Purpose

This Departmental Instruction provides procedural guidelines to State Offices for the referral of applications for the exemption of superannuation investments to the Investment Database Unit (IDU).

Background

Superannuation fund investments are excluded assets under paragraph 52(1)(f) of the Veterans' Entitlements Act 1986 (VEA), until the owner attains 'pension age' as defined in the VEA.

Once the owner attains 'pension age', the value of the superannuation fund investment is assessed as a 'financial asset' under the deeming provisions and counted as an asset under the assets test.

The Veterans' Entitlements Amendment (Direct Deductions and Other Measures) Act 2004, which received royal assent on 29 June 2004, inserted section 52AA to the VEA, which allows Ministerial discretion to be applied to exempt certain superannuation fund investments owned by pensioners over 'pension age' from the owner's assessment.

Section 1118B of the Social Security Act 1991 (SSA) similarly allows the Minister for Family and Community Services to determine that certain superannuation investments are excluded assets for the purposes of the SSA.

Exemption guidelines approved

The Minister has approved exemption guidelines specifying that the discretion provided in section 52AA of the VEA will be applied to applications from pensioners who:

1. have attained 'pension age'; and
2. request to have a super fund investment exempted under section 52AA of the VEA; and
3. cannot access any part of their superannuation fund investment due to a legislative bar, or contractual reason relating to contracts entered into before 20 August 1996, or failure to satisfy a 'condition of release' under Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.

Delegated power under ss.52AA(2) of the VEA

The Minister has delegated the power to make exemption determinations under subsection 52AA(2) of the VEA to the Branch Head Income Support where:

1. the Minister for the Department of Family and Community Services (FaCS) has made a determination under section 1118B of the SSA to exempt an investment or class of investment in calculating the value of a person's assets; or

2. an individual pensioner requests an exemption due to his or her individual circumstances which fits within the exemption guidelines.

The power to determine under subsection 52AA(2) of the VEA is not delegated if:

• the Minister for FaCS has rejected an application for exemption under category (a); or
• the exemption request is based on circumstances that fall outside the approved exemption guidelines.  See page 3 and Attachment 3 for Exemption Guidelines.

Centralised Processing

To ensure consistent outcomes in applying the Ministerial discretion to this specialised subject matter, the IDU will investigate applications for referral to Branch Head Income Support for determination in accordance with delegated powers under subsection 52AA(2) of the VEA.

Procedural guidelines

for referral

to IDU

Eligibility for the exemption of a superannuation fund investment will only be considered upon written request by the pensioner.

All written requests for the exemption of a superannuation fund investment under section 52AA of the VEA must be referred to the IDU for investigation.  Prior to making the referral to the IDU, Income Support staff must first:

Step

Action

1

Ensure the owner of the super fund investment has attained 'pension age'.

2

Ensure the owner of the super fund investment is claiming they cannot access any part of their super fund investment due to a legislative bar, or a contractual reason relating to contracts entered into before 20 August 1996, or failure to satisfy a 'condition of release' under Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.  See Attachment 1 for State Office Checklist.

3

Ensure the owner of the super fund investment has lodged a written request to have their super fund investment exempted under section 52AA of the VEA, stating the reason their investment cannot be accessed.  See Attachment 2 for sample Application.

4

Contact Eddie Bolanac (Manager Investment Database Unit (IDU) on

(02) 9213 7875 to discuss the case details prior to making your referral.

5

Send the Application, State Office Checklist and Supporting Documentation in the internal mail to the Investment Database Unit V160, located on the 6 — th floor, Income Support, NSW Branch Office or by fax on (02) 9213 7885.

Exemption Guidelines

Applications for exemption will be considered from pensioners who:

1. have attained 'pension age'; and
2. lodge a written request to have a superannuation fund investment exempted under section 52AA of the VEA; and
3. cannot access any part of their superannuation fund investment due to a legislative bar, or a contractual reason relating to contracts entered into before 20 August 1996, or failure to satisfy a 'condition of release' under Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.

The primary reason for considering an exemption application under section 52AA of the VEA is that no portion of the superannuation fund investment is accessible.

