C45/2002 Budget 2002 Initiative to Index Ceiling Rate Income Support Supplement and Service Pension

Purpose

This instruction provides information relevant to the Budget 2002 initiative that will:

• Allow backdating of Income Support Supplement (ISS) in certain circumstances;
• Align rules for ISS recipients who have a partner who is not in receipt of an income support payment, with the rules applicable to other income support pension recipients.  That is, this group will be assessed under partner assessment rules; and
• Index the ceiling rate ISS and service pension (SP).

Target Population

There are almost 81,000 who will benefit from the indexation of ISS/SP.  The following state by state breakdown gives approximate numbers of war widow(er)s affected:

New South Wales — 29,000

Victoria — 20,000

Queensland — 16,500

South Australia — 7,000

Western Australia — 5,500

Tasmania — 3,000

No existing pensioners have been identified that will be effected by changes:

• to backdating of ISS claims rules; and
• to family assessment rules.

The rules will however apply to cases arising on or after 20 September 2002.

Contact Officers

Kirrily Williams, Income Support Policy:  (02) 6289 6525

Oona O'Beirne, Income Support Policy:    (02) 9213 7771

Peter Feinler, New Systems Delivery:        (08) 8290 0441

Roger Winzenberg

Branch Head

Income Support

The Act

The changes are contained in the Veterans' Affairs Legislation Amendment (2002 Budget Measures) Act 2002 No. 72 of 2002.  The Act received Royal Assent on 6 September 2002.

Legislative Amendments

There are 5 new VEA sections/subsections added to the VEA as a result of the Veterans' Affairs Legislation Amendment (2002 Budget Measures) Act 2002.

New VEA references

Explanation

1

ss45C(3)

Allows ISS claim to be backdated by reference to new subsection 45R(2)

2

ss45R(2)

Allows claim to take effect on the WWP pension receipt date if the person was in receipt of a social security payment immediately prior to WWP pension receipt date and the social security payment is no longer payable.

3

s59A

Provides the indexation of the ceiling rate of ISS, in line with the percentage increase in maximum single rate SP.

4

s59LA

Provides the formula for indexation adjustment to the ceiling rate.

5

Sch6-A4

Adds that the ceiling rate is indexed

6-monthly

Repealed sections

SCH6-B2 has been repealed.  SCH6-B2 permitted an ISS recipient who is partnered (partner receiving neither pension nor benefit) to be treated as not being a member of a couple under Table B of SCH6-B1.

Commencement Date

The Act will come into effect from 20 September 2002, with the first pension payday to include the indexation adjustment increase being 3 October 2002.

Change

These changes will enable a claim for ISS to be backdated for eligible war widow(er)s who were receiving a social security payment that is cancelled when the person starts to receive a WWP.

The claim will be backdated to the date of grant of WWP.  This will enable the eligible person to receive the maximum amount of income support available to them (new VEA subsections 45C(3) and 45R(2) refer).

20 March 1995

ISS commenced to be payable on 20 March 1995.  That means that backdating of grant of ISS to a date prior to that date is not possible.  Grants of WWP that are backdated to a date prior to 20 September 2002 should result in grant of ISS from the later of:

• the date of grant of WWP; or
• 20 March 1995.

If the person was receiving a social security pension during the period from date of grant of the WWP and 20 March 1995, the social security pension should be reduced to the ceiling rate up to 19 March 1995.

Background

Prior to 20 September 2002 a person who was receiving certain social security payments and who is subsequently granted a WWP could be disadvantaged in relation to the payment of income support.

The problem arose as a result of multiple exclusion clauses that prevent:

• a war widow(er) from receiving a social security benefit or allowance; and
• a war widow(er) who is eligible for ISS from receiving a social security pension.

Although a claim for WWP under the VEA is also a claim for ISS, the ISS could only be payable from the date of lodgement of the claim.  This differs from the 3 months backdating rule applicable to the WWP grant.

With the automatic cancellation of social security pension it was possible for a gap between the cancellation of that payment and the commencement date of ISS.

Multiple exclusion clauses

The multiple exclusion clauses that prevent war widow(er)s from receiving a certain payment referred to above apply to the following social security payments:

• age pension;
• disability support pension;
• wife pension;
• carer payment;
• bereavement allowance;
• widow allowance;
• parenting payment;
• newstart allowance;
• mature age allowance;
• mature age partner allowance;
• sickness allowances;
• special benefit;
• partner allowance; and

• special needs pension.

Changes

A person who is a member of a couple and whose partner is not receiving a pension or benefit under the VEA or the SSA will have their pension rate assessed as a member of a couple, rather than a single person.

