Purpose

The purpose of this Departmental Instruction (DI) is to advise staff on the commencement of the reduction of the assets test taper rate from 20 September 2007. This DI expands on information provided in DI C12/2007 and provides instruction on backdating of all income support claims received up to and including 20 December 2007.

Background

The Budget of 2006-2007 saw a commitment by the Australian Government to reduce the assets test taper rate applicable as part of the pension assets test (part of the Plan to Simplify and Streamline Superannuation,).

The reduction in the taper rate means that service pension, age pension or income support supplement may become payable to many additional people who are eligible to receive the payments but have not been payable because of the level of their assets.  This measure will also benefit pensioners whose service pension, age pension or income support supplement is currently reduced under the assets test.

Legislation has allowed for eligible claims processed from 21 June 2007 that would be rejected due to excess assets prior to the reduction of the taper rate, and 20 December 2007, to be reassessed using the new taper rate, for payment to commence from 20 September 2007.

Extended claim period – post 20 Sept

All eligible claims lodged after 20 September 2007, up to and including 20 December 2007, are to be backdated to the later of:

• 20 September 2007, or
• the date that the person becomes eligible and payable.

It is important to note that this backdating applies to all claims, not only those assessed under the assets test.  The legislation allowing this backdating is contained within transitional provisions in item 15 of Part 1 of Schedule 9 of the Tax Laws Amendment (Simplified Superannuation) Act 2007 (No. 9, 2007).

Informal claims

The backdating provisions described above also apply to informal claims (initial incorrect claims) made from 20 September 2007 up to and including 20 December 2007.

A person who lodges an informal claim for income support pension between these dates still has 3 months in which to lodge a 'proper claim'.  The provisional commencement date is the day on which the informal claim was lodged.  The payment will then be backdated to either 20 September 2007 or the date that the person becomes eligible and payable.

Examples

Example 1:  John calls on 30 September 2007 to register his intention to claim an income support payment.  Provided he lodges a proper (formal) claim on or before 30 December  2007 (the end of the 3 month period) his payment can be backdated to 20 September if he was eligible and payable on that day.

Example 2:  Jim calls on 20 December 2007 to register his intention to claim an income support payment.  Jim has until 20 March 2008 to lodge a formal (proper) claim.  A formal claim is subsequently lodged by Jim on 18 March 2008.  Under normal circumstances, Jim's payment would only be paid from the date he lodged the informal claim, that is, 20 December 2007 (if eligible on that day).  However, because of the backdating provisions applicable to claims lodged between 20 September and 20 December 2007, payment can be made from the later of 20 September 2007 or the date that Jim became eligible and payable.

Advice to pension bonus scheme clients

Some members of the Pension Bonus Scheme may be disadvantaged by the backdating provisions under which claims lodged between 20 September and 20 December 2007 can be backdated to 20 September 2007.  In these cases, if the pension claim was backdated, the bonus could be reduced or not payable if the person's rate of pension was reduced or not payable on 20 September 2007.

The backdating provisions are not intended to disadvantage people.  Assessors should calculate and compare the pension and pension bonus payable and where a person would be disadvantaged, only backdate the claim to a date where the total bonus and pension payments are not reduced, or not backdate at all. The number of claimants anticipated to be potentially disadvantaged in this way will be extremely low.

CLIK changes

An update has been made to CLIK P9/C1/S3/The Assets Test.  The update only affects the dollar amount of the assets test taper rate.  The backdating provisions have not been included, as these are only a temporary measure.

Fact sheet updates

There are 18 related fact sheets which will be updated with the new assets cut off limits from 20 September 2007.  These are:

• IS 23 through to IS 30
• IS 33 through to IS 38
• IS 40 through to IS 42
• IS 71 and;
• IS 88.

Bereavement period cases

Clients whose income support pension has been cancelled following the death of their partner and who are in a bereavement period that will cease after 20 September will be identified for manual action by Income Support Service Delivery after the SI run on 8/9 September.

The new assets test taper rates will be applied from 20 September 2007 to ensure that those clients who are in a bereavement period do not miss out on an increase to their pension.  A shortened bereavement letter will be sent to advise these people of the increase, or re-commencement, of their pension. The normal end of bereavement period review will be conducted at the conclusion of the bereavement period.

Further information is contained in the BusinessLine 'Implementation of System Changes for 20 September 2007 changes to the Assets Test and Assessment of Purchased Income Streams', issued on 31 August 2007 by Business Modernisation and Integration (BM&I), TRIM Reference: 0786150E.

Rejected clients

Claims processed from 21 June 2007 that were within the estimated 20 September 2007 assets limits and were rejected (deferred) prior to the SI weekend of 8/9 September 2007 should have been issued a letter advising them that their claim would be reassessed on 20 September 2007 using the new taper rates.  If an income support payment is subsequently granted after the auto-reassessment run, the client will receive a grant letter as per BusinessLine issued 17 August 2007 by Income Support Service Delivery 'September 2007 Global Refresh of Managed Investments and/or Shares Advice Letter Production and Mailout, TRIM Reference no. 0778953E.

Cancelled clients

Clients whose income support payment is automatically reinstated after having been cancelled between 21 June 2007 and the SI weekend of 8/9 September 2007 will receive the same grant letter as other clients.  The letter refers to a claim for the pension being granted. As these people may not have lodged a new claim, this may generate some phone calls requesting an explanation.

Increase clients

Current clients who will receive an increase to their pension from 20 September 2007 due to the reduced taper rate fall into two groups:

• assets tested clients who will remain assets tested; and
• assets tested clients who will switch to the income test.

Assets test to assets test: Clients who remain assets tested may expect that the halving of the taper rate will result in their pension being doubled from 20 September 2007. Explain that the changes have halved the reduction in their pension, ie if their pension was reduced by $60 per fortnight currently, from 20 September the reduction will be $30 per fortnight.

Assets test to income test:  When the assets test taper rate is halved on 20 September 2007, some assets tested clients will move from being assessed under the assets test to being assessed under the income test.  This will occur when their level of income means that the lower rate of pension is payable under the income test.  This may generate a number of enquiries as these clients may not receive as much of an increase in their rate of pension as they were anticipating.

Mailout for grant letters

Grant letters for clients who are reassessed and subsequently granted will be sent from the mailing house around the 18 September 2007.  These letters will include a copy of You and Your Pension.

Income Support Card contact officers will be advised by the Income Support Business Operations team on when to print and issue Pensioner Concession Cards (PCC's).

Grant and increase letters

There are a number of variations of letters that will be sent to those clients who are granted an income support pension for the first time, and those who will receive an increase in their rate of pension.

For a detailed description of these letters and examples, please see the BusinessLine issued on 17 August 2007 by Income Support Service Delivery 'September 2007 Global Refresh of Managed Investments and/or Shares Advice Letter Production and Mailout, TRIM Reference no. 0778953E.

Contact officer

The contact officer for this instruction is Chris Johnston, Income Support and Residential Aged Care Policy section, 14773.