An exemption will be granted where a pensioner's individual circumstances fit one of the following exemption guidelines:

1. A fixed term superannuation investment is inaccessible because of a contract entered into before 20 August 1996.  Exemptions will not be provided where the initial term of the contract commenced before 20 August 1996, expired after 20 August 1996, but was extended after that date; or

2. A superannuation investment is inaccessible because the rules of the superannuation fund in place at 20 August 1996 prevent release.  Any additional contributions made to the fund after 20 August 1996 would not qualify for an exemption; or

3. A superannuation investment is inaccessible because of a legislative bar.  This may arise where a person cannot access their superannuation because they do not satisfy any of the "conditions of release" specified in the superannuation regulations.  There may also be other circumstances where a legislative bar prevents access to a person's superannuation benefits, such as a Family Law Court decision; or

4. A traditional endowment or life superannuation contract was entered into before 20 August 1996.  To qualify for an exemption, the contract must not have been varied since 20 August 1996.  Additional contributions after 20 August 1996 can be exempted if they were specified under the terms of the contract as at 20 August 1996; or

5. A superannuation benefit is preserved in the NSW State Authorities Superannuation Scheme (SASS), the Local Government Superannuation Scheme (LGSS) or the Electricity Industries Superannuation Fund (EISS), until the fund member reaches age 58. Exemptions are only provided where a person preserves their SASS, LGSS or EISS benefit on resignation, discharge or dismissal from employment, and the withdrawal of the benefit before age 58 would mean that the person suffers a significant financial penalty through loss of part or all of the employer financed benefit payable at age 58.

Favourable determination

Pensioners must be advised in writing of the favourable determination and be provided with details of the operation of the exemption, including specific obligations in relation to notifiable events which affect the exemption status of the superannuation fund investment.  Attachments 4 and 5 refer for sample advice letters for the most common exemption scenarios – there will be others.

The IDU will provide the State Office from which the exemption request originated with:

• an appropriate pensioner notification letter;
• PIPS PC data collection instructions to implement the exemption; and
• DRS Review and VIEW Comments instructions.

It is important to note that the asset disposal provisions in sections 52FA, 52G, 52GA, 52H, 52ZA and 52ZCA of the VEA will continue to apply to the exempted superannuation fund investment should the owner dispose of the asset while the exemption is in force.

Most common exemption scenario

The most common exemption scenario will involve cases where a superannuation fund investment is totally inaccessible because the pensioner cannot satisfy one of the 'conditions of release' required under Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.

The most common example of this is where a pensioner has attained 'pension age' as defined in the VEA, but has not yet attained 65 years of age, and is still gainfully employed.  In this case, the pensioner may not have access to their super fund investment until they either cease work or attain 65 years of age.

Circumstances will differ for each client, depending on whether they have partial access to any unpreserved funds or the governing rules of their superannuation fund impose additional requirements in relation to access.

Unfavourable determination

If an exemption request is rejected for a superannuation fund investment due to an unfavourable determination made under VEA 52AA(2), pensioners must be advised in writing of the reason for the unfavourable determination.

The IDU will provide the State Office from which the exemption request originated with an appropriate pensioner notification letter.

Data collection procedures

If an exemption is granted for a superannuation fund investment due to a favourable determination made under subsection 52AA(2) of the VEA, the IDU will instruct processing staff to:

a)      delete the exempt superannuation fund investment under its existing Managed Investment data collection entry; and

b)      re-data collect the exempt superannuation fund investment under a new generic Managed Investment data collection entry called:

Manager:  Superannuation Fund Exemption Under VEA 52AA

Product:    Temporary Exemption Granted Until Funds Accessible

This new generic entry will enable the IDU to monitor all exemption cases.

Processing staff will also be required to:

1. note VIEW Comments with details of the exemption determination (ie. to identify the name of the superannuation fund and the circumstances of the  exemption); and

2. set a DRS Review, if it is known that the exemption will definitely cease from a particular date – or – for an approximate date to coincide with the date employment is expected to cease).

More Information

Additional information is contained in:

• Stateline : 31 March 2004 – Introduction of Veterans' Affairs Amendment (Direct Deductions and Other Measures) Bill 2004;

• Departmental Instruction : C22 – 2004 : 18 August 2004 – Veterans' Affairs Amendment (Direct Deductions and Other Measures) Bill 2004; and

• Trim Folder 165013 – Minute to Minister Exemption Guidelines and Delegation for Superannuation Investments

Should you require any further clarification on the exemption of superannuation fund investments beyond pension age, please contact Eddie Bolanac (Manager Investment Database Unit) in Sydney on (02) 9213 7875 or by email on e — d — die.bolan — a — c@d — v — a.gov.a — u.

File Number:

First Name:

Surname:

Date of Birth:

       /       /

Name of Superannuation Fund Investment:

Superannuation Fund Reference No:

Current Redemption Value of Investment:

$

Date Received:

       /       /

Client has attained pension age:

Yes

No

Client has lodged written application:

Yes

No

Client has specified reason for inaccessibility:

Yes

No

Client has provided latest super statement:

Yes

No

Client has provided supporting documentation:

Yes

No

Exemption Category 1 : Fixed Term Investment Purchased Before 20 August 1996

Date of investment is before 20 August 1996.

