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B49/1993 TREATMENT OF CERTAIN ONE YEAR IMMEDIATE ANNUITY INVESTMENTS UNDER THE ASSETS TEST

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DATE OF ISSUE: 23 SEPTEMBER 1993

TREATMENT OF CERTAIN ONE YEAR IMMEDIATE ANNUITY INVESTMENTS UNDER THE ASSETS TEST

Introduction

1.The purpose of this instruction is to;

(i)confirm the Department of Veterans' Affairs procedural policy approach to the Asset Test treatment of certain One Year Immediate Annuity Investments; and

(ii)outline the correct assessment and recording procedures which should be applied to One Year Immediate Annuity Investments.

BACKGROUND

2.Since June 1992 both the Department of Veterans' Affairs (DVA) and the Department of Social Security (DSS) have applied procedural policy which provided that one year immediate annuities with the following features should be assessed in the same manner as a deferred/term/fixed interest investment ie., fully income and asset tested:

a)purchased with ordinary monies (ie., cash; non-rollover monies);

b)provide for a one time single annual payment only;

c)have no residual capital value; and

d)have a fixed one year term.

3.This policy was implemented as it was determined that:

a)the above-mentioned investments more closely resembled a deferred/term/fixed interest investment than an immediate annuity; and

b)such investments, if treated as an immediate annuity, could be used as an asset test avoidance scheme with the asset value being disregarded when the Annuity Value Calculator (found at Section 52A-1 of the Veterans' Entitlements Act (VEA)) was applied to the investment as required by the VEA.

4.This policy has been actively implemented in a procedural manner on PIPS since approximately June 1992.

CORRECT PROCEDURES FOR RECORDING CERTAIN ONE YEAR IMMEDIATE ANNUITIES ON PIPS

5.In the past, a variety of methods have been used to ensure that One Year Immediate Annuities meeting the criteria at paragraph 5 of this Instruction have been recorded on PIPS such that they are fully income and asset tested.

6.However, to standardise the recording process and to ensure consistency of assessment, one year immediate annuities with the above-mentioned features must now be recorded on the Money Loaned, Bonds, Debentures PIPS screen PP.ML. The procedures for performing this action are shown at Attachment A to this Instruction.

7.It is important to note that where a one year immediate annuity provides for two or more payments to be made throughout its term, the product should be considered to be an immediate annuity under the VEA and should continue to be assessed accordingly.

CONTACT OFFICERS

8.Should you have any queries regarding the treatment of the One Year Immediate Annuity Investments described in this Instruction, please contact your Branch Office Investment Policy Officer. The Central Office contact for queries on this matter is Martin Dibb, contact 06-2896706.

TONY ASHFORD

NATIONAL PROGRAM DIRECTOR

(BENEFITS)


ATTACHMENT A

PROCEDURES FOR RECORDING

CERTAIN ONE YEAR IMMEDIATE ANNUITY INVESTMENTS

ON THE PIPS PP.ML (MONEY LOANED) SCREEN

1.DETERMINE THAT THE INVESTMENT IS IN FACT A ONE YEAR IMMEDIATE ANNUITY INVESTMENT PRODUCT WHICH ATTEMPTS TO AVOID THE ASSET TEST BY COMPARING THE INVESTMENT DETAILS WITH THE FOLLOWING CRITERIA:

A)PURCHASED WITH ORDINARY MONIES (IE., CASH; NON-ROLLOVER MONIES);

B)PROVIDES FOR A ONE TIME SINGLE ANNUAL PAYMENT ONLY;

C)HAS NO RESIDUAL CAPITAL VALUE; AND

D)HAS A FIXED ONE YEAR TERM.

IMPORTANT:IF YOU ARE NOT SURE THE ANNUITY MEETS THESE CRITERIA, CONTACT YOUR INVESTMENT POLICY OFFICER FOR ASSISTANCE.

IF THE INVESTMENT MEETS THE ABOVE CRITERIA, THE CORRECT RECORDING PROCEDURE IS AS DETAILED BELOW.

2.AT THE PP.ML SCREEN, RECORD THE "ACTION" AS "A" OR "ADD".

3.RECORD THE INVESTMENT "TYPE" AS "DE" (DEBENTURE).

4.TYPE THE NAME OF THE INVESTMENT PRODUCT MANAGER INTO THE "LOAN TO" FIELD.

5.RECORD ANY APPROPRIATE DETAILS IN THE "REFERENCE" FIELD.

6.TYPE IN THE DATE THAT THE INVESTMENT WAS PURCHASED IN THE "DATE LENT" FIELD.

7.TYPE IN THE AMOUNT INVESTED IN THE "ASSET AMOUNT" FIELD.

8.SET THE "EXEMPT" INDICATOR TO "N" OR LEAVE BLANK (INDICATOR WILL DEFAULT TO "N" IN THIS CASE).


PROCEDURES FOR RECORDING

CERTAIN ONE YEAR IMMEDIATE ANNUITY INVESTMENTS

ON THE PIPS PP.ML (MONEY LOANED) SCREEN...continued

9.AT THE "ACTUAL%" FIELD, TYPE IN THE INTEREST RATE APPLICABLE TO THE INVESTMENT.

  • IF THIS FIGURE IS NOT PROVIDED BY THE CLIENT AND/OR CANNOT BE READILY OBTAINED, YOU MAY HAVE TO CALCULATE THE ACTUAL INTEREST RATE BY SUBTRACTING THE FINAL PAYOUT AMOUNT DUE TO BE PAID TO THE CLIENT UPON EXPIRY OF THE TERM OF THE ANNUITY (USUALLY PRINCIPAL PLUS INTEREST) FROM THE AMOUNT ORIGINALLY INVESTED. YOU CAN THEN WORK OUT THE INTEREST PAID AS A PERCENTAGE OF THE PRINCIPAL - THIS WILL ALSO BE THE INTEREST RATE APPLICABLE TO THE ANNUITY.

  • IF YOU ARE UNCERTAIN AS TO HOW TO CALCULATE THE INTEREST RATE, CONTACT YOUR INVESTMENT POLICY OFFICER FOR ASSISTANCE.

10.PRESS ENTER.

  • AUTOMATIC CALCULATION OF THE "ASSESSED INCOME" SUB-TOTAL FIELD FOR THE INVESTMENT AND A RECALCULATION OF THE "ASSESSED INCOME" TOTAL FOR THE SCREEN SHOULD RESULT. NOTE THAT THESE AUTOMATIC CALCULATIONS WILL BE MADE THROUGH USE OF THE ACTUAL INTEREST RATE OR THE DEEMED RATE, WHICHEVER IS THE GREATER VALUE.