You are here
B48/1993 REDUCED ASSETS TEST WITHDRAWAL RATE
DATE OF ISSUE: 7 SEPTEMBER 1993
REDUCED ASSETS TEST WITHDRAWAL RATE
2.Prior to the 1993 election the Government made a commitment to reduce the assets test withdrawal rate for pensioners. The commitment was made in view of the current economic climate which has resulted in financial hardship for many retirees who, although "assets rich", are "income poor" due to prevailing interest rates.
3.The assets test withdrawal rate has been reduced from $104 per annum to $78 per annum for each $1000 above the assets test threshold (refer to notes A & B below for method of calculation). This is equivalent to a reduction of $0.75 pension per fortnight for every $250 of assets above the assets test threshold.
Note A:$104 per annum is calculated by the following method:
Divide 1000 by $250 = 4
4 x $1 x 26 fortnights = $104.00
Note B:$78 per annum is calculated by the following method
Divide 1000 by $250 = 4
4 x .75 x 26 fortnights = $78.00
4.Under the current assets test rules, the maximum basic rate of service pension is reduced by $1 per fortnight for every $250 of assets in excess of the relevant asset free area (this is the equivalent of $104 per annum for each $1000 above the free area).
5.The assets free area limits differ depending on the marital and residential status of the pensioner (i.e. if single/married, homeowner or not). Currently the limits are:
Widow/er and non-illness $112,750$193,250
6.The asset free areas are adjusted in July each year in line with movements in the Consumer Price Index (CPI). The last adjustment was on 8 July 1993.
7.Reduction of pension continues at the rate of $1.00 for every $250.00 until no pension is payable. The value of assets at which service pension payments cut-out are:
Widow/er and non-illness$179,250$259,750
Effect Of Reduced Withdrawal Rate On Cut Out Points
8.The easing of the withdrawal rate increases the point at which pension payments cut-out for single pensioners by $27,750 and $46,500 (combined) for members of couples, to:
Impact On Clients
9.There are currently 797 (single) and 8144 (married) service pensioners in receipt of a reduced pension because of their assets. It is estimated that this group will receive an average increase in service pension of $27.92 per fortnight. In addition, it is estimated that a further 225 (single) and 2275 (married) individuals will qualify for service pension because of the increase in the assets threshold i.e. increases of $27,750 (single) and $46,500 (married). The average rate of service pension that will become payable to this group is estimated at $26.56 per fortnight.
10.The easing of the withdrawal rate will cause the pension rate for some asset tested pensioners to become payable under the income test as assessment under that test would produce a lower rate of pension payable. The numbers of pensioners who will be affected by this change are not known.
11.Any reductions in pension that occur in the bulk reassessment exercise for pay-day 30 September will be due to initiatives other than the change to the withdrawal rate, which are being implemented for that pay-day (e.g. indexation of rent thresholds and pension rates).
12.Statistical information will not be available to assess the full impact of this change on pensioners. This is because the system is incapable of isolating individual causes and effects of changes where a number of projects are implemented simultaneously.
13.The application date of the proposal is 20 September 1993. For DVA clients the effective date will be 30 September 1993 i.e. the first pension pay-day following
20 September. Other projects with the same implementation date will be the subject of separate DI's.
14.The following rate calculators in the VEA have been amended to incorporate the change:
Section 41 — where there are no dependent children;
Section 42 — where there are dependent children; and
Section 44 — for widows/ers and non-illness separated spouses.
15.In addition, the financial hardship rules contained in section 52Z of the VEA have been amended.
16.A copy of the relevant extract from the Veterans' Affairs Legislation Amendment Act 1993 which amended these provisions is contained at Attachment A for information.
17.The formulae on the system will be amended by replacing the $1.00 withdrawal rate with 75 cents. There are no screen changes resulting from this initiative.
18.The daily advices system incorporates the new cut out points. Some minor wording changes have also been made to the General Information Sheet (GIS). A copy of the wording changes to the GIS is provided at Attachment B.
19.A paragraph reflecting the reason for variation in pension is included in the September quarterly advices for all clients. A sample of the advice wording on indexation and changes to the assets test is at Attachment C. The first paragraph under this heading changes subject to whether a person receives rent assistance or not. The second paragraph is consistent for all pensioners.
20.Amendment has also been made to ensure that Prescribed Asset Limits for pensioners are correctly reflected in the quarterly advices payment system.
