combined income (excluding DVA pension) rises above $797 a fortnight. You must also tell us if the value of your assets rises above $240,000.

You can do this by telephoning or writing to us or by visiting any Department of Veterans' Affairs office. The address and telephone number is shown at the top of this letter.  If you telephone, we may ask you to confirm information in writing or to send us certain documents which are related to the matter.  If you do not tell us of these changes you may be overpaid. There are penalties that apply for failing to fulfil your obligations or for providing false or misleading information. The authority for this obligation is under Section 54 of the Veterans' Entitlements Act.  Please remember that obligations previously advised to you continue to apply.

Changes you have already told us about

If you have told us recently about a change to your income and assets or your domestic situation, it may not have been included when sending this letter.  If this is the case, we will be sending you another letter as soon as the change has been put into place.

If you have any questions about any of the above matters, please contact this office at the address or telephone number shown at the top of this letter.

Yours sincerely,

G K Stonehouse

Deputy Commissioner as

Delegate of the Secretary

ATTACHMENT C (i)

FORTNIGHTLY AUTO MI REASSESSMENT PROGRAM

Automatic Cases

1.FEES DELETEDdelete fees from the 12 month anniversary since the               entry or exit fee was incurred.

wef the payday of the run

2.UNEXEMPT UNITISEDany exempt "unitised" superannuation investment

SUPER PRODUCTS -held by a client will be unexempted at

CLIENT TURNSpension age (i.e., 60yrs Male Vet; 55yrs

PENSION AGE Female Vet; 65yrs Male Partner; 60yrs Female

Partner).

wef the payday of the run

3.NAME CHANGE ONLY-any cross reference involving a name change

CROSS REFERENCEonly will be processed automatically.

wef the payday of the run

4.SELECTED AUTOMATICany investment product may be flagged for

REASSESSMENT FORautomatic reassessment in specific instances

A SPECIFIC PRODUCT(i.e., failed or collapsed investments; implement policy               rulings; or to correct major data errors; etc).

wef the payday of the run

5.PROFIT/LOSS DELETE delete Profit or Loss from the 12 month anniversary               since the realisation (withdrawal) occurred.

wef the payday after the 12 month anniversary date;or               if the anniversary date falls on a payday, from that               payday.  Automatic arrears will be paid where               applicable for deletions of Profit, provided there are               no other PIPS or AL actions in the arrears period.


ATTACHMENT C (ii)

FORTNIGHTLY AUTO MI REASSESSMENT PROGRAM

Manual Cases

1.PRODUCTthe product has been terminated and fully paid

TERMINATEDout; all clients no longer hold money in the

investment.  Manual action is required to find out

whether profit/loss is assessable and to find out how

the proceeds were reinvested or disposed.

2.UNEXEMPTany exempt "non-unitised" superannuation

NON-UNITISEDinvestment held by a client will be unexempted at

SUPER PRODUCTS -pension age (i.e., 60yrs Male Vet; 55yrs

CLIENT TURNSFemale Vet; 65yrs Male Partner; 60yrs Female

PENSION AGEPartner).  Manual Action is required because the

investment is non-unitised and the client must be

contacted for the current market value of the

investment to be data collected.

3.PRODUCT TYPEthe product has been reclassified from a `saved

CODE CHANGE pre 1.1.88 ARI to an ongoing MI assessment; or

(RECLASSIFIED)from a Saved pre 9.9.88 MLI to an ongoing MI

assessment; or vice versa; or to a `Special' manual

assessment.  Manual Action is required to work out

the impact on the client assessment; document the

reasons on the file; and advise the client on the

change.

4.UNITISED DETAILSthe product has been changed from a

INCONSISTENTnon-unitised investment to a unitised investment

Manual action is required to obtain the number of

units now held by the client, as the PP.MI screen

requires units to be data collected.

Manual Cases

5.SPECIAL PRODUCTthe product has "Special" assessment rules and is not

automated.  Contact the Investment Policy Officer to

obtain the assessment rules.  Manual action is required

to update the product on PP.MI i.e., all data must be

manually entered and the income and asset details

must be manually calculated.