This change corrects the anomaly between ISS recipients and other income support payment recipients (Repeal of Sch6-B2 VEA refers).

Background

A person who is a member of a couple and whose partner is not receiving a service pension or a social security payment, is classified as a 'member of a couple' for pension rate assessment purposes.

Prior to 20 September 2002 the same rule did not apply to ISS paid to a person who has a partner who is not receiving a service pension or social security payment.

Ceiling Rate

The ceiling rate was set at $120.10 on 1 November 1986 to limit the amount of pension payable to people receiving WWP.  Since then one increase of 4% has been applied on 1 July 2000 to compensate for the introduction of the 'New Tax System', bringing the rate to $124.90 per fortnight.

Indexation

From 20 September 2002, the ceiling rate ISS/SP will be indexed every March and September in line with percentage increases in the maximum rate service pension.  The first indexation adjustment brings the ceiling to $127.20 per fortnight.

The indexation rate that will be applied to ceiling rate ISS and SP from September 2002 will be equal to the percentage increase to maximum basic rate of service pension following the application of the CPI and 25% male total average weekly earnings rule.

Exclusions

The following groups are not directly affected by the indexation of the ceiling rate:

• ISS and SP recipients who are on a reduced rate of payment already benefit from indexation.  Therefore they are unaffected by the Budget initiative.

• ISS and SP recipients who have been continuously in receipt of a higher ceiling rate income support pension since 1 November 1986 will remain on their individual ceiling rate until the general ceiling rate indexation increases are equal to the person's individual ceiling rate.

• Recipients of a higher ceiling rate of ISS due to application of the compensation reduced Part II or Part IV pension rule.

• Recipients of frozen rate social security pensions will not benefit from the indexation unless they transfer to the ISS.

How the indexation will work

The calculation for the new indexed ceiling rate is based on the single SP Maximum Basic Rate (ie excludes SP allowances and pension supplement but factors in MTAWE rule).

Steps

Action

Formula

1

Determine previous annual single MBR (less pension supplement)

$405.80 ÷14 x 364 = $10,550.80 pa

2

Determine current annual single MBR (less pension supplement)

$413.10 ÷14 X 364 = $10,740.60

3

Calculate Pension MBR factor (Step 2 ÷ Step 1)

$10,740.60 ÷ $10,550.80 = 1.0179891

(worked out to 3 decimal places: 1.018)

4

Determine previous annual rate of ISS/SP

$3,247.40 (pre 20 September 2002)

5

Apply the formula for indexation adjustment to ISS/SP (Step 4 x Step 3)

$3,247.40 x 1.018 = $3,305.85pa rounded to nearest multiple of $2.60 pa

= $3,305.90

6

Calculate daily & fortnightly amounts (s58A refers)

$3,305.90 ÷ 364 = 9.083 x 14 =$127.16

rounded = $127.20

Overview

From 20 September 2002 those war widow(er)s who receive $124.90 per fortnight ISS/SP will receive an increase in that pension to $127.20 per fortnight.  On 3 October 2002 the pension increase will relate to eleven days of the pay period.  The first full pension increase will occur on payday 17 October 2002.

Following that, the ceiling rate will be indexed twice yearly on 20 March and 20 September.

The impact of the indexation on groups who are not in receipt of a ceiling rate ISS/SP are set out below.

ISS/SP recipients receiving above the ceiling rate

Immediately prior to 20 September 2002, there were 340 war widow(er)s who were receiving a ceiling rate above $124.90.  Four of these war widow(er)s have a ceiling rate greater than $124.90 but less than $127.20 per fortnight.  This group will have their payments increased to the ceiling rate.

There are two groups within the remaining 340 war widow(er)s to whom indexation will impact differently.

Above ceiling rate – Group 1

Group 1 consists of war widow(er)s in continuous receipt of income support pension and a WWP prior to 1 November 1986 (Sch6-A5 to Sch6-A5A of the VEA refers).

The higher ceiling rate applicable to this group will continue to apply until their individual rate is equal to the indexed ceiling rate.  At that point this group will start to benefit from indexation unless they are on a lower rate of income support because of the level of their income or assets.

Above ceiling rate – Group 2

Group 2 are receiving a higher rate of ISS due to a compensation reduced WWP (Sch6-A6 to Sch6-A9 of the VEA refers).

War widow(er)s who receive a reduced rate of WWP due to compensation from another source in respect of their veteran partner's death, have an adjusted ceiling rate applied to their ISS.

