DATE OF ISSUE:  27 JUNE 1996

LUMP SUM ADVANCE PAYMENT OF SERVICE PENSION OR INCOME SUPPORT SUPPLEMENT

PURPOSE

The purpose of this Departmental Instruction is to provide procedural guidelines and background information on the 1995/96 budget initiative which allows certain pensioners to access a lump sum advance of pension.

2 — This initiative is effective from 4 July 1996.

BACKGROUND

3 — Currently, service pensioners and income support recipients are unable to access an advance on their pension to meet often unplanned living expenses such as emergency replacement of white goods, car repairs/replacement and/or household maintenance expenses.  Under this initiative they are able to receive an advance of up to $500 to assist in meeting such expenses.

RATIONALE

4 — The availability of advances of service pension (SP) or income support supplement (ISS) provides pensioners with greater choice and flexibility in how they meet their needs.  Pensioners with little or no income, apart from their pension, are expected to be the main beneficiaries of this proposal.

LEGISLATION

5 — Amendments to the Veterans' Entitlements Act 1986 (VEA) for the advance payment provisions were introduced in the Veterans' Affairs Legislation Amendments (1995-1996) Act (No.2) 1995.  Royal Assent was received on 11 December 1995.  The eligibility and payability rules in respect of advance payments of SP and ISS are included in new Part IIID of the VEA.

WHICH PENSIONS CAN BE ADVANCED

6 — The only types of pension that can be advanced are:

• age service pension;

• invalidity service pension;

• partner service pension;

• carer service pension; and

• income support supplement.

Please note that a pensioner receiving a war widow(er) pension or disability pension only (including the special rate) is not eligible for a lump sum advance.  War widow(er) pension or disability pension is not included as part of this budget initiative.

ELIGIBILITY CRITERIA

7 — A service pensioner or ISS recipient is eligible for an advance payment of pension if:

• a SP or ISS is payable to the person;

• the person was receiving a SP, an ISS, a social security pension or a social security benefit continually during the three months immediately preceding the person's application for an advance payment;

• the Commission is satisfied that the advance payment will be used to assist in meeting the person's living expenses; and

• the Commission is satisfied that the person will not suffer severe financial hardship as a result of having to repay the advance payment by deductions from ongoing payments of pension.

8              A person is not eligible for an advance payment if he or she owes a debt to the Commonwealth under sections 205 or 205A of the VEA or if there is an advance payment of pension still outstanding.

Note:  Current procedures apply for obtaining information from the Department of Social Security.  Refer DI C20/96.

APPLICATION

Who can apply

9              Any person receiving a SP or ISS can apply for an advance payment of their pension.  Both members of a couple may apply, at the same time if they wish.  In these cases two application forms will be required.  Repayment is by way of deduction from their SP, ie if the veteran applies and is granted a lump sum advance, the deduction is made from the veteran's SP only.

Form

10              Application for an advance payment of SP or ISS must be made on approved form D556 'Application for Lump Sum Advance Payment'.

11              An application may be lodged by:

• the pensioner who wants to receive the advance; or

• a person who has the pensioner's authority and is acting on behalf of the pensioner.

12              The applicant must be an Australian resident and be residing in Australia when the application is lodged.  (For Australian resident see section 5G of the VEA.)

Assistance to pensioner to calculate ability to repay lump sum advance

13              Significant emphasis is placed on the pensioner making their own decision about their ability to repay an advance of their pension.  To help pensioners who request assistance in deciding whether they can afford to repay an advance, a new form D557, 'Application For Lump Sum Advance, Income/Expenses Calculator' has been developed.

Note:  As a general rule, completion of this sheet is not obligatory and is intended as a guide to assist pensioners when making their decision about their advance.  However, in cases where the delegate has some doubt about the pensioner's ability to manage on a reduced income, the delegate may require the form to be completed (refer para 17).

Application may be withdrawn

14              An application for an advance payment may be withdrawn by the applicant or the person acting on behalf of the applicant at any time prior to the application being determined.  The withdrawal may be made either verbally or in writing.

DETERMINATION OF THE ADVANCE

15              If the pensioner indicates on the application form that they can afford to repay the advance, and there is nothing recorded to suggest that the pensioner cannot make that decision, the delegate then has no reason not to be satisfied that the pensioner can manage on a reduced pension.

16              For cases where there is some doubt that the service pensioner or ISS recipient would be able to manage on a reduced income for the duration of the repayment period, the delegate may require the completion of the new form D557, 'Application For Lump Sum Advance, Income/Expenses Calculator'.  Examples of where this form may be required are:

• the service pensioner or ISS recipient is residing in a nursing home and a large part of their income may already be committed to cover fees; or

• the service pensioner or ISS recipient has been granted hardship to repay a previously lump sum advance payment; or

• the service pensioner or ISS recipient may have an advance pharmaceutical allowance; or

• the service pensioner or ISS recipient is receiving SP or ISS under the hardship provisions or under the pensions loans scheme.

