C14/2003 Veterans' Affairs Legislation Amendment Act (No.3) 2002

Purpose

This departmental instruction provides information about the minor and technical amendments contained in the Veterans' Affairs Legislation Amendment Act (No. 3) 2002 (VALA No. 3 2002).

VALA No. 3 2002 includes six parts which contain measures relating to income support matters and amends the Veterans' Entitlements Act 1986 (VEA):

Part 1 - Amendments concerning child-related payments

Part 2 - Amendments concerning commutation of income streams

Part 3 - Amendments concerning accrual of certain pension bonuses unclaimed under social security law

Part 4 - Amendments concerning the calculation of pension bonuses

Part 5 - Amendments concerning the backdating of claims for partner service pension in certain circumstances

Part 6 - Amendments to achieve alignment with social security law concerning the treatment of compensation payable in lump sums

Link to

VALA No. 3 2002

The link to VALA No. 3 2002 is available through the Scaleplus web site situated at: http://s — c — ale — p — lus.law.gov.au/

Commencement Dates

All proposals with the exception of Part 1 commence upon Royal Assent.

VALA No. 3 received Royal Assent on 11 April 2003.  It is now referred to as VALA No. 1 2003 and is Act No 26 of 2003.

Part 1 (Amendments concerning child-related payments) has a commencement date of 1 July 2000.

Details of changes

Details of the changes are attached.

Guidelines

All procedural and policy changes will be provided via CLIK.  Procedural and policy changes as well as standard letters are currently being updated and will be available in the near future.

Publications

Relevant Fact Sheets, claim forms and chapters in You and Your Pension will be amended to reflect the changes.

Contact

For further information in relation to the above mentioned changes please contact Elaine Tse on (02) 6289 6011, Brenda Franklin on (02) 6289 6426 or Kirrily Williams on (02) 6289 6525.

Background

The saved child-related payments (CRP) indexation anomaly was outlined in the Stateline titled “Saved Child Related Payments – January 2002” (Trim reference 0168545E).  Departmental Instruction number C56/2002 provided the interim arrangements and guidelines on indexing saved child-related payments until the corrective legislation passes.

DoFA approved ex-gratia payments pending the passage of  legislation.

Issue

On 1 July 2000 the provisions relating to CRP were repealed from the Social Security Act, 1991 (SSA) and the responsibility for such was transferred to the Family Assistance Office (FAO), making the references to the SSA in the saved VEA provisions obsolete.  This meant that the rate of saved CRP was effectively frozen at the rate payable at the time of the repealed provisions.  The test for continued eligibility for the saved CRP was also made redundant, as there is no directly equivalent payment types in the Family Assistance Act (FAA) that can be used as a reference.

Legislative changes

Parts of sub-clause 10 of Schedule 5 have been repealed and substituted.  The new inclusions provide for the continued indexation of the saved child-related payments in line with increases in the rate of Family Tax Benefit resulting from indexation on or after 1 July 2000.  The amendments also remove the provisions relating to the test for continued eligibility for saved CRP.  In their place, a provision is inserted such that a person receiving saved CRP may elect to receive payments of FTB under the FAA, instead of saved CRP at DVA.

Systems Changes

The new CRP rates will be updated and tested within the system in conjunction with the normal quarterly update process for 1 July 2003.

Procedural Changes

As per the interim arrangements, all saved child-related cases are currently recorded using the “manual rates” method of assessment.  Once the relevant rates are updated in PIPS PC, these arrangements will be defunct.  Any manual child-related payment cases will be identified by the SI listings and will require re-assessment as automatic cases.

Background

'Complying' income streams are, with limited exceptions non-commutable. These limited exceptions include that an income stream can be commuted within 6 months of its commencement, or where the proceeds of the commutation are rolled over in full to purchase another `complying' income stream.  The intention behind this rule is that superannuation savings invested in these income streams are required to satisfy the commitment to pay an income for life, or the prescribed term, in order to qualify for the associated taxation and means test concessions.

