C04/2008 2006 - 2007 Budget Initiative - Pension Bonus Scheme Enhancements | Compensation and Support Reference Library, Departmental Instructions, 2008

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C04/2008 2006 - 2007 Budget Initiative - Pension Bonus Scheme Enhancements

Document

DATE OF ISSUE:  29 February 2008

2006 - 2007 Budget Initiative - Pension Bonus Scheme Enhancements

Amends DI No.

C17/99

C34/98

Amends Manual

Replaces DI No.

Pages/Paragraphs

Purpose

The purpose of this Departmental Instruction is to:

  • inform staff of changes to the Pension Bonus Scheme (PBS); and
  • outline the procedures relating to the application of the changes.

Background

The package was announced as part of the 2007-08 Budget to allow more people access to the pension bonus they may have accrued.  The four PBS enhancements in this package are:

  • introduction of a new pension bonus bereavement payment (PBBP) for surviving partners of eligible members who had not claimed the bonus before they died;
  • recognising certain leave periods as non-accruing membership;
  • providing a top up of the pension bonus in certain circumstances; and
  • extending the discretion to accept late claims for bonus.

The DI provides an overview of each of these changes.  The changes apply to PBS claims lodged on or after 1 January 2008.

Legislation

The legislative amendments are contained in Schedule 1 of Families, Community Services and Indigenous Affairs Legislation Amendment (Further 2007 Budget Measures) Act 2007.  These changes apply to both the DVA and Centrelink schemes.

An updated VEA compilation and the 4 related legislative instruments are available in the CLIK Legislation Library.

Changes have also been made to the Income Tax Assessment Act 1997 to make the new pension bonus bereavement payments and top up amounts tax free lump-sums.

Publicity

An article was included in the December 2007 edition of Vetaffairs which provided an overview of the changes.

For DVA staff, interim procedures have been added to the Income Support (Service Delivery) Intranet site pending training scheduled for March.

Delegations

Instruments of delegation are being prepared and will be circulated to Service Delivery separately.

Updates to reference material

The CLIK Policy Library and Procedural Library at P5/C6 (Pension Bonus Scheme) and P5/C9/S4 (DFISA Bonus) have been revised to reflect these amendments.  The opportunity was taken to include policy clarification as identified in Policy Advising requests.

Reference material regarding the deferral of age pension can be found in Chapter 3.4.7 of the Guide to Social Security Law.

DVA Facts and standard letters

The previous factsheet on PBS IS07 has been restructured into:

  • IS 07 Pension Bonus Scheme; and
  • IS 08 Participating in the Pension Bonus Scheme.

The IS Standard Letters for PBS have also been modified to make them more accessible.  There are also additional letters to cover the new measures.

Processing impacts

Details regarding changes to forms, processing systems and procedures are addressed in each of the 4 changes below.

Project officers

The project officers for this initiative are:

Elaine Tse, Income Support and Aged Care Policy x16011

David Turner, Income Support Service Delivery x27619.

Mark Hodgson, Project Development & Delivery x68456

__________________________________

Jeanette RickettsJohn Sadeik

National ManagerNational Manager

Income Support and Income Support Service

Aged Care PolicyDelivery

29 February 200829 February 2008

Bereavement Payment (Pension Bonus & DFISA Bonus)

Intent of the change

Prior to the legislative change, the bonus is forgone if the PBS member does not make a claim for the bonus before their death.  The Pension Bonus Bereavement Payment (PBBP) and DFISA Bonus Bereavement Payment are intended to provide greater equity in the PBS, with a one-off payment to the surviving partner, in lieu of the bonus an eligible deceased PBS member could have claimed.

Calculation – modified income test

The amount of the PBBP is based on a rate of pension that would have been payable to the deceased PBS member had they claimed pension and the bonus immediately before they died.  A modified income test has been included in the legislation such that employment-related income of the deceased person and the surviving partner are disregarded in these cases.