17              The decision to grant an advance payment must be based on the eligibility criteria as detailed in paragraphs 8 and 9.  An application for an advance payment cannot be rejected because of the available amount of cash resources a service pensioner or ISS recipient may have.

Cases under suspension

18              If an application is received for an advance payment of SP or ISS and the pensioner is under suspension, the pensioner does not meet the eligibility criterion, “SP or ISS is payable to the person”.  Sections 36A, 37A, 38A, 39A and 45B of the VEA provide that if SP or ISS is suspended, it ceases to be payable to the person.  In order for the advance payment application to be considered, the suspension would need to be dealt with first.

19              If SP or ISS has been suspended prior to the lodgement of an application for lump sum advance, the pension must be reinstated from a date at least 3 months prior to the lodgement date of the application.  If not, the applicant does not meet the criterion, “the person was receiving a SP, and ISS, a social security pension or a social security benefit continually during the three months immediately preceding the person's application for an advance payment”.

AMOUNT OF ADVANCE

20              The amount of the advance is the lesser of the following:

• 6% of the *annual payment rate; or

• $500; or

• the amount of the advance payment sought.

*Note:  Annual payment rate is defined in subsection 67(C)(3) of the VEA.  It is the rate of SP or ISS payable to the person on the last pension payday before the application for the advance payment is determined.  The rate of SP or ISS includes any additional amount payable such as rent assistance, pharmaceutical allowance and dependant children but excludes any remote area allowance or telephone allowance payable.  War widow(er) pension or disability pension cannot be included as part of the 'annual payment rate'.

Example:  Anne applied on 16 July 1996 for a $400 advance payment of her partner service pension (PSP).  On the 18 July 1996 a delegate of the Commission was satisfied that Anne met the eligibility criteria.  Anne's rate of service pension (including pharmaceutical allowance) on 4 July 1996 (last pension payday prior to the advance payment determination) was $200 per fortnight.

Therefore the annual payment rate is $5200 ($200.00 × 26).

Calculation of the advance amount

6% of the annual payment rate = 6% of $5200 = $312 ; or

Maximum limit = $500; or

Amount sought = $400.

The amount that can be advanced to Anne is $312.

21              If a service pensioner or ISS recipient applies for an advance of SP or ISS and is ineligible for the amount requested, the pensioner should be contacted.  There may be instances where, unless the pensioner is granted the amount requested, they may no longer wish to proceed with their application.

Minimum limit

22              The legislation does not provide for a minimum amount of advance payment of pension.

23              However, any requests for an advance payment of SP or ISS of say less than $50 should be discouraged.  An application for an advance payment of less than $50 may indicate that the pensioner would find it difficult to manage on a reduced pension and therefore would not be eligible for the advance payment.  In these cases, the delegate may require the applicant to complete form D557, 'Application For Lump Sum Advance, Income/Expenses Calculator'.

24              As a general rule, where there is a need to meet living expenses that are of a minimal amount, it is expected that the pensioner should rely on their fortnightly pension payment.

PAYMENT OF THE ADVANCE PAYMENT

25              Once the delegate of the Commission is satisfied that the pensioner is eligible for the advance payment, the amount granted should be paid on the next practicable pension payday on which the pensioner is paid an instalment of pension.  The payment must be paid as a lump sum.  Subsections 67B(1) and (2) of the VEA refer.

26              Subsection 67(4) of the VEA provides that an advance payment should not be paid if SP or ISS is cancelled or reduced to nil before the day on which the advance payment would have been paid.

Emergency Payment

27              In cases of emergency, the pensioner can request an immediate payment of the lump sum advance either by cash or cheque.  Subsection 67B(3) enables a delegate of the Commission to determine in writing the day an advance payment can be paid.

28              Once the delegate authorises an immediate payment, existing local procedures for emergency payment of pension should be used and the Lump Sum Advance System should be updated accordingly.  System examples will be provided in separate documentation.

ADVANCE PAYMENT DEDUCTION

Calculation/repayment

29              The advance payment deduction is calculated by dividing the full amount of the advance payment by 13.  This rate of deduction from the pension ensures the advance payment is repaid in six months.  The deduction is calculated automatically by the Lump Sum Advance System.  Examples will be provided in separate documentation.