The commutation provisions allow for the 'commutation' (similar to a lump sum withdrawal) of an income stream, where the resulting payment is used to purchase another income stream.

Issue

It was identified that section 52ZMA is ineffective in particular circumstances in preventing the misuse of the commutation provisions.

The scenario put forward is that a pensioner has an asset-test exempt income stream that he or she has held for a period of four years.  The pensioner commutes the income stream and transfers part or all of the proceeds to another asset-test exempt income stream as is allowed under the existing commutation provisions.

The pensioner subsequently commutes the income stream within a short period of the commencement of the new income stream and the commutation is not in accordance with the current commutation rules.  Under the existing provisions of section 52ZMA, the recoverable amount will only be the overpayment of pension for the short period during which the new income stream has been payable.

Legislative changes

The amendments to 52ZMA and the new subsections provide for a determination that an assets-test exempt income stream has an earlier commencement day, for the purposes of calculating a debt amount.  This will have the effect of removing the asset-test exempt status of the previous income stream, or of a succession of income streams.  The assets test would then apply for any part of that period in which the person was eligible for a service pension or income support supplement.

System Changes

There was no requirement for system changes regarding this initiative.

Procedural Changes

Delegates should note the amendments provide for a determination that an asset-test exempt income stream has an earlier commencement day.  The earlier commencement day should then be applied when calculating overpayment of pension benefits in cases where there has been a misuse of the commutation provisions.

Background

Under the VEA, the pension bonus scheme enables a person who is eligible for an age service pension, partner service pension or income support supplement to receive a lump sum 'pension bonus' if they defer claiming pension.  A similar scheme operates under the SSA in relation to age pension.

Issue

An anomaly has been identified in relation to a person who has deferred an age pension under the social security pension bonus scheme but who subsequently becomes a war widow/war widower-pensioner.

Under the current legislation, a person is only able to accrue bonus periods from the date they became eligible for a pension under the VEA.  There is no provision for a war widow(er) who has been deferring age pension to have any bonus periods accrued at Centrelink included in the calculation of their DVA bonus when it is claimed.

Legislative changes

A new Division 12 has been added at the end of Part IIIAB to ensure that in certain cases, periods of membership of the pension bonus scheme that would have accrued under social security law will contribute towards the calculation of a pension bonus payable under the VEA.

System changes

There was no requirement for system changes regarding this initiative.

Delegations

Delegations for the officers in the Income Support area have been extended to cover the new Division 12 of Part IIIAB of the VEA.  This will allow delegates to determine that certain periods would, if the person had applied for the bonus at Centrelink before becoming a war widow(er), have been accrued as bonus periods under social security law.

Procedural changes

For consideration to be given to including these periods in the calculation of the bonus, the war widow(er) must:

• have registered as a member of the DVA pension bonus scheme in respect of ISS; and

• have either been registered at Centrelink for the social security PBS Scheme before becoming a war widow(er) or, in the opinion of Commission, could have been so registered before becoming a war widow(er); and
• not have received a social security pension or benefit (other than a carer payment) at any time since reaching age pension age; and
• not have claimed pension bonus under the social law before becoming a war widow(er); and

• have claimed the bonus from DVA on or after the day the Act received Royal Assent.

With the passage of these amendments it is now imperative that attention be paid to any claim for ISS by a war widow(er) who has passed age pension age and has been working since reaching pension age, but who is not claiming pension bonus.

Interim guidelines

Details of how these new provisions will apply are to be included in the relevant chapters of CLIK in the near future.  The following additional information may, however, be useful in the interim:

• If a person meets all the above criteria but had only accrued a part year period of membership under the social security scheme prior to becoming a war widow(er),. that period can be included in the calculation of the bonus if, when aggregated with a period accruing at DVA since the person became a war widow(er), that period would amount to one year;

• If a person meets all these criteria and has accrued only a part-year period of membership under the DVA scheme, the DVA period can be included in the calculation of the bonus if, when aggregated with a period accrued under the social security scheme before the person became a war widow(er), the total period would amount to one year.

