C37/2005 Treatment of Lump Sum Arrears of Foreign Pension

Replaced by DI No.

C13/2010

Purpose

The purpose of this departmental instruction is to advise the correct treatment of a lump sum arrears payment of foreign pension.

Background –  concessional treatment of foreign pension income

Departmental Instruction B53/94), titled Service Pensioners to Claim Comparable Foreign Pension Entitlements, provided instruction on the initiative to require pensioners to claim a comparable foreign pension. At that time certain concessions were provided to encourage pensioners to claim their entitlements without too severe an impact on their pension, including the concession that no recovery action was to be taken.

The requirement to claim a foreign pension is now well established, and the inconsistent treatment of the arrears payment under the Social Security Act 1991 (SSA) and the Veterans' Entitlements Act 1986 (VEA) needs to be addressed.

Correct treatment – assess under s46A VEA

An arrears payment of foreign pension meets the definition of income in section 5H of the VEA as it is an income amount received by the person for their benefit. Therefore it should be assessed as income.

Note 3 to the definition of ordinary income in subsection 5H(1) of the VEA directs the assessor to sections 46 and 46A of the VEA for provisions affecting the amount of a person's ordinary income. The payment meets the criteria of section 46A of the VEA as it is not an exempt lump sum under subsection 5H(12) of the VEA, and is not a periodic payment or income from remunerative work.

Section 46A directs that the income should be taken to be received over the next 12 month period. The fortnightly amounts to be held in the pensioner's income test assessment are derived by dividing the total amount by 26.

Assessment of arrears under assets test

The arrears payment may remain assessable under the assets test, depending on what use the pensioner puts the payment to. For instance, if the amount is put towards the person's mortgage on their principal home, the amount becomes exempt. However, if it is deposited into a bank account, the amount becomes a financial asset and deeming rules apply.

Reason for assessing as income amount

This method of assessment will provide greater consistency between social security policy and VEA policy for the assessment of foreign pension. It will also provide a more equitable outcome in terms of recipients of foreign pension who receive VEA income support payments and recipients of DVA disability pension who receive social security payments.

Summary of policy

Where a pensioner receives an arrears lump sum payment of foreign pension, the lump sum is assessed as income received in fortnightly instalments over the next 12 month period.

Further, any investment made with the arrears lump sum, and any income (deemed or actual according to normal rules) will be assessed under the income and assets tests.

Contact

For further information or queries, please contact Kirrily Williams, Income Support Policy, on (02) 6289 6525 or email Nat P — o — licy Advisings Income Support.