C12/2007 2006 - 2007 Budget Initiative - Reduce the Assets Test Taper Rate

Purpose

The purpose of this Departmental Instruction is to explain the policy surrounding the reduction of the assets test taper rate.

The implementation date for this initiative is 20 September 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.

Assets test taper rate change

Currently, a person loses $3.00 of pension entitlement per fortnight for every $1,000 of assets above the relevant threshold.  The amendment will reduce the assets taper to $1.50 for every $1,000 of assets in excess of the relevant threshold.

This means that the assets cut off limits for pensions will increase. The assets value limits from which pension starts to decrease will not change.

Legislation

The legislation covering these changes is contained in the Tax Laws Amendment (Simplified Superannuation) Act 2007 (the Simplified Super Act).  The amendments to the VEA are contained in Part 1 of Schedule 9 of the Simplified Super Act.

Extended claim period – pre 20 Sept

Departmental policy allows undetermined service pension and income support supplement claims over the current assets limits, lodged at any time before and processed between 21 June 2007 to 20 September 2007, to be deferred for determination and payment from 20 September 2007.

Social security legislation only allows undetermined claims for age pension lodged between 21 June and 20 September 2007 that are over the current assets limits and processed in this period to be deferred for determination and payment from 20 September 2007.

The actual pre-claim period will be from 21 June to 7 September 2007 inclusive.  The 8/9 September is the statutory increase weekend.  Outstanding claims processed after 7 September will be paid from the next convenient payday, as per usual practice.

Detailed information on the claim process for this period can be found at Attachment A.  A two page processing “cheat sheet” has been developed to assist assessors and can be found at Attachment C.

Extended claim period – post 20 Sept

In addition, all eligible claims lodged after 20 September up to and including 20 December 2007 will be backdated to either 20 September 2007 or the date that the person becomes eligible and payable.

This backdating applies to all claims, not only those assessed under the assets test.  The legislation allowing this backdating is within transitional provisions in item 15 of Part 1 of Schedule 9 of the Simplified Super Act.  Further information will be provided in September.

Mailout

A letter to certain known groups who may become eligible for payment under this initiative is at Attachment B.  The purpose of the letter is to:

• advise these people that they may become eligible for a pension from 20 September 2007 due to the reduction in the taper rate; and
• to encourage them to lodge a claim between 21 June 2007 and 20 December 2007.

The letter will be sent under the Minister's signature to:

• all Commonwealth Seniors Health Card (CSHC) holders,
• those who have had a pension cancelled within the last 12 months due to the application of the assets test, and
• those people with property in their assessment who have had a pension cancelled under the Enhanced Compliance Program since 1 July 2005.

The anticipated number of letters to be sent is approximately 11,000.  The Service Delivery location return address included on the letter will correspond with the person's file number prefix.  The letters will be issued by the mailing house from 21 June 2007.

A similar letter has been sent to the major Ex-Service organisations, signed by the National Manager, Income Support and Aged Care Policy Group.

Pension Loan Scheme (PLS) participants

There are a small number of people who are currently receiving a payment under the PLS because their assets levels preclude payment of an income support pension.  Manual investigation of these cases is being undertaken by the Income Support Service Delivery team.

Advice to pension bonus scheme clients

Some Pension Bonus Scheme clients may be disadvantaged by the backdating provisions which automatically backdate claims lodged between 20 September and 21 December 2007 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.

Publicity

Articles will be included in both the June and September editions of Vetaffairs.  The June article includes the new estimated assets limits and also details of the extended claiming period.  The September article will contain the actual assets limits and details of the backdating provisions.

Contact officer

Any queries regarding this Departmental Instruction can be directed to Chris Johnston, Income Support and Aged Care Policy on x14773 or e-mail NAT Policy Advisings Income Support.

For systems related issues please contact Mark Hodgson on x68456.

For specific procedural queries please contact Pam Mickan on x50404.