Interim guidelines

(continued)

• A person who has been deferring age pension, becomes a war widow(er) and claims ISS immediately may be eligible for a bonus payable by DVA, solely on the basis of the bonus periods accrued at Centrelink.

• Because compensation recovery provisions apply to age pension, a war widow(er) who previously deferred age pension can be subject to a compensation preclusion period during which the person was a non-accruing member of the Centrelink pension bonus scheme.  This may apply to a war widow(er) who has deferred age pension and then claims their bonus with ISS under the VEA.

Procedural changes

Should a person who is affected by any of these amendments apply for pension bonus or ISS before the day of Royal Assent, Income Support Policy Section should be contacted to discuss whether it might be possible for an act of grace payment to be made.

Background

The amendments contained in Part 4 are made in conjunction with the changes introduced in Part 3.  It also includes correction of minor errors in the formulae to ensure that the bonus paid to the person accurately reflects the pension they were deferring and the marital status through the period they were accruing the bonus.

Issue

Where a person's marital status had not changed during the period they had deferred their age-related pension, their whole bonus was automatically calculated on the basis of the pension rate payable at the time of grant.  This did not take account of the fact that it is possible for a person whose marital status had not changed, to become eligible for more than one pension during the period of deferral.

The amendments also corrected a number of the minor errors in the formulae for calculating the bonus and to cater for persons who are carrying over pension bonus accrued under social security law.

Legislative change Sec 45UG(1A) - where marital status has not changed

Section 45UG is amended to provide for a circumstance where a person's marital status does not change, but their pension eligibility does change.

For example, a widow of a veteran may not become a war widow until many years after the death of her husband.  In such a case, she may have commenced deferring age pension or partner service pension but become a war widow before claiming pension.

The amendments allow the bonus to be calculated on the basis of the two pensions deferred, in accordance with the proportion of time each of those pensions was deferred.

Legislative change Sec 45UH, UI - where marital status has changed

Sections 45UH and 45UI were amended to correct a number of minor errors in the formulae and cater for the new category of persons who are carrying over pension bonus periods accrued under social security law.

For example, if a person was a war widow(er) and single at the time of grant of pension, but had changed marital status during the period of deferral, the VEA required the delegate to calculate an annual notional partnered pension rate.  This required the calculation of what the person's annual pension rate would have been at the date of grant if they were married.  This is clearly not possible because such a calculation would require details of the income and assets of a notional partner at that time.

Nor is it possible, as it is with a person claiming service pension, to calculate an adjusted percentage of the rate payable at the time of grant, in order to reach a notional married rate.  This is because the denominator of the formula for calculating an adjusted percentage is the maximum basic rate.  Where the deferred pension is ISS, the denominator would be the ceiling rate.  As this does not vary according to whether the person is single or married, the exercise would be fruitless.

As a result the relevant provisions have been amended, so that in such circumstances both the annual notional single and the annual notional partnered pension rates are equal to the person's annual pension rate as at the date of grant.

Similar amendments have been made, for the same reasons, to the definition of “annual pension rate” for the purpose of calculating the apportioned single or apportioned partnered amount.

Legislative change – new subsection 45UH and UI

- definition of provisional payment rate

“Provisional payment rate” was previously defined as the rate of service pension payable at the date of grant of pension.  The problem was that the term was used within a formula for calculating a bonus where a war widow(er) had changed both marital status and the pension being deferred during their overall qualifying period.  This definition did not take account of the fact that the person had changed marital status.  The definition of this term has been amended accordingly.

System changes

There was no requirement for system changes regarding this initiative.

Procedural changes

Should a person who is affected by any of these amendments apply for pension bonus or ISS before the day of Royal Assent, Income Support Policy Section should be contacted to discuss whether it might be possible for an act of grace payment to be made.

Background

A veteran with qualifying service may make a claim for an age or invalidity service pension.  As a consequence the veteran's partner may claim for a partner service pension (PSP).  Both of these pensions provide income support for veterans and their partners.

A person is not eligible to receive a PSP unless the person has reached 50 years of age or has a dependent child when the claim was made.  An exception is where a person is the partner of a veteran receiving a special rate of disability pension.