Yes

No

Client has advised or provided documents to establish that they have no access to funds.

Yes

No

Term of contract has not been extended on or after 20 August 1996.

Yes

No

No additional contributions made to the fund since 20 August 1996.

Yes

No

Exemption Category 2 : Superannuation Inaccessible due to the Rules of the Superannuation

                                         Fund as at 20 August 1996 (excluding products covered by Category 1 above)

Fund rules do not permit release of benefits.

Yes

No

Fund rules were in place at 20 August 1996.

Yes

No

No additional contributions made to the fund since 20 August 1996.

Yes

No

Exemption Category 3 : Superannuation Inaccessible due to a Legislative Bar

Sub Group 3A : Unable to satisfy any of the 'conditions of release' under Superannuation Industry

                            (Supervision) Regulations 1994 (eg. access prevented due to ongoing employment)

Evidence obtained as to why SIS 'conditions of release' cannot be met (eg. employed for

more than 10 hours per week and not retired).

Yes

No

Sub Group 3B : Restriction on access due to legislative bar (other than a 'conditions of release'

                            specified under Superannuation Industry (Supervision) Regulations 1994

Evidence obtained as to why access is restricted (eg. Family Law Court Order).

Yes

No

Exemption Category 4 : Traditional Endowment or Life Superannuation Contracts purchased

                                          before 20 August 1996

Contract entered into before 20 August 1996.

Yes

No

No other changes made to contract since 20 August 1996.

Yes

No

No additional contributions since 20 August 1996 except as allowed by original contract.

Yes

No

Bonus payable on maturity would be forfeited on early surrender.

Yes

No

Exemption Category 5 : NSW State Authorities Superannuation Scheme (SASS),

                                         Local Government Superannuation Scheme (LGSS), or

                                         Electricity Industries Superannuation Scheme (EISS)

Name of Scheme.

SASS

LGSS

EISS

Superannuation benefit has been preserved in the scheme indicated above until

a person's resignation, discharge, or dismissal from employment.

Yes

No

Withdrawal of the benefit before age 58 would mean the person suffers a financial penalty

through an employer financed benefit which would be payable when they attain age 58.

Yes

No

The person holding the benefit is less than 58 years old.

Yes

No

Other Circumstances which do not fit into Categories 1 – 5 above

Please provide details:   .................................................................................................................. ...............................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

First Name:

Surname:

Telephone No:

Section:

Date of Referral:

     /      /

State:

Applications for exemption will be considered from pensioners who:

1.                 have attained 'pension age'; and

2.               lodge a written request to have a superannuation fund investment exempted under  section 52AA of the VEA (See Attachment 2 – sample Application); and

3.             cannot access any part of their superannuation fund investment due to a legislative bar, or a contractual reason relating to contracts entered into before 20 August 1996, or failure to satisfy a 'condition of release' under Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.

The primary reason for considering an exemption application under section 52AA of the VEA is that no portion of the superannuation fund investment is accessible.

The Minister for Veteran's Affairs has advised that means test exemptions will be granted where a pensioner's individual circumstances fit one of the following exemption guidelines:

1. A fixed term superannuation investment is inaccessible because of a contract entered into before 20 August 1996.  Exemptions will not be provided where the initial term of the contract commenced before 20 August 1996, expired after 20 August 1996, but was extended after that date.

2. A superannuation investment is inaccessible because the rules of the superannuation fund in place at 20 August 1996 prevent release.  Any additional contributions made to the fund after 20 August 1996 would not qualify for an exemption.

3. A superannuation investment is inaccessible because of a legislative bar.  This may arise where a person cannot access their superannuation because they do not satisfy any of the "conditions of release" specified in the superannuation regulations.  There may also be other circumstances where a legislative bar prevents access to a person's superannuation benefits, such as a Family Law Court decision.

4. A traditional endowment or life superannuation contract was entered into before 20 August 1996.  To qualify for an exemption, the contract must not have been varied since 20 August 1996.  Additional contributions after 20 August 1996 can be exempted if they were specified under the terms of the contract as at 20 August 1996.

5. A superannuation benefit is preserved in the NSW State Authorities Superannuation Scheme (SASS), the Local Government Superannuation Scheme (LGSS) or the Electricity Industries Superannuation Fund (EISS), until the fund member reaches age 58. Exemptions are only provided where a person preserves their SASS, LGSS or EISS benefit on resignation, discharge or dismissal from employment, and the withdrawal of the benefit before age 58 would mean that the person suffers a significant financial penalty through loss of part or all of the employer financed benefit payable at age 58.