6.DELETE PROFITdeletion of profit from a past payday that

MANUAL ARREARSwas unable to be processed automatically.

Manual arrears need to be calculated.

7.SELECTED MANUAL any investment product may be flagged for

REASSESSMENT FORmanual reassessment in specific instances

A SPECIFIC PRODUCT(i.e., failed or collapsed investments; company

restructures; implement policy rulings; or to correct

major data errors; etc).  Manual action is required.

Instruction will be provided by the Investment Policy

Officer (IPO) in each case.

8.MULTIPLEany product cross-referenced to more than one

CROSS REFERENCEother product.  Manual action is required to find out

which investment the client chose to go into.

9.MORE THAN 9 CROSS the product is cross referenced more than

REFERENCES9 times.  Manual action is required to delete the old

product name and data collect the new product name.

Manual Cases

10.ANY COMBINATION if any manual reason or combination of the manual

OF THE ABOVEreasons and automatic reasons listed above appear on

a case it will be listed for manual processing.  The

manual schedule will list every affected product with a

reason next to it to denote why it needs reviewing. A

product can also have more than one reason

applicable to it.

11.NORMAL BLOCKS ONmanual action will be forced through normal

AUTO PROCESSINGoccurrences e.g., frozen action assessments;

WILL ALSO FORCE Aincomplete CDB-PMF assessments; suspended

CASE TO BE LISTEDassessments; assessment errors; manual

FOR MANUAL ACTIONmethod of assessments; manual DP cases;

transaction errors; manual arrears; last A/L not

processed; unable to update AIVAL.


ATTACHMENT D

New "Managed Investment Profits/Losses Assessed On Realisation" Table For Inclusion In Daily, Fortnightly, Global And/Or Quarterly Client Payment Advices

"Managed Investment Profits/Losses Assessed On Realisation

Managed InvestmentDate Profit/Income

WithdrawnLossPer

AmountFortnight

  • ROTHSCHILD AUSTRALIA ASSET05/06/93$2,500.00$96.15

MANAGEMENT - V - FIVE ARROWS TRUST -

INTERNATIONAL EQUITY

  • BT FINANCIAL SERVICES - N - SPLIT12/08/93$10,212.50$392.79

TRUST - GROWTH

  • PROFIT TO BE HELD FOR 12 MONTHS01/12/92$5,000.00              $192.31

DUE TO REALISATION OF A CAPITAL

GROWTH INVESTMENT

  • AUSTWIDE MANAGEMENT - N - 21/12/92$9,700.00$373.07

FLEXI PROPERTY FUND - GROWTH

TOTAL INCOME FOR PENSION PURPOSES$0.00"

ATTACHMENT E

'RATE OF RETURN' METHODOLOGY FOR MANAGED INVESTMENTS ASSESSED ON AN 'ON GOING BASIS'

General Principles

.The rate of return is calculated on the basis of the performance of the investment product  over the preceding 12 months.

.For new investments where 12 months of performance data is not available, the rate of return to date is annualised to reflect a full 12 months.

.Entry and Exit Fees are not taken into account in the rate of return calculation, as they are only allowed as a deduction from assessable income for a period of 12 months from the date they are incurred.

The exact method for determining a rate of return on different types of managed investments will vary as follows:

Unit Based Investments

change in unit price (if any) +income distributions & bonus units

over the previous 12 months            (if any) over the previous 12 months    x 100

divided by the unit price 12 months ago

Cash Based Investments

change in value (if any)+income distributions & bonuses

over the previous 12 months            (if any) over the previous 12 months    x 100

divided by the value 12 months ago

Cash Based Investments that declare a rate of return once per year

In this instance, the declared rate, not the interim rate, will be accepted by the Department and updated once a year. This rate will only be updated when the figure has been officially declared.

Cash or Fixed Unit Price Investments that declare a rate of return more than once a year.

In this instance the last declared rate would not be the rate used. The rate of return would instead be based on all of the declarations which covered the previous 12 months.