Processing of claims

All claims for service pension or income support supplement processed between 21 June 2007 and 19 September 2007, and all claims for age pension lodged and processed between 21 June and 19 September 2007, where the claim:

• is payable under the current rules; or
• is not payable because of the person's income exceeds the limits; or
• is not payable because the person is not eligible; or
• is not payable because of compensation;

should be processed as normal.  Determinations to accept/reject the claim should proceed in the usual manner, using the standard acceptance or rejection letter.

Claims processing from 21 June to 7 September 2007

Service pension and income support supplement claims lodged at any time and processed between 21 June and 7 September 2007 where the person's assets are in excess of current limits, but not above the estimated limits for payment from 20 September 2007, will not be processed in the standard manner.  These claims should be finalised on the system, but the 'determination' is to be deferred until 20 September 2007.

A two page processing “cheat sheet” at Attachment C provides detailed procedural information.

Standard letters

A number of new letters have been included under 'standard letters' to cover assessment outcomes where a determination of a claim has been deferred during the period 21 June 2007 to 7 September 2007 due to the new assets test taper rate applicable from 20 September 2007.  These can be found in IS Standard Letters under the New Claims tab and are titled:

• assets test taper – reassess from 20 September
• assets test taper - exceeds estimated limits
• assets test taper – AP claim lodged before 21 June.

PIPS information message

PIPS has been enhanced to produce an information message for claims at Calculate Pension where pension is not payable due to the value of the claimant's assets.  This will remind assessors to check whether the person's assets are below the estimated assets limits applicable from 20 September 2007 and to consider deferring determination of the claim.

New IS Standard Letter rejection letters - explanation

• assets taper rate - exceeds estimated limits

This letter is to be sent when assets exceed current limits and exceed the new estimated limits.  It is to be sent in conjunction with a full income and assets data information sheet.  The letter will advise the claimant that if the actual new limit is higher than the estimated limit, a new claim should be lodged if they believe their total assets fall below the new actual limits.

• assets taper rate - AP claim lodged before 21 June

This letter is to be sent when assets exceed current limits and the age pension claim was lodged before 21 June 2007.  It is to be sent in conjunction with a full income and assets data information sheet.  The letter will advise the claimant to lodge a claim for AP before 20 December 2007 if they believe their total assets fall below the estimated limits.

• assets taper rate - reassessment 20 September 2007 

This letter is to be sent when assets exceed current limits but fall below the new estimated limits.  It is to be sent in conjunction with a full income and assets data information sheet.  The letter will advise the claimant that although they are not payable under the current asset limits, their claim will be deferred and determined under the new assets limits which come into effect on 20 September 2007.  The letter will also notify the claimant of their section 54 obligations to advise the department of any change to their assets or income levels, residential situation and personal situation which occur between the date of claim and determination of the claim

Data extract September SI weekend

A data extract will be performed on the SI weekend, 8/9 September 2007, to reassess claims that have been deferred between 21 June 2007 and 7 September 2007. A program will be available throughout the pre-claim period to extract all deferred claims waiting for reassessment from 20 September 2007. This information will be made available to management.

Full data collection is essential

It is extremely important that a full data collection is carried out for all claims processed between 21 June and 7 September 2007 where the person is eligible and has assets which are:

• over the current limits but the person would be payable but for the value of their assets; and
• below or no more than 10% above the estimated new assets cut off limits.

AVO valuation requests

The Australian Valuation Office (AVO) will set up a new project code on the AVO on-line request system by 21 June 2007.  It will be called “taper rate”.

This project code is to be used for all requests to the AVO in respect of clients responding to the taper rate mailout.  These claims will not be immediately identifiable as such, however, if it can be reasonably assumed that the value of the persons assets will be over the current limits, then the “taper rate” project code should be used.

PIRs received between 21 June 2007 and 7 September 2007

If a person whose claim is deferred until 20 September 2007 notifies a Pensioner Initiated Review (PIR) during the pre-claim period, the PIR is to be processed as per normal practice.  If, as a result of the PIR, the value of the person's assets increases to above the estimated new limits, or their income increases to above the income limits, a determination is to be made, the claim rejected and the appropriate advice issued.