30              An advance payment deduction is not to be made from the pension on the same payday that the advance payment is made.  Deductions should commence from the payday after the advance payment has been made to the pensioner.  Subsection 67D(2) of the VEA refers.

31              The pensioner may repay the advance payment in a shorter period of time by making a one off additional repayment or by requesting a higher fortnightly deduction rate.

32              It is only at the pensioner's written request that fortnightly deductions may be increased.  The delegate must be satisfied that the pensioner would not suffer severe financial hardship as a result of the increased fortnightly deductions.

33              When the pensioner makes a one off additional repayment, it is necessary for the examiner to find out whether the pensioner wishes to reduce the fortnightly deduction rate for the remainder of the original repayment period or continue to repay at the original rate of deduction for a reduced number of fortnights.  Processing examples will be provided in separate documentation.

Rounding

34              The amount worked out for the advance payment deduction is rounded to the nearest 10 cents (rounding 5 cents upwards).

Hardship

35              There may be situations where the advance payment deduction causes severe financial hardship.  The pensioner can apply in writing to have the rate of deduction decreased or stopped.

36              A new form D555, 'Application for Lump Sum Advance, Hardship Claim Form' has been developed for this purpose.

Calculation under hardship

37              The pensioner must provide details of the change in circumstances that:

• was unforseen; and

• exceptional; and

• would result in them suffering severe financial hardship if required to continue paying the advance payment deduction that would otherwise apply.

38              For example, an increase in council rates etc may result in an the pensioner's expenses increasing and the pensioner no longer being able to manage on the reduced rate of pension.

39              Form D555 requires the pensioner to indicate how long they expect their changed circumstances to continue to affect their ability to repay at the current rate and how much they think they can afford to repay.

40              Additional information is also sought on the pensioner's fortnightly income and expenses in order to give the delegate an indication of their capacity to repay.

41              If the delegate is satisfied the criteria as stated in para 39 is met, they may determine in writing that the advance payment deduction can be reduced or stopped.  The delegate must specify a period and a review should be set for the end of that period to resume the higher deduction rate.

Note:  In the event that an application for an advance payment of pension is received from a pensioner who has suffered severe financial hardship whilst repaying an earlier lump sum advance, a delegate of the Commission may not be satisfied that the pensioner can manage on reduced pension and therefore decline the new application. In these cases, the delegate may require the applicant to complete form D557, 'Application For Lump Sum Advance, Income/Expenses Calculator'.

Review of hardship

42              If a person's circumstances change during a period where the rate of repayment has been decreased or stopped because of hardship, a delegate can review the earlier decision and resume or increase deductions providing that the delegate is satisfied that the pensioner would not suffer severe financial hardship.  The decision must be in writing.  The rate of repayment cannot be higher than the rate set prior to hardship being determined.

43              As a work practice where a hardship decision is in force, it is recommended that the rate of repayment for the outstanding amount is reviewed in line with the indexation of pensions.

Rate insufficient to cover repayment

44              There may be situations where the amount of SP or ISS is insufficient to cover the amount of advance payment deduction.  This might occur where the pensioner undertakes employment during the period where the advance payment is being repaid.

45              Where the reassessed rate is less than the amount of the deduction, the amount of deduction is taken to be the amount of SP or ISS in payment.

46              The amount of SP or ISS in payment includes any additional amount payable by way of rent assistance, pharmaceutical allowance and dependant children but excludes any amount payable by way of remote area allowance or telephone allowance.  War widow(er) pension or disability pension is not included in the 'annual payment rate' and therefore cannot be used as a 'top up'.

47              For cases where the reassessed pension rate is less than the advance payment deduction, repayment of the full amount of the advance will mean that the repayment period will exceed 13 fortnights.  A sample standard letter to cover this scenario is at

Attachment A7.

48              Where SP or ISS is subsequently increased prior to the advance being fully repaid, the repayment rate should increase in line with the rate of SP or ISS.  However, it cannot be more than the original rate of deduction.  Examples of how these cases will be processed on the system will be provided in separate documentation.

49              Reports will be produced for these cases detailing the new repayment rate and end date.

Payability protected

50              If the rate of SP or ISS is reduced to nil because of an advance lump sum deduction, payability of SP or ISS is retained.

Transfer out/in cases with an outstanding advance payment deduction

51              Where there is an outstanding advance payment deduction and action has been taken to transfer payment of SP or ISS to another State, the lump sum advance system will also need to be updated.  Information about the advance will be recorded on the lump sum advance history screen.  A copy of the history screen must be attached to the file by the out going State Office.  This information will enable the incoming State Office to record the advance details on the lump sum advance system after the SP or ISS payment has been transferred in.  Examples of how these cases will be processed will be provided in separate documentation.

