C20/1997 DEEM THE DEEMING FREE AREA ($2000 / $4000)

DATE OF ISSUE:  21 MARCH 1997

DEEM THE DEEMING FREE AREA ($2000 / $4000)

PURPOSE

The purpose of this Departmental Instruction (DI) is to provide information on amendments to the Veterans' Entitlements Act 1986 designed to apply the threshold deemed interest rate, currently 4%, to the first $2,000 for single pensioners, and $4,000 for couples, of available money or deposit money held as cash or deposit money from 20 March 1997.

BACKGROUND

2.Under the ordinary income provisions of the VEA, a person's financial assets are added together and a deeming rate is applied to the first $30,000 of the total for a single person and $50,000 for pensioner couples combined.  These amounts are known as the deeming threshold.  The deeming threshold is indexed 1 July every year.

3.Financial Assets include bank, building society and credit union accounts (this includes cheque accounts and term deposits); cash; managed investments; superannuation fund investments held by a person over pension age; listed shares and securities; loans (including debentures and bonds); shares in unlisted public companies; deprived assets; and gold, silver and platinum bullion.

4.A deeming rate of 4%, known as the below threshold rate, is currently applied to the value of assets below the deeming threshold.  6%, known as the above threshold rate is applied to the value of financial assets above the deeming threshold.

5.Deeming rates are monitored on an ongoing basis.  If the deeming rate changes, it will coincide with the March and September pension indexation increases to minimise the disruption to pensioners.

6.An exception to these rules was that the first $2,000 ($4,000 for couples) of the deeming threshold amounts of bank deposits and cash were assessed at the actual interest rate payable if it was less than 4% and deemed at 4% where the actual interest rate was higher than 4%.  These amounts were known as deposit concession money.

7.Under the new rules, deposit concession money (ie. the first $2000 for single pensioners and $4000 for couples of available money or deposit money) will be included with a person's total financial assets and deemed at the below threshold rate (currently 4%).

RATIONALE

8.Different assessment rules for the first $2000/$4000 of a pensioner's financial assets added complexity to otherwise very simple rules for the income assessment of financial assets.  Also, this rule provided no additional pension to the vast majority of pensioners.

9. The change will further simplify the rules applying to pensioners, promote the concept of fairness (in that the same rules will apply to all financial assets), reduce the amount of detailed information that pensioners are required to provide to the Department, and further simplify administration.   This change will also provide more incentive for clients to maximise their overall income by seeking interest bearing accounts which deliver interest rates of  4% or greater.

AFFECT ON PENSIONERS

10.The maximum amount that a pensioner may be affected by is $1.50 a fortnight.  However, by taking advantage of the deeming rules, the pensioners who lose pension can actually increase their overall income.  Whilst earning more interest may mean a lower pension, the total income for the pensioner would increase because the pension only reduces by $0.50 for each $1.00 of income earned above the free area.  This changes will be implemented at the same time as the general pension increase from the payday of March 27.  Accordingly, this means that those affected are unlikely to receive an actual decrease in pension.

LEGISLATION

11.The amendments to the VEA were introduced in the Veterans' Affairs Legislation Amendment (1996-97 Budget Measures) Bill 1996 and received Royal Assent on 5 March 1997.

POLICY CHANGES

12.From 20 March 1997, the extended deeming provisions will apply to the first $2000 (single pensioners) and $4000 (married pensioners) of available or deposit money.  Consequently, all financial assets below the deeming threshold (ie. $30,000 for single pensioners and $50,000 for coupled pensioners) will be deemed at the below threshold deeming rate which is currently 4%.

PUBLICITY

13.Details of the amendments will be publicised in the next publication of Age Pension News in March and June and Vetaffairs in April.

BROCHURES

14.The following brochures will need to be changed to reflect the new rules:

·Service Pension and Income Test; and

·Income Support Supplement and Income Test.

15.The brochures have been examined and Business Delivery Section have been advised of the necessary changes.  These changes will not be reflected in the brochures until the next review of the relevant brochures.

SYSTEM CHANGES

16. The system will be altered so that deposit concession money (ie. the first $2000 for single pensioners and $4000 for couples of available money or deposit money) will be included with a person's total financial assets and deemed at the below threshold rate of 4%.  Actual income will not be held on financial assets in a pensioner's assessment, unless an exemption from the deemed income rule applies

IMPLICATIONS FOR PIPS/PC PROCESSING

17.The removal of the $2000/$4000 deeming free area provides an opportunity to rationalise data collection.  In effect the change removes the need to data collect full details of individual financial institution accounts which were previously required to determine the rate of return for the deeming free amount.

18.Another legislative change which was passed in the same bill is the $1 minimum variation initiative. The new initiatives are complementary in that they are both intended to simplify and rationalise income support processing, and to reduce the level of unnecessary and unreasonable intrusion upon pensioners.  In future pensioners will no longer be required to notify of changes to their financial institution accounts which would result in a pension rate variation of less than $1.00.  A Departmental Instruction which covers the $1 minimum variation initiative will be issued shortly.

19.Both initiatives raise the question of how much information we want to collect in the future.  State Income Support Managers have already provided comments  and these are currently being analysed by Income Support Breakthrough Project team members.  It is proposed to further involve the State Offices in the development of a new data collection policy which will be presented for Commission approval.

EFFECTIVE DATE

20.The effective date of these changes is 20 March 1997.

FORMS

21.No form changes were required for this initiative.

ADVICES

22.The March 1997 Quarterly Advices will inform pensioners of the changes to the deeming rules.  The Financial Assets Table in the Advices will reflect the pensioners total financial assets to be held in their assessment.

ENQUIRIES

23.Any questions regarding this DI (except implications for PIPS/PC processing) should be directed to John Bruce, Assistant Director, (06) 289 6441, LAN C-C-BA-09.  Enquiries relating to implications for PIPS/PC processing should be directed to Ron Mildenhall (09) 3668286 from the Breakthrough Project.

MURRAY HARRISON

BRANCH HEAD

INCOME SUPPORT

INITIATIVES: LEGISLATIVE AMENDMENTS SUMMARY

ITEM VALAB Commencement Date

Veterans' Affairs (1996-97 Budget Measures) Legislative Amendment Act 1996: Effective commencement date on 20 March 1997

VEA Amendments

34 46D(3) Repeals the subsection and substitutes a Method statement for calculating the ordinary income that a person is taken to receive.  An example shows the operation of the Method statement.

35 46E(3) Repeals the subsection and substitutes a Method statement for calculating the ordinary income that a couple is taken to receive.  An example shows the operation of the Method statement.

36 46F Removes obsolete section 46F. Deposit concession money is no longer calculated or considered in relation to deemed income from financial assets.

37 46G Removes reference to repealed Section 46F

38 46L(2) Removes the subsection relating to the exclusion of investments that had been determined by the minister not to be regarded as financial assets.  As deposit concession money is no longer calculated, the reference to 46F is redundant.

Schedules

39 Schedule 5 Removes reference to repealed Section 46F from Clause 7

*Note: Item numbers in first column refer to Schedule 1, Part 7 of the Veterans' Affairs (1996-97 Budget Measures) Legislative Amendment Act 1996, pp13-16.