The difference between the full WWP rate and the reduced rate actually received is added to the general ceiling rate ($124.90).

It should be noted that until 20 September 2002, the adjusted ceiling rate applicable to this group could vary any time the rate of WWP payable changes.  This may occur due to:

• indexation of WWP; or

• changes to the rate of the dual compensation received that in turn varies the rate of the Australian WWP.

Commencing 20 September 2002, the indexation of ISS adds another variable that will alter the ceiling rate applicable to this group.

It should be noted that if the reduction to Australian WWP is due to periodic payments of compensation/overseas WWP as opposed to lump sum compensation, the rate of ISS is often payable at a rate lower than the individual's ceiling rate.  This is because of the impact of the income test.

In the course of implementation of the ISS/SP indexation project a group of compensation reduced WWP recipients was identified who appear to have an incorrect ceiling rate.  Further detail relating to the corrective action necessary on these cases is set out at attachment A.

ISS/SP recipients receiving below the ceiling rate

Those war widow(er)s receiving less than ceiling rate are receiving their correctly assessed rate of income support and are not disadvantaged by the ceiling.  Those below the ceiling already benefit three times a year from indexation including from:

• the twice yearly indexation of pension rates; and
• the 1 July indexation of the income/adjusted income free areas and the assets value limits.

WWs receiving pension at Centrelink

A small group (171) of war widow(er)s remain in receipt of a 'saved' social security pension payable by Centrelink.  When ISS was introduced as a means of allowing war widow(er)s to receive all their income support from DVA, SSA multiple exclusion clauses were introduced to prevent payment of social security pension to a person receiving WWP payable under Part II or Part IV of the VEA.

Centrelink has written to remind this group of the requirement to notify of changes to circumstances that may effect social security pension entitlements.   Media articles relating to the increase of ceiling rate ISS/SP from DVA are contained in the September issues of VetAffairs and Age Pension News.  These articles will also alert this group about the availability of a higher rate of income support if they transfer to ISS.

Q&As have been distributed to Centrelink call centres so that all calls from war widow(er)s responding to the letter are handled by Centrelink staff appropriately and referred to the correct area/person within the relevant DVA State Office.

Telephone inquiries from war widow(er)s considering transferring to DVA should be entered onto a D501 preliminary details form and considered an informal claim and appropriate action taken.

Refer to Stateline (Trim Ref 0248639E) 9 September 2002:  'Centrelink Mail out to War Widow(er)s Re: ISS Indexation', for further detailed instructions on procedure for this “one off” exercise.

Rent deductions to State Housing Authority

A small number of Centrelink age pensioners who are recipients of a WWP are currently patrons of the Rent Deduction System (RDS) at Centrelink.  The cases identified are from Western Australia and New South Wales.

The RDS allows rent payments to be deducted automatically from their pension payments and paid directly to State Housing Authorities on a fortnightly basis.

DVA is currently developing a similar facility, the Direct Deduction System (DDS), but implementation is not anticipated until the new year.  A special interim arrangement has been negotiated with the WA and NSW State Housing Authorities that will allow DVA to deduct rent payments from pension payments until the DDS is implemented.

Very important  steps for RDS customers

All War Widow(er)s contacting State Offices regarding the transfer from Centrelink to ISS with DVA should be asked whether they utilise the RDS.

If

• a claim for ISS is received from a war widow(er) who currently utilises the Centrelink RDS; and
• they want to continue having rent payments deducted from their ISS on transfer,

then it is absolutely essential that David Owen, National Office, be notified (by phone (02) 6289 6685, or e-mail) prior to finalisation of the claim so that the interim rent deduction arrangements can be enacted.

A note indicating this requirement should be attached to the preliminary details form.

Discounting rules for aged care

The indexation of ISS ceiling rate has no effect on discounting rules for war widow(er)s' aged care fees.

Aged care ready reckoners held within State Offices should be updated to reflect the new indexed rates of ISS.

Overview system changes

All systems that calculate ISS and SP ceiling rates have been changed to cater for ISS indexation.  These systems include:

• PIPS PC;
• Quarterly and Fortnightly batch processes;
• DPS; and
• Age Care Matching.

PIPS PC changes – phased approach

The implementation of PIPS PC changes for ISS Indexation has been split into 2 phases:

• Phase 1 changes will be implemented with the September SI run;
• Phase 2 changes will be implemented together with FormBuilder Replacement changes for PIPS PC, probably in November this year.