Unrepaid advance payment to a deceased pensioner

52              If a pensioner dies during a period where a lump sum advance payment is being deducted from their pension, the balance of the advance outstanding, at the time their pension ceases to be payable, becomes a debt to the Commonwealth.  In the majority of cases action to cease the payment of SP or ISS would occur part way through the bereavement period.  The debt is recoverable from the estate and normal procedures for the recovery should apply.

53              When calculating bereavement payment (BP) any amount of advance payment of pension that has been made and not repaid is disregarded.

Example:  Veteran is receiving SP of $263.50pf ($25.00pf is being deducted to repay an advance).  The partner is receiving SP of $288.50pf.  The veteran dies 6 fortnights after receiving a lump sum advance.  In the calculation of the BP the $25.00 deduction is disregarded, for example;

Calculation for BP

Combined pension couple rate (CPCR)$288.50 × 2=              $577.00pf

Reassessed survivor's (spouse) individual rate$348.00pf

Difference between the CPCR and the reassessed survivor's rate$229.00pf

BP is 7 fortnights @ $229.00=$1603.00

Debt

54              If a pensioner has received an advance payment of SP or ISS and the pension ceases to be payable before the advance payment has been fully repaid, then the outstanding amount becomes a debt.  Section 205(1AB) of the VEA refers.

55              The waiver provisions are to avoid unnecessary calculation of minimal debts where it is obviously not cost effective to recover.  However, these debts are different to a breach or misrepresentation of circumstances and recovery action should be taken in the first instance.

56              A further change in circumstances may result in the SP or ISS becoming payable and the debt could then be recovered.  For example, the veteran commenced work and SP was reduced to nil, after a short period the veteran ceased work and SP was again payable.

WinPORS

57 — An attribute will be added to WinPORS under 'Causes' to enable recording and identification of debts arising from advance payments of SP or ISS.  State Offices will be notified when the attribute is available.

TAXATION

58              The lump sum advance of SP or ISS becomes taxable income as it is repaid.  For example, if a veteran on age service pension is granted a lump sum advance of $400, the fortnightly rate of deduction of $30.80 is added to the veteran's taxable pension amount each fortnight until the lump sum amount is repaid.

CLAIMS MANAGEMENT SYSTEM (CMS)

Classification

59 — A CMS classification type will be automatically generated for grant, repayment and variation action for every lump sum advance case as the case is added or updated through the Lump Sum Advance System.  Each case will move through registration to case finalisation on CMS as the Lump Sum Advance system is actioned.  There is also a 'case withdrawn' stage for cases which are withdrawn for any reason.

60 — Mandatory attributes will be automatically recorded however additional attributes, to identify particular aspects of individual cases, can also be added on CMS for grant and variation cases.  Attachment B lists the classification types, stages and attributes for CMS recording updating and reporting information.

Reports

61 — Normal statistical and case reports will be available for lump sum advances cases from CMS.

RIGHT OF REVIEW

62              S57 review rights have been amended to apply to any decision to grant or reject an application for an advance payment of SP or ISS.  A delegate's decision to grant or vary an application for severe financial hardship in connection with an advance payment is also reviewable under section 57.

QUALITY ASSURANCE

63              It is recommended that a percentage check of determined advance payment applications form part of your normal quality assurance program.

SYSTEM

64              A new PC stand alone system will pay the lump sum advance of SP or ISS and initiate and control repayment of the advance from the fortnightly SP or ISS instalments.

65              Processing examples will be provided in separate documentation.

ADVICES

66              Initially all advices are provided as sample standard letters.  The following scenarios that need to be covered are:

• Lump sum advance grant*. Attachment A1

• Lump sum advance rejection. Attachment A2

• Lump sum advance variation*.  Attachment A3

• Lump sum advance final repayment*.  Attachment A4

• Lump sum advance variation under hardship. Attachment A5

• Lump sum advance transfer in*.  Attachment A6

• Lump sum advance rate insufficient, vary repayment. Attachment A7

67              *These advices will eventually be included in the daily advices.  They will become automatic sometime following the implementation of PIPS/PC.

QUESTIONS AND ANSWERS

68Attachment C offers some questions and answers to assist in answering enquires and correspondence.

ATTACHMENTS

69              The following attachments are provided:

Attachment A — Sample standard letters

Attachment B — CMS codes

Attachment C — Questions and answers

ENQUIRIES

70              Any questions regarding this instruction should be directed to the Policy Implementation Unit in South Australia:

Robyn Del Casale — Assistant Director(08) 213 2321              (LAN S-B-PI-1)

PETER REECE

DIVISION HEAD

COMPENSATION