This reflects that under normal circumstances, most people would cease work before claiming their pension bonus and would have no employment income or leave payments affecting the rate of pension and therefore the amount of their pension bonus.

Legislation

New Division 11A provides for surviving partners to claim this one-off payment.

Eligibility for the payment

In order to receive a PBBP, the deceased must have been a registered member who had not lodged a claim for pension and bonus before they died.

A partner is not defined specifically for this purpose, but is taken to mean the partner of the PBS member as per 5E(1) immediately before the member died.  Standard verification regarding partner status applies.  (See CLIK Procedures P2/C2/S2 Requesting Evidence of a Relationship.)

The surviving partner's eligibility to receive a pension, or to be a PBS member has no impact on their entitlement to the bonus bereavement payment.  Equally, receipt of a PBBP does not affect that individual's entitlement to pension, or a pension bonus in their own right.

Claiming PBBP

The surviving partner must lodge a proper claim in Australia for the PBBP.  They must provide information that allows a delegate to determine the bonus periods accrued by the deceased and the rate of PBBP payable.  A new claim form will be available online via DVA Forms pending approval by the Commission.

Should the surviving partner lodge a claim for the bonus bereavement payment but dies before the claim is determined, the payment is to be made to the legal personal representative of the claimant.

Lodgment period

A lodgment period of 26 weeks applies for PBBP, starting on the day of the death of the deceased PBS member.  There is discretion to extend the period should special circumstance apply.

Conditions for bonus to be payable

The minimum accrual of 1 year's bonus applies. That is, the deceased PBS member must have accrued at least one full year bonus period of 365 days.

If the rate of pension that would have been payable is nil, then the bonus bereavement payment will also be zero.

Modified income test

The modified income test aims to reflect that normally people would cease work before claiming a pension bonus and as such certain employment-related payments should be disregarded for the purpose of calculating the amount of the bereavement bonus.

Salary, wages, leave payments and business income are examples of PBBP employment income which will not be counted.  Periodic compensation payments for loss of earnings has also been declared as disregarded income.

Income from work that does not meet the definition of gainful work, such as the management of family investments, is not disregarded from the means test in calculating PBBP.

PBBP income discount – limited application

The PBBP income discount only applies with respect to the bonus bereavement payment calculation.  Any ongoing employment income will affect the rate of pension payable to the surviving partner, as well as the calculation of any bonus payable to the partner in their own right.

Partner may continue to defer pension

If the surviving partner is eligible for PBS, they may choose to register and/or continue in the scheme.  They may claim the PBBP and still defer pension for their own bonus.

The PBS membership of the surviving partner may be considered as non-accruing if they were unable to meet the work test during the 13 weeks following the death of their partner.  At the end of the non-accruing period, the surviving partner may choose to claim the bonus they have accrued to date, or return to work and continue with their accrual.

Partner does not defer, claim or receive pension

To work out the amount of PBBP payable, the pension rate will need to be determined in a hypothetical assessment based on the income and assets details excluding any employment-related income.

Where there is no pension assessment or pension grant for the surviving partner, it should be established whether the surviving partner is deferring/eligible to defer pension.  If applicable, contact the partner and invite them to register for PBS, or to claim an income support payment.

Surviving partner – PBS status and work test

If the surviving partner was previously relying on the deceased's work hours to meet the work test, they may choose to commence gainful work and continue to accrue a bonus.

In these cases, the delegate may determine that work performed by the deceased partner in the current bonus period may be deemed to be gainful work of the survivor, thus contributing towards the work test hours for that particular bonus period.

System changes

The following new payabilities have been added to the Integrated Payment System to allow for manual payment of the PBBP:

  • AP – Pension Bonus BP
  • ISS – Pension Bonus BP
  • SP – Pension Bonus BP
  • PB Bereavement Payment

Review

Under subsection 57(3) of the VEA, an applicant for the PBBP who has had their application rejected, can request a review.