PIPS PC – phase 1

The Phase 1 changes are the minimum necessary to ensure the 20 September 2002 indexation increase occurs. These changes are mostly background system changes with no visible changes apart from the updating of warning and edit messages.  The minimum nature of the Phase 1 changes mean that interim procedural arrangements are necessary.  These arrangements include:

• 2 or 3 PIPS cases will be required for each grant of ISS with an effective date prior to 20 September 2002; and
• any existing ISS or SP ceiling rate case that has a change made on the Adult Details screen and also has an effective date prior to 20 September 2002 will reset the pension recipient's current ceiling rate to a pre 20 September 2002 ceiling rate.

PIPS PC – phase 1 – ISS/SP grants between 1/7/00 and 20/9/02

All grants of ISS/SP with a grant date on or after 1 July 2000 and prior to 20 September 2002 will require 2 PIPS cases for the ceiling rate to be correctly recorded.

The steps for this are:

PIPS Case #1 (eg, ISS/SP New Claim)

• Create worksheet with appropriate date of grant between 1 July 2000 and 19 September 2002;
• Enter ceiling rate on Adult Details as $124.90;
• Data collect personal and income and assets data, as required;
• Proceed through Calculate Pension and Calculate History, etc;
• Finalise case; and then:

PIPS Case #2 (eg, Dept Init Action)

• Create worksheet, using SP-ISS-AP Notification Rules:  Do NOT Apply option and with effective date of 20 September 2002;
• Change ceiling rate on Adult Details to $127.20;
• Proceed through Calculate Pension, etc;
• Suppress advice;
• Finalise case.

Note: if an advice is produced from PIPS Case #1, it will have current payment rates as long as PIPS Case #2 is finalised immediately after Case #1.

PIPS PC – phase 1 – ISS/SP grants prior to 1/7/00

All grants of ISS/SP with a grant date prior to 1 July 2000 will require 3 PIPS cases for the ceiling rate to be correctly recorded.

The steps for this are:

PIPS Case #1 (eg, ISS/SP New Claim)

• Create worksheet with appropriate date of grant prior to 1 July 2000;
• Enter ceiling rate on Adult Details as $120.10;
• Data collect personal and income and assets data, as required;
• Proceed through Calculate Pension and Calculate History, etc;
• Finalise case; and then:

PIPS Case #2 (eg, Dept Init Action)

• Create worksheet, using SP-ISS-AP Notification Rules: Do NOT Apply option and with effective date of 1 July 2000;
• Change ceiling rate on Adult Details to $124.90;
• Proceed through Calculate Pension, etc;
• Suppress advice;

• Finalise case, and then:

PIPS Case #3 (eg, Dept Init Action)

• Create worksheet, using SP-ISS-AP Notification Rules: Do NOT Apply option and with effective date of 20 September 2002;
• Change ceiling rate on Adult Details to $127.20;
• Proceed through Calculate Pension, etc;
• Suppress advice;

• Finalise case.

Note:  some of these cases may create more than 25 assessment histories – if this occurs, no advice will be produced for the case.

PIPS PC – phase 1 – variations prior to 20/9/02

The bulk of cases that are varied with an effective date prior to 20 September 2002 will retain and correctly assess the ceiling rate as $127.20 from 20 September 2002.

However, if:

• any data on the Adult Details screen is updated, eg, if granting or cancelling RAA or changing status to Illness Separated or Blinded; and
• the date of variation is on or after 1 July 2000 and prior to 20 September 2002 (or if the event date of the worksheet is prior to 20 September 2002 and Calculate Pension determines the date of effect as on or after 20 September 2002); then
• Calculate History will reset (reduce) the ceiling rate to $124.90 from 20 September 2002 or the Calculate Pension date of effect if later (and also any subsequent dates of effect).

Similarly, if:

• any data on the Adult Details screen is updated; and
• the date of variation is prior to 1 July 2000; then

• Calculate History will reset (reduce) the ceiling rate to $120.10 from 1 July 2000 and for all subsequent dates of effect.

If the ceiling rate is reduced as a consequence of an Adult Details change it must be corrected in much the same way as for grants of ISS/SP:

• if reduced to $124.90 from 20 September 2002 (or any later date), an additional PIPS case must be actioned to restore it to $127.20 from that date;
• if reduced to $120.10 from 1 July 2000, 2 PIPS cases must be actioned to restore the ceiling rates from 1 July 2000 and 20 September 2002.

PIPS PC – phase 2

Phase 2 of PIPS PC changes will enable all grants and variations of ISS/SP to be done as a single action regardless of whether the effective date for the case is prior to or after 20 September 2002.