Obligations - overpayment and recovery

If a claimant has been advised that their claim is to be deferred until 20 September 2007 for reassessment under the new assets limits, and they have been sent the assets taper rate - reassessment 20 September 2007 letter,

they are under obligation to advise the department of any change to their assets or income levels which may occur before this date.  A debt will be raised where a person fails to meet their obligations and is paid at a rate higher than their proper entitlement from 20 September 2007.

Pension cancelled between 21 June and 7 September

Current clients whose pension is cancelled between 21 June 2007 and

7 September 2007 due to assets will be automatically reassessed under the new assets test taper rate.

It is therefore important that when pensions are cancelled under the assets test during this period a full data collection of income and assets is carried out.

Where a pension is cancelled during this period under the assets test, but the total assets remain below the estimated limits to apply from 20 September 2007, include the following in the Auto Advice Free Text:

“Your pension has been cancelled because the value of your assets is above the current limits.  Higher assets limits will apply from 20 September 2007 and the pension may become payable to you again from that date.  Please advise if there are any further changes to your income and assets before 20 September 2007.”

The Hon Bruce Billson MP

Minister for Veterans' Affairs

Minister Assisting the Minister for Defence

Claims processing from 21 June to 7 September 2007

1.  Claims to be processed as normal:

Service Pension, Income Support Supplement & Age Pension Claims

Claim status at time of processing

Action

Letter to be sent

•              Payable

(maximum rate, or

reduced rate income or assets tested)

Grant as normal

Normal Auto grant letter

•              Not Eligible

(e.g. no qualifying service, not pension age, not permanently incapacitated)

Reject as normal

Normal Manual rejection letter

•              Not Payable, because
  •                                     income above limits, or
  •                                     compensation recovery

Reject as normal

Normal Manual rejection letter

2.  Claims to be processed differently:

Service Pension, Income Support Supplement or Age Pension Claim not payable because:

•                            assets are in excess of the current limits, and
•                            income is not in excess of the current limits.

Step One:Compare the clients' assets with the estimated assets limit applicable from

20 September 2007 in the table below.

Note:  It is important that a full data collection of income and assets is done for all claimants whose assets are either below or less than 10% above (i.e. from $50,000 - $100,000 depending on their marital and homeowner status) the applicable estimated limit.

Step Two:Depending on whether the clients' assets are above the estimated limits applicable for 20 September 2007, follow the process set out below.

Service Pension & Income Support Supplement Claims

Claim status at time of processing

Action

Letter to be sent

•              Not Payable - assets above estimated new limits applicable from 20 September 2007.

Reject as normal. Full data collection if less than 10% above estimated new limits

New IS Standard Letter rejection letter - assets test taper - assets exceed 20 Sept limits

•              Not Payable - assets in excess of current limits but below estimated new limits applicable from 20 September 2007, and not income in excess.

Process case on system as normal.  Full data collection.  Advise client that determination has been deferred until 20 September 2007.

New IS Standard Letter

deferral letter - assets test taper - assets reassess 20 Sept 07

Age Pension Claims  -  *check Claim lodgement date.

•              Not Payable - assets above estimated new limits applicable from 20 September 2007.

Reject as normal. Full data collection if less than 10% above estimated new limits

New IS Standard Letter ­rejection letter – assets test taper - assets exceed 20 Sept 07 limits

•              Not Payable - assets in excess of current limits but below estimated new limits applicable from 20 September 2007, and not income in excess.
•              Claim lodged before 21 June 2007.

Reject as normal

New IS Standard Letter rejection letter – assets test taper - AP claim lodged before 21 June

•              Not Payable - assets in excess of current limits but below estimated new limits applicable from 20 September 2007, and not income in excess.
•              Claim lodged on or after 21 June 2007.

Process case on system as normal. Full data collection.

New IS Standard Letter rejection letter - assets test taper – assets reassess 20 Sept 07

September SI weekend (8-9 September 2007)

An automatic process will be run on the September SI weekend to identify:

• SP and ISS claims deferred during the period 21 June to 7 September 2007, and
• AP claims received and deferred during the period 21 June to 7 September 2007.

The automatic process  will determine these claims under the actual limits applicable from 20 September 2007 and grant or reject.