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B25/1993 (1) - BUDGET 1992 INITIATIVES TO CHANGE THE TREATMENT OF MANAGED INVESTMENTS FOR SERVICE PENSION PURPOSES
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
Introduction — 1-5
Background — 6-9
Who Will be Affected?10
Implementation — 11
PART B - LEGISLATIVE AND POLICY CHANGES
The New Rules For Managed Investments Assessed On An — 12-14
Existing Rules For "Saved" Managed Investments Assessed On Realisation — 15-18
New Superannuation and Roll-over Investment Rules — 19-22
Legislation — 23-24
Summary of Key Legislative Changes:
.Definitions — 25
.Managed Investments Assessed On An Ongoing Basis — 26
.Saved Managed Investments Assessed On Realisation — 27
.Superannuation Fund Investments — 28-30
Client Advices — 31-35
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-screen — 47-51
.New PIPS PP.PF Profit Screen — 52-55
.Funeral Bond Products Will Now Be Data Collected On PIPS 56-57
Automatic Reassessment Of Managed Investments:58
.Fortnightly Reassessment Program — 59-60
.Global Full Reassessment Program — 61-63
Post-Implementation Daily and Fortnightly Advices — 64-65
.Guides for Processing Staff — 68-70
.Accuracy of Performance Data — 71-72
.Client Enquiries on the Rate of Return — 73-78
Contact Officers — 79
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:
Attachment C (ii) - Fortnightly MI Auto Reassessment Program:
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
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.
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.
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.
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
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
.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.
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.
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.
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.
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.
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).
NATIONAL PROGRAM DIRECTOR
THIS ATTACHMENT HAS BEEN RE-KEYED TO ENABLE IT TO BE LOADED ONTO THE GENERAL
OVERVIEW OF THE MANAGED INVESTMENT RULES
ASSESSED ONASSESSED ON AN
SAVED ARIsSAVED MLIsAll Managed Investments that
PRE 1.1.88PRE 9.9.88are NOT in the Saved Categories
Friendly Society — All MLIs — Assess on an Ongoing basis using Bonds; a `Rate Of Return' based on the
previous 12 months' performance)
If purchased and — Pre 9.9.88 — ie Current Value x Rate%
divided by 26 = Fortnightly Income
ARIs with NO Assess On
access to partial — Realisation — Negative & Positive Rates Allowed
Note; Assess — Offsetting of positive and negative
If Purchasedany Cents Perfortnightly income allowed (CPU
Pre 1.1.88 — Unit (CPU)included for offsetting purposes)
dividends on an
Assess Onongoing basis.Entry & Exit Fees Allowed as a
Realisation — Deduction for 12 months from date
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 tests — Assess under the normal Managed
purposes unless a withdrawal is made — Investment Rules (as listed above).
(in which case profit will be calculated — Note: Different assessment rules
using the MIWW - Managed Investmentapply depending on the type of
Withdrawal Worksheet).investment and date of purchase.
SAMPLE OF MARCH 1993 QUARTERLY ADVICE (showing new MI table)
280 Elizabeth Street
Sydney NSW 2000
GPO Box 3994,
JOHN B SMITH — Sydney NSW 2001
1029 ANZAC AVENUE — Telephone:
HOMEBUSH BAY 2140 — Metropolitan residents: 213 7777
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.
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.
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 Investment — Units — Asset — Rate of — Fee — Income Per
Value — Return/Deduction — Fortnight
Cents — Per(Less Fee
Per Unit — Fortnight — Deduction)
BT FINANCIAL SERVICES — 8,583$26,392.72 — 1.110 — N/A$36.64
SELECT MARKETS TRUST
ROTHSCHILD AUSTRALIA — 4.000$11,200.00 — 0.210C$9.61$22.70
AUSTWIDE MANAGEMENT — 7,000$31,000.00-10.76%N/A-$128.29
LTD - FLEXI PROPERTY
FUND GROWTH UNITS
IOOF ASSET MANAGEMENT — N/A — N/A — N/A — N/A — N/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.
G K Stonehouse
Deputy Commissioner as
Delegate of the Secretary
ATTACHMENT C (i)
FORTNIGHTLY AUTO MI REASSESSMENT PROGRAM
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
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
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
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.
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.
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.
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 Investment — Date Profit/Income
Withdrawn — Loss — Per
Amount — Fortnight
ROTHSCHILD AUSTRALIA ASSET — 05/06/93$2,500.00$96.15
MANAGEMENT - V - FIVE ARROWS TRUST -
BT FINANCIAL SERVICES - N - SPLIT — 12/08/93$10,212.50$392.79
TRUST - GROWTH
PROFIT TO BE HELD FOR 12 MONTHS — 01/12/92$5,000.00 $192.31
DUE TO REALISATION OF A CAPITAL
AUSTWIDE MANAGEMENT - N - 21/12/92$9,700.00$373.07
FLEXI PROPERTY FUND - GROWTH
TOTAL INCOME FOR PENSION PURPOSES$0.00"
'RATE OF RETURN' METHODOLOGY FOR MANAGED INVESTMENTS ASSESSED ON AN 'ON GOING BASIS'
.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.