Issue

The issue relates to the situations where an initial claim for the special rate of disability pension may not be granted for a number of reasons and therefore the claim for PSP will be refused.

Subsequently, the disability pension (DP) is assessed as being payable at the special rate with the date of effect being either the date the DP claim was lodged, or a date 3 months prior to the lodgement of the application.  The partner will then need to make a second claim for a PSP but the current legislation only allows payment of the pension to be granted from the date of the later claim.

Legislative changes

A new subsection 38B(3) has been inserted.  The new subsection is applicable where a veteran has made a claim for payment of the disability pension at the special rate and it is either rejected initially but subsequently appealed and accepted, or such a claim is determined and accepted after the partner's service pension claim has been refused.

These amendments will enable a claim for PSP by the partner of such a veteran to be backdated if:

• a claim for partner service pension by the partner of a veteran has been refused; and
• that claim would not have been refused if the veteran was receiving a special rate disability pension; and
• the veteran has subsequently been notified that he or she has been granted a disability pension at the special rate; and
• the partner of the veteran makes another claim for partner service pension within 3 months of the notification to the veteran;

then the provisional commencement day for the payment of partner service pension will be the later of:

• the date the partner made the original claim; or
• the date from which the special rate of disability pension was payable to the veteran.

In addition, the new section 38AA will allow for the disclosure of personal information concerning the veteran, to the partner of the veteran.  This was required because of the operation of the Privacy Act 1988 and the limits placed by it on the disclosure of personal information to a third party.  This section will allow DVA to inform the partner of a veteran about the grant of special rate for the purpose of the partner of that veteran making a claim for PSP.

System changes

There was no requirement for system changes regarding this initiative.

Procedural changes

The Disability Compensation area should continue to refer the veteran's file to the Income Support Section where a veteran is granted the special rate of DP and the veteran and/or partner is not in receipt of service pension.

When inviting partners to claim PSP, information may now be disclosed to the partner of a veteran under section 38AA, about the grant of special rate DP to facilitate their claim for a partner service pension.

Delegates should note that the backdating provisions only apply to persons who satisfy all the conditions of subsection 38B (3).

Background

Part IIIC of the VEA was inserted by the Veterans' Affairs (1994-95 Budget Measures) Legislation Amendment Act (No.2).  Part IIIC mirrored the compensation recovery provisions that were in Part 3.14 of the SSA.

The application of the compensation recovery provisions depends on the nature of the compensation payments and the circumstances of the pensioner.  In certain situations, where a person receives lump sum compensation, the operation of compensation recovery rules may result in part, or all of a person's pension not being payable for a period known as the “lump sum preclusion period”.

Issue

The Family and Community Services Legislation (Simplification and Other Measures) Act 2001 repealed certain SSA provisions relating to the payment of multiple lump sums.  A new section 1171 was inserted as part of the rewrite of Part 3.14.

The amendments to relative provisions in Part IIIC of the VEA will align more closely with the treatment of multiple lump sums of compensation under the SSA.  The intention of these amendments is to prevent the circumvention of the compensation recovery provisions by the payment of compensation for the same injury, disease or condition, in more than two lump sums.

Legislative changes

Subsection 59Q(5) which provides the preclusion period calculation involving 2 or more separate lump sums has been repealed.

Under the new provision of 59QA, in the circumstances where a person has received two or more lump sum compensation payments wholly, or partially for economic loss, the person will be taken to have received a single lump sum compensation payment equal to the sum of the multiple payments.  The 'single' payment will be taken to have been received either on the day on which the last of the multiple payments were received, or if the multiple payments were all received on the same day, that day.

New subsection 59QA(2) provides that a payment exclusively relating to arrears of periodic compensation be excluded from the above provisions.

System changes

There was no requirement for system changes regarding this initiative.

Procedural changes

The Compensation Recovery Guidelines will be updated to reflect the change in the legislation.  The Compensation Preclusion Worksheet is currently under review and will be placed in CLIK for easy access.