C12/2010 July 2010 - Secure and Sustainable Pension Reform - Phase 2

Amends DI No.

N/A

Replaces DI No.

N/A

Purpose

The purpose of this Departmental Instruction is to outline the elements of the Government's Secure and Sustainable Pension Reform package taking effect from 1 July 2010.

Background

The Budget of 200 — 9-20 — 10 saw the introduction of the Secure and Sustainable Pension Reform.  The “new pension system” package was th — e Australian Government's response to a review into retirement incomes and issues surrounding adequacy and flexibility of support for seniors and carers.  The bulk of the changes commenced on 20 September 2009.

Two further elements taking effect from 1 July 2010 are:

• quarterly pension supplement; and
• enhancements to lump sum advance payments.

Legislation

The legislative amendments relating to the Pension Reform are contained in the Veterans' Affairs and Other Legislation Amendment (Pension Reform) Act 2009 No. 81 (the Act) which received Royal Assent on 10 September 2009.

Schedule 4 Part 2 of the Act provides for quarterly pension supplement and Schedule 11 covers changes to lump sum advance.

References

An overview of the new rules is provided in this DI.

Other references reviewed and updated to clarify how they relate to the new rules include:

CLIK Policy Library

5.12 Pension Supplement

3.11 Lump Sum Advance

Factsheets

IS16   Pension Supplement

IS115 Lump Sum Advance

Contact

The contact officers for this initiative are:

Elaine Tse, Rehabilitation and Entitlements Policy Group x16011

Andrew Eime, Rehabilitation Compensation and Systems Support Group x50226

David Turner, Income Support Group x27619

Pension supplement components

Pension supplement has three components:

• Basic amount (s — hown in VIEW as Pension Supplement Tx)                  
• Minimum amount (s — hown in VIEW as Flexible Pension Supplement)           
• Remaining portion of the pension supplement that exceeds the basic amount (s — hown in VIEW as Pension Supplement Non Tx)

From 1 July 2010, pensioners will be able to choose to be paid the minimum amount, or flexible component, of their pension supplement either q — uarterly, or f — ortnightly.

Quarterly payment

Electing to receive a quarterly payment effectively means the person's fortnightly payment will be reduced by the minimum amount, which is set aside for quarterly payment.  This component accrues on a daily basis starting from the date the election is made and will be paid as a lump sum at the end of each quarter.

Only the minimum amount can be paid at quarterly intervals.  If a pensioner elects to have quarterly pension supplement, t — he remainder of the supplement will continue to be paid fortnightly.

Who can choose quarterly payments

The quarterly payment option is available to service pensioners, age pensioners and ISS recipients.  However, i — f a pensioner is living overseas or they have been away from Australia on a temporary basis for longer than 13 weeks, the — re is no quarterly option as the — y are only eligible for the basic amount of pension supplement.

When are quarterly payments made

Where a person elects to receive quarterly payment, their instalment will be adjusted for any fortnightly amounts they have already received.  The quarters are from 20 March, 20 June, 20 September and 20 December each year.

The first quarterly payment will be paid on payday 23 September 2010.  This payment will be slightly less than future amounts as it will not be for a full quarter, given the measure only commenced on 1 July 2010.

Processing dates

Elections to receive quarterly pension supplement will not take effect until payday 29 July 2010, or effective date 13 July 2010, as this is the first pension period commencing after 1 July 2010.  Elections will not be able to be processed for this payday until 12 July 2010.

How to apply

There is no specific form for electing quarterly pension supplement, or to revert back to fortnightly payments.  Pensioners can notify DVA by phone or in writing to indicate they wish to change their payment frequency.  Members of a couple can make separate elections.

T — here is no financial advantage or disadvantage in changing from quarterly to fortnightly payments but the option may help some pensioners budget their income and expenses.

What will it look like in VIEW

Where a client has elected to receive quarterly pension supplement, their full fortnightly payment will be displayed in VIEW and the minimum pension supplement being set aside for quarterly payment shown as a deduction from the fortnightly payment.

VIEW Payments tab:

Client payment notifications

The q — uarterly p — ension s — upplement will also be shown as a deduction from the fortnightly payment entitlement on the Payment Information Attachment of PIPS and batch automatic advices.