Certain leave periods classed as non-accruing membership

Intent of the change

Under previous rules, members can fail the PBS work-test while they are on leave, and can lose the bonus they have already accrued.  This change concedes that people should not be penalised for building up an entitlement to, and accessing leave from employment whilst continuing to defer pension.

New rules

PBS members who take leave from employment, such as recreation leave, long service leave, sick leave, or other unpaid leave and who are not meeting the work test, may be classed as non-accruing members for up to 26 weeks.

This measure will give greater flexibility, providing members with the option of returning to work after their leave (a non-accruing period) and accrue further bonus, or claiming the amount of bonus already accrued.

Legislation

The specified classes of non-accruing membership are declared by the Repatriation Commission in a legislative instrument under section 45TO of the VEA.

A further legislative amendment rectifies concerns regarding retrospectivity of the provision.

Non-accruing membership – not automatic

While the work test does not apply during non-accruing membership, a person's PBS membership is not automatically non-accruing if they cannot meet the work test.  Non-accruing membership applies only in specified circumstances, during which the person remains a member of the scheme but cannot add to their bonus periods.

Member claims bonus while on leave

A person can claim the pension bonus when they are in a non-accruing period.  A claim lodgment period of 13 weeks generally applies, starting on the last day of the non-accruing period.

However, if the person is still receiving employment income such as paid leave, it will impact on the rate of pension and the amount of bonus.

Remains accruing member if work test is satisfied

It is important to recognise that the work test does not require the person to be “at work” on individual days.  Instead, the test operates by allowing members to accumulate the prescribed 960 hours of gainful work over 365 days, in a work pattern of their choice.

Therefore, a member who has performed sufficient hours of gainful work despite leave periods and is not otherwise in a preclusion period, will remain an accruing member.  The newly declared classes of non-accruing membership are not intended to disadvantage those who take leave but have also met the work test.

Example – sufficient hours to satisfy the work test

A person's work record for a 365-day period shows 25 hours of gainful work per week for 44 weeks, followed by 8 weeks of paid and unpaid leave. The number of hours gainfully worked is 25 x 44 = 1100 in that 365-day period.  Thus, the person passes the work test for a full-year bonus period as an accruing member and the period of leave has no impact.

Review

There is no power to request a review of the Commission's declaration of non-accruing membership as per s 57 (3)(c) of the VEA.  However, a person may request a review of a decision relating to the amount of the bonus, such as the application of the work test or how the bonus was calculated.

Top up of Pension Bonus & DFISA Bonus

Intent of the change

The provision is introduced to address claimant dissatisfaction where a PBS member claims pension and bonus while their finances were unresolved following retirement.  As a result they may have received a lower rate of pension and bonus than they had anticipated.

New rules

PBS members will be paid a 'top up' to their bonuses if the rate of pension they receive increases in the first 13 weeks of pension payment, due to a reduction in their income and/or assets.

The top up is the difference between the actual bonus paid and the amount of bonus that would be payable, had the highest pension rate in the 13-week period been substituted as the annual pension rate in pension bonus formula.

Legislation

New sections 45UIB and 45UIC provide for the top up of pension bonus for increased rate of designated pension.

Eligibility for top up

There is no specific claim for a top up to the bonus.  Clients should be advised to report changes to income and assets as per the standard obligations.  Should these notifications result in an increased rate of pension, the top up will be then calculated and paid.

Increases in the rate of the designated pension due to indexation increases to pension rates and thresholds will not trigger a top up to the bonus payment.

Top ups after death

If a person dies after the event that caused the pension rate increase but before the top up is paid, then a top up is payable to the estate of the person.

A top up does not apply to the PBBP as there is no ongoing payment of pension.