The system changes for phase 2 will largely be background changes with no visible change to screen designs.  The key aspects of these changes will be:

• Adult Details screen will default the correct ceiling rate when ISS/SP is granted so that it won't need to be manually entered in the screen;
• Calculate History will also default the correct ceiling rate for each history date of effect.

Phase 2 will also fix a problem identified in Crossview Service Request #5125.  This is a problem with partnered ISS/SP recipients who have their partnered status removed.  In these cases, the PIPS case that removes the partnered status continues to assess the ISS/SP recipient as if partnered, and an additional PIPS case must be done to correctly assess the ISS/SP as non-partnered.

Further information about phase 2 changes will be provided when FormBuilder Replacement for PIPS is implemented.

Death Processing System

Changes have been made to DPS to ensure that it uses the correct ceiling rate for automatic grants of ISS.  For example, if a TPI veteran dies on 10 September 2002 and his war widow(er) will be granted ISS, DPS will record the ceiling rate as $124.90 from 11 September 2002 and $127.20 from 20 September 2002.

Of course, if DPS reports an ISS grant for manual action through PIPS, the ISS grant will require 2 PIPS cases if the grant date is prior to 20 September 2002 until phase 1 PIPS changes are superseded by phase 2 changes.

IAS

Minor changes to IAS have been made to reflect the new ISS/SP ceiling rates effective 20 September 2002.  Other minor changes to IAS advices that have occurred include:

• A change to bereavement advices to emphasise the need to claim ISS asap in circumstances where grant of that payment is not automatic.
• A change to bereavement advices to emphasise the fact that Centrelink payments cannot continue if war widow(er)'s pension is granted. 
• A change to GIS relevant to ceiling rate ISS to emphasis that the ceiling rate cannot be exceeded even though rent assistance may be payable.

Mail out

All ISS/SP recipients, who will automatically receive the maximum benefit from this initiative, will receive a letter from the Minister advising them of the increase, the amount and the effective date.  The following dates are relevant to this mail out exercise:

Date

Action

20 September 2002

Delivery of Excel spreadsheet and electronic word version of the text to the mailing house

23 September 2002

Printing Job to commence

27 September 2002

Lodgement with Australia Post by COB

Processing Runs and Mailout timeframes

The download of client data occurred on 19 September 2002.

A check for ISS/SP recipients who have died since the initial data download will be conducted prior to the letters being enveloped by the mailing house.  Any deceased cases identified will be manually extracted from the mail out exercise.

Mail out – 'special register' cases

All 'special register' ISS/SP recipients, ie, those pensioners who have their payment made to a group payment destination, will have their ISS/SP indexation letter sent directly from the mailing house to the address recorded for them on the system.

Therefore, letters for these pensioners will not be streamed out and sent to State Offices for mailing.

Mail out – overseas residents

Letters for overseas residents will be sent to State Contact Officers for them to address correctly and post.  Most of the overseas residents are paid by the Tasmanian State Office.  Where an overseas resident is paid by another State Office, the letters will be sent to the relevant State Office for addressing and dispatch.

Manual Advices

Letters will be sent by National Office to war widow(er)s who will receive a partial benefit from the indexation of ISS/SP.  This group will receive a letter advising of the increase to their individual payment that will be sent from National Office.

Interaction with other exercises

Reduced rate ISS/SP recipients who meet the selection parameters for the global refresh of MI and SH will receive an advice letter as part of that exercise.  Refer Departmental Instruction C42/2002 dated 10 September 2002 for further information on this exercise.

ESOs

A letter has been issued to Ex-Service Organisations informing them of the changes to the VEA that have occurred.  A copy of the letter is provided at attachment B.

Statelines

The following Statelines have been issued in relation to this initiative in the course of project implementation:

• 'Media Release re:  Indexation of Ceiling Rate Income Support', 24/06/02 (Trim Ref 0234749E);
• 'Income Support Related Publicity', 04/09/02 (Trim Ref 0247674E);
• 'Centrelink Mailout to War Widow(er)s re:  ISS Indexation', 09/09/02 (Trim Ref 0248639E).

Q&As

An updated version of the Q&As sheet previously supplied is at Attachment C.

Updates to reference material

The relevant chapters and sections of CLIK, You and Your Pension, Intent Paper and the Rate Charts have been updated.

Fact Sheets will be in production by Thursday 26 September 2002.  Future increases to the ceiling rate ISS will be made automatically.

If you are providing a hard copy of 'You and Your Pension', 2001 edition please insert Fact Sheet IS03 'Income Support Supplement Overview'.  The 2003 edition of 'You and Your Pension' will reflect the 20 September 2002 changes.