Where a client receiving quarterly pension supplement requests a statement of their fortnightly pension, their payments should be shown in the same format, i.e. with full fortnightly entitlement shown and a deduction for quarterly pension supplement.

Quarterly pension supplement has no implications for the statements of pension provided to State Housing Authorities.  Minimum pension supplement is not a component of the pension that is assessed by, or disclosed to State Housing Authorities.

Lump Sum Advance (LSA)

The primary objective of advance payments is to make payments more flexible to the needs of pensioners to help them meet unexpected expenses.  An advance payment is not an additional payment, but is a lump sum pre-payment of pension which is then recovered through deductions from the pensioner's regular payments.

From July 2010 pensioners will be able to access multiple advances up to the maximum advance amount.

What are the changes

There have been two changes to the eligibility for lump sum advances:

• A minimum amount of one week of the maximum rate of service pension now applies.  This means some pensioners on low rates of payment who have previously been eligible for lump sum advances will no longer be able to receive them.
• There is no longer an exclusion on accessing multiple lump sum advances in a 12 month period, or receiving an advance before a previous advance has been repaid (unless it is outstanding for more than 12 months).

Who can apply for LSA

The new lump sum advances are available to:

• service pensioners
• age pensioners
• disability pensioners
• war widow and widower pensioners
• income support supplement recipients.

Minimum and maximum amounts

The maximum and minimum advance amounts are now calculated based on the maximum rate of service pension (excluding the minimum rate of pension supplement), and an individual's actual rate of payment (excluding any remote area allowance and minimum pension supplement).

Single/ Illness Separated

Partnered (each)

Minimum LSA

$   335.25

$252.70

Maximum LSA

$1,005.75

$758.10

The maximum LSA an individual can receive is the lower of the maximum LSA above and:

• for service pensioners, age pensioners and ISS recipients – 7.5% of the person's annual rate of income support pension (or 1.95 x their fortnightly rate)
• disability pensioners and war widow/ers – 13 times the fortnightly rate of disability pension, or war widow/ers pension payable to the person.

If a person receives multiple payments (eg. disability pension and service pension) the calculation method that results in a higher LSA should be used.

Working out amount of advance available

With the introduction of multiple advances, the amount of a previous advance paid may affect a person's access to further advances.

If an individual has received a LSA in the previous 13 fortnights, the total amount of this LSA is deducted from the maximum LSA payable.  If an individual has received a LSA more than 13 fortnights ago which is still outstanding, the outstanding balance of this LSA is deducted from the maximum LSA payable.

When

These changes commence from 1 July 2010.

How to apply

The Lump Sum Advance application form (D0556) has been revised to reflect the changes and will be available from 1 July.  LSA applications lodged prior to the implementation date can be accepted for consideration under the new rules.

Interaction with old rules

Staff processing LSA applications made on the old forms should contact the client to explain what is available to them under the new system.

Where a pensioner has requested a LSA advance for $500 recently and it has not yet been processed, the client may revise their application for a higher amount if they are eligible for a greater advance.

If a pensioner has an outstanding advance on the old system, their eligibility for an advance under the new rules will depend on their individual circumstances.  They can request an additional advance if the LSA available to them is within the minimum and maximum limits and they do not have an outstanding LSA debt for more than 12 months.

What will it look like in VIEW

Changes have been made to DVA systems to administer the new LSA rules.

VIEW – Summary Tab

VIEW Summary Tab has been enhanced to display the LSA maximum and LSA minimum amounts calculated according to the new rules.

An example of the display in the VIEW > Summary Tab is displayed below.

Note:  Messages regarding ineligibility for LSA will also be displayed here.

VIEW – Debt Management Tab (DMRS)

The Add Debts folder within the Debt Management Tab in VIEW has also been changed to include the maximum and minimum LSA amounts calculated according to the new legislation.

An example of the display in the VIEW > Debt Management > Add Debts folder is displayed below.

Note:  Messages regarding ineligibility for LSA will also be displayed here.

DMRS will automatically apply the new rules relating to maximum and minimum payment, as well as accounting for previously advanced and or recovered Lump Sums.