Top ups - a change in marital status

Changes in marital status would generally involve the splitting, or addition of income and assets, as well as changes to pension rates and applicable income/asset thresholds.  Where there is change of marital status during the top up qualifying period, it will be necessary to establish whether the reduction in income/assets alone did result in an increase in pension rate.

The person qualifies for a top up if in the 13 weeks since the date of pension grant, there has been:

  • a reduction in the individual's personal, or their share of the combined income/assets compared to the previous values, and
  • an increase from the pension rate at grant to the highest pension rate in the 13 week period, as percentages of the applicable maximum pension rates.

Examples of these calculations are included in CLIK Policy P5/C6 Top up of the pension bonus.

Additional categories eligible for top ups

The Commission has also specified in a legislative instrument under subsection 45UIC(6) an additional top up category.  The instrument address the circumstances where there was:

  • an administrative error in the determination of the person's rate of designated pension, or
  • incorrect income and/or assets information from the client.

It is intended that the top up will also apply if the correct action/information would have yielded a higher rate of designated pension within the 13 week period, except for the application of date of effect rules.

Dual
Membership

A member of the pension bonus scheme can be concurrently registered with both DVA and Centrelink.  However, as only one bonus can be claimed, the agency which pays the bonus will also administer the top up.

system changes

The following new payabilities have been added to the Integrated Payment System to allow for manual payment of the PBBP:

  • AP - Pension Bonus Top Up
  • ISS – Pension Bonus Top Up
  • SP – Pension Bonus Top Up
  • Pension Bonus Top Up.

Review

An applicant may request a review of the top up under subsection 57(3).  However, it is more likely that it is the decision regarding the pension rate variation that will need to be reconsidered.

Broaden discretion to extend claim lodgment periods

Previous situation

Under previous rules, members must adhere to strict lodgment periods in claiming their bonus.  This has been recognised as an area of administrative inefficiency.

New rules

To provide for greater flexibility in the scheme, the Repatriation Commission (or its delegate) may allow a person a longer period to make a claim than the 13 weeks prescribed in section 45UL.

Some PBS members who claim their pension and bonus late due to special circumstances such as the serious illness of a close family member, will be able receive their accrued bonus.

In addition, the Commission has specified guidelines regarding a “proper claim” where there has been a failure to recognise the person's existing membership in the PBS when pension is granted.

Legislation

New subsections 45UK(5) provide for consideration of special circumstances in relation to the lodgment of a proper claim for pension bonus.  The Commission may make guidelines under new 45UK (6) for this purpose.

New subsections 45UL (1A) broadens the discretion to extend lodgment periods for pension bonus claims.

2 year lodgment period – failure to recognise PBS membership

The 45UK(6) instrument provides for the circumstance where the failure to recognise the person's existing membership by DVA is a factor for a valid PBS claim not being lodged with the pension claim.  In such instances, a 2 year lodgment period for the bonus claim applies, starting from the date of the pension claim was lodged.

However, it is not intended that this provision be applied where the person gave DVA incorrect information that led to the conclusion a PBS claim was not appropriate at the time the pension was granted.

Discretion to extend lodgment period

The legislative change also extends the Commission's discretion to accept late PBS claim lodged on, or after 1 January 2008 providing there was a special reason for late lodgment of the claim. The event that caused the late lodgment of the claim may have occurred prior to 1 January 2008.

Prior to this change, there was the anomaly where the discretion to allow a longer lodgment period only existed if the person's last bonus period is a part year period.

Reasons to accept late claims

The intention of the late claims provisions is to allow acceptance of late claims where it would not have been reasonably practicable for the claim to have been lodged earlier.  Examples include personal or family illness, remote location, or irregular work that made it difficult for the member to meet the lodgment period.

No change to last bonus period – part year

The new discretionary power in 45UK(1A) does not apply in relation to a claim where the last bonus period is a part-year period.

The Commission may allow a longer lodgment period under subsection 45UL(3) but the part-year bonus is disregarded in calculating the bonus.  This provision will continue to apply.