Manual Action By Branches
21.The majority of existing assets tested clients will automatically receive the adjustment to service pension resulting from this change. Those clients who are on manual rates of assessment e.g. those assessed under the hardship and Pension Loan Scheme provisions will require manual reassessment of pension following the ADP processing of the required changes. This action should occur as part of the standard CPI processing of manual rate cases.
Cut off dates for processing
22.The cut off dates for the processing run were provided on 5 August 1993 to the Systems Support Officers (SSOs) in each Branch Office.
Possible increase in valuations
23.The reduction in the assets test withdrawal rate may result in an influx of new claims being lodged by service pensioners with substantial asset holdings. These pensioners will be testing their eligibility and most will require a property valuation. The Australian Valuations Office has been alerted to this possibility.
24.The September issue of the Age Pension News will include an article on the reduction of the assets test withdrawal rate.
25.The September issue of Vet Affairs will include an article advising of the new pension cut out points for assets tested pensioners. A Departmental press release is also proposed prior to implementation.
26.Branches are encouraged to inform local contacts within the Ex-service community of this initiative.
27.If you have any enquiries in relation to this DI, please contact Masuda Sheikh on (06) 289 6442.
NATIONAL PROGRAM DIRECTOR
Veterans' Affairs Legislation Amendment No. . 1993 3
PART 2 -- AMENDMENTS OF THE VETERANS'
ENTITLEMENTS ACT 1986
Division 1 - Preliminary
4.In this part, "Principal Act" means the Veterans' Entitlements Act 1986.
Division 2 - Assets test
Service Pension Rate Calculator Where There Are No Dependent Children
5.The Rate Calculator in section 41 of the Principal Act is amended by omitting from Table F-2 in point 41-F4 "26" (wherever occurring) and substituting "19.50".
Service Pension Rate Calculator Where There Are Dependent Children
6.The Rate Calculator in section 42 of the Principal Act is amended;
(a)by omitting from Table G-2 in point 42-G4 "26" (wherever occurring) and substituting "19.50";
(b)by omitting from Table G-2 in point 42-G4 "52" and substituting "39.00";
(c)by omitting from paragraph 42-G6(b) "52" and substituting "39.00".
Service Pension Rate Calculator for Widows, Widowers and Non-illness Separated Spouses
7.The Rate Calculator in section 44 of the Principal Act is amended:
(a)by omitting from Table F-2 in point 44-F4 "26" (wherever occurring) and substituting "19.50";
(b)by omitting from paragraph 44-F6(b) "52" and substituting "39.00".
Application of financial hardship rules
8.Section 52Z of the Principal Act is amended by omitting from paragraph (3)(d) "$26" and substituting "$19.50".
How the rate of service pension is worked out.
The rate of service pension payable is worked out using both the income and assets tests. Under the income test, every dollar of income over the income test free area, reduces pension by 50 cents per fortnight. Under the assets test, every $250 of assets over the assets test free area, reduces pension by 75 cents per fortnight. Service pension is then paid under the test that calculates the lower rate of pension. Income and asset test free areas are shown on the previous page.
Blinded service pensioners receive the maximum rate of service pension and fringe benefits regardless of income and assets. Dependent Child Add-on for the first child is also paid free of the income and assets tests.
SERVICE PENSIONER COUPLE-
Indexation & TA only.
280 Elizabeth Street
Sydney NSW 2000
JOHN B SMITH
SARAH SMITH — Telephone:
1029 ANZAC AVENUE — Metropolitan residents: 213 7777
HOMEBUSH BAY 2140 — Country residents: 008 257251
13 September 1993
YOUR FILE NUMBER IS NX543210
Dear Mr and Mrs SMITH
This letter gives you details of your current pension payment from Veterans' Affairs.
Indexation and changes to the assets test
Service pensions, disability pensions, rent assistance and telephone allowance have been increased in line with movements in the consumer price index (CPI). The new rates will be paid on pay day 30 September 1993.
In addition, and in recognition of the recent fall in interest rates, the Government has eased the assets test for service pensioners. From 30 September 1993, asset tested pensions will be reduced by 75 cents instead of the current $1.00 for every $250 worth of assets above the asset threshold.
The amount of pension you will receive each fortnight is set out below. Payment at this rate will commence from 30 September 1993.
PAYMENTS TO JOHN SMITH and SARAH SMITH
Service pension 220.00 220.00
Pharmaceutical Allowance 2.60 2.60
TOTAL FORTNIGHTLY PAYMENT $226.60 $222.60