DATE OF ISSUE: 24 June 1991
DEEMING PROVISIONS: EFFECT ON SERVICE PENSION OF REDUCTION OF DEEMED INTEREST RATE
Introduction
1.On 8 May 1991 the Minister for Social Security, Senator Graham Richardson, announced that the interest rate under the deeming provisions would be reduced from 10 per cent to 8 per cent from 1 June 1991.
2.The change in interest rate reflects the continuing fall in interest rates generally. By lowering the deemed interest rate to 8% the Government aims to ensure that pensioners will continue to have easy access to accounts which pay a good rate of interest and which help them to gain maximum advantage out of the deeming rules.
Effective Date
3.The effective date for service pensioners affected by the reduction of the interest rate will be payday 13 June 1991.
4.The effective date for DSS pensioners is 6 June 1991.
Who is affected
5.It is estimated that upwards of 70,000 service pensioners, nationally, will receive an increase in pension as a result of this change. The estimate is based on the number of service pensioners who originally received a reduction in service pension on 21 March 1991 when the deeming provisions were first applied.
6.The new deeming rate applies to cash, funds with financial institutions, post 21 August 1990 loans, bonds, and debentures, and amounts gifted after 21 August 1990.
Exemptions
7.The exemptions that currently exist will continue to apply, that is, pensioners over 80 years of age, pensioners resident overseas, pensioners resident in medical institutions, and charitable and financial institutions which have been granted exemptions on an individual basis (Attachment A). Charitable and financial exemptions will be advised in the form of a Departmental Instruction as they arise.
Pensioners affected by BRI and Deeming
8.Please refer to DI B21/91 issued on 10/05/91 which provides instructions concerning a reduction in the British Retirement Income (BRI) exchange rate of pounds sterling to $A2.2336 equals one pound sterling. Date of effect 13 June 1991.
9.Approximately 10000 service pensioners will be affected by both the reduction in the exchange rate and the reduction in the interest rate under the deeming provisions.
Timetable
10.The exercise to process both the exchange rate change and the deeming interest rate change was carried out on the weekend 25/26 May 1991.
11.Mailout of advices will be progressive, from 3 to 7 June 1991.
Pensioner Advices
12.All service pensioners whose pension rate is affected by either deeming and/or BRI will receive an advice letter.
13.Branches will be required to mail advices only in the following circumstances:
i)cases where fringe benefits have been gained.
ii)cases where overseas residents are affected by the BRI exchange rate change. Please note that no overseas residents are currently affected by the deeming provisions.
14.Only cases where payment is arranged through Tasmania Branch Office should be referred to that office for mailing. Branches are reminded that if an overseas resident is in payment in their Branch they are required to mail the advice letter.
Features of Advice letters
15.Two examples of the advices to be issued are at Attachment B. Because pensioners affected by deeming have recently received a full advice letter and will also receive one in early July when indexation of the income and asset "free areas" occurs, a limited advice letter is to be issued for the changes which are to take place on 13 June 1991. Simpler Rules to Notify Changes in Financial Circumstances
16.On 15 May 1991 the Commission approved a submission which simplifies the obligation of pensioners to notify of changes to financial circumstances. The details of this will be the subject of a separate DI.
17.A leaflet entitled "NEW, SIMPLER OBLIGATIONS FOR SERVICE PENSIONERS," which explains the changes will accompany the Deeming/BRI advices to be issued (Attachment C).
Tax File Number Exercise
18.The mailout of Deeming/BRI advice letters will occur in conjunction with the first stage of the tax file number collection. A separate Departmental Instruction is to be issued concerning this exercise. Many service pensioners are to receive both information and forms in connection with the Tax File number collection, as well as an advice of the pension change resulting from Deeming and/or BRI which takes place on 13 June 1991.
Automatic Update of Interest Rates on Financial Institutions
19.It is anticipated that many financial institutions will lower interest rates on pensioner accounts in line with the decision to reduce the interest rate applied under the deeming provisions.
20.This change has provided an opportunity to introduce changes to the system which will allow for the automatic update of interest rates on the financial institutions screen and the subsequent reassessment of service pension where appropriate.
21.To facilitate the automatic variation of interest rates, financial institution entries for banks, building societies, credit unions and cash have been converted to a code with effect from 27 May 1991. Information relating to the conversion and a list of the codes has already been issued.
22.With effect from 13 June 1991, the ACTUAL interest rate for certain bank, building society and credit union accounts which have been identified as 'pensioner' accounts is being automatically reduced from 10% to 8%. An indication of this change occurring, along with the DEEMED interest rate reduction, will be reflected on the Financial Institution screen. Automatic SP reassessment and the issue of an advice will occur as for the Deeming/BRI changes already mentioned.
Branch Office Processing Implications
23.Branch Office staff are advised that, after 24 May 1991, the effective date of 13 June 1991 for processing reductions in Service pension should not be used. Use of this date may result in the production of an advice letter which contains incorrect payment details. Should a reduction in pension be necessary between 24 May 1991 and 4/5 June 1991 (being the cut-off for payday 13 June), please use payday 27 June 1991.
24.Daily advice letters produced by Branch action should be held in Branches until after the advices for the Deeming/BRI run have been printed and mailed out. It is anticipated that the mailout will occur on 7 June 1991 however Branches should await clearance by Central Office before proceeding with postal action.
Contact Officer
25.The Benefits contact officer for this exercise is
Raelene Lihoutelephone (06) 289 6408
PETER HAWKER
NATIONAL PROGRAM DIRECTOR
BENEFITS