WARNING:
This Digest is prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments.
This Digest was available from 12 November 1996.
CONTENTS
Social Security Legislation Amendment (Further Budget
and Other Measures) Bill 1996
Date Introduced: 16 October 1996
House: Senate
Portfolio: Social Security
Commencement: Changes to the treatment of
superannuation entitlements commence on 20 September 1997, those to
the maximum rate of rent assistance commence on 1 July 1997 while
those relating to debt recovery commence on Royal Assent.
To:
- include superannuation entitlements for purposes of the social
security income and assets test where the person with such
entitlements is over 55, has not reached pension age and has been
in receipt of social security benefits or a service pension for 39
weeks since turning 55;
- reduce the maximum rate of rent assistance payable to single
people sharing accommodation; and
- tighten the debt recovery provisions contained in the
Social Security Act 1991 (the Principal Act).
The Superannuation Standards Regulations require that certain
conditions, including those relating to the preservation of
benefits, must be met for superannuation funds to receive
concessional taxation treatment on their earnings. In relation to
preservation, the general rule is that benefits cannot be accessed
until the member of the superannuation fund has reached the age of
55 and has retired from the workforce. Exemptions to this rule
apply where the amount in the fund is less than the minimum amount
($500); the member has retired before age 55 due to permanent
invalidity or incapacity; the member is dead; the member has
permanently departed from Australia; or the Insurance and
Superannuation Commissioner has approved the payment.
Superannuation entitlements may also be withdrawn if the person can
convince the Insurance and Superannuation Commissioner that they
are suffering severe financial hardship and the rules of the fund
provide for early access to entitlements in such circumstances.
The requirement for the benefits to be preserved until
retirement reflects the theory that superannuation contributions
are savings to be used in retirement and that superannuation will
alleviate the pressure on the age pension as the community grows
older and there are less people of working age to contribute to the
support of those who have not entered, and those who have left, the
workforce. The compulsory nature of employer superannuation
contributions granted instead of pay rises also means that
employees have little opportunity to opt-out of superannuation.
The current age requirement for eligibility for the age pension
is, for a male, that they are 65 years of age or older. For
females, prior to 1994 the pension age was 60 years, but this is
being increased to 65 years by 2014. The increase will be achieved
by increasing the age for eligibility based on the person's
birthday until the 65 years limit is achieved.
People under pension age who are unemployed and who have not
retired from the workforce may be eligible for a number of
benefits. As with other unemployed people, they will be eligible
for job search and newstart allowances. To satisfy the major
eligibility requirements for these allowances a person will need to
show that they are actively seeking and willing to undertake
suitable employment, they are registered with the CES as
unemployed, they are aged under 60 years, and, for the newstart
allowance, that they have entered into a newstart agreement.
Both allowances are subject to the ordinary income test and
assets test. The income test provides for the reduction of the
amount of allowance payable if a person's income exceeds the
threshold level, which is generally $60 per fortnight (N.B: the
figures used in this Digest may have been changed due to recent
indexation of the relevant amounts) although this is increased for
income earned from personal exertion. The exact amount of the
threshold amount will depend on the person's circumstances and
particularly whether they have any dependants. Where income exceeds
the threshold amount, there is a proportional reduction in the
allowance (eg. $1 reduction for each $4 earned above the
threshold). The assets test threshold also depends on a number of
variables, including whether the person is a home owner and are the
same as apply to age pensions. For example, the assets threshold
for single people 21 years and over and without dependants is $124
000 for a homeowner and $212 500 for non-homeowners. For members of
a couple the rates are $176 000 for homeowners and $264 500 for
non-homeowners. An important difference between the income and
assets tests is that once the assets test threshold is exceeded the
allowance ceases to be payable. This can be compared with the
income test where the allowance phases-out as the threshold is
exceeded.
Both allowances are also subject to a 'liquid assets' waiting
period. This applies where the person has liquid assets (ie. cash
and other readily realisable assets such as shares and debentures,
deposits with financial institutions and amounts owed by a former
employer who is capable of paying that amount) and provides that if
the person's liquid assets exceed $5 000 for a single person
without dependant/s and $10 000 in other cases this asset test
applies. If the liquid assets test applies, the person may be
required to wait four weeks before the relevant allowance is
payable (the Social security Legislation Amendment (Budget and
Other Measures) Bill 1996 proposes to increase the maximum waiting
period to 13 weeks).
For unemployed people aged between 60 and pension age, the
mature age allowance is available. This was introduced in March
1994 and provided that the allowance was payable to people who had
been registered with the CES for 12 months and that such people
were not required to satisfy the activity test in relation to
seeking work. The allowance originally had a sunset clause so that
it would end on 30 June 1996. However, from 1 July 1996 new
eligibility criteria were introduced and the allowance maintained.
From 1 July 1996 people will be eligible for the allowance if:
- they were previously in receipt of the allowance;
- they were in receipt of job search or newstart allowance for at
least 9 months;
- they were in receipt of various other allowances and benefits
(eg. sickness, widow or partner allowance) for at least 13 weeks
before receiving the mature age allowance; and
- the person has no recent workforce experience (ie. employment
for 20 hours a week or more for at least 13 weeks in the previous
12 months).
The mature age allowance is subject to the ordinary income test
and an assets test which are substantially the same as described
above.
People aged between 55 and pension age may alternatively receive
the disability support pension if they satisfy the eligibility
criteria for the pension. As with the above allowances, this
pension is subject to the ordinary income and assets tests and
eligibility for this payment will also be affected by the changes
proposed in this Bill.
Prior to the implementation of the changes contained in this
Bill, returns from superannuation funds, approved deposit funds and
deferred annuities are not considered to be income unless the
relevant person has reached pension age or has commenced to receive
a pension or annuity out of the fund (see the definition of income
in section 8 of the Principal Act). However, if the benefit becomes
vested in the person, it will be included in income (as noted
above, funds receiving concessional tax treatment will prohibit
vesting until the person has reached age 55 and has retired from
the workforce).
For the purposes of the assets test, similar rules apply and the
value of a superannuation interest is not included in the assets
test until the person either reaches pension age or commences to
receive a pension from the fund.
It was announced in the 1996-97 Budget that the exemption of
superannuation from the income and assets tests would be removed
for certain people aged between 55 and pension age. The explanatory
memorandum to the Bill estimates that the measure will cost $1.33
million in 1996-97; save $92.65 million in 1997-98; and save $67.47
million in 1998-99. Also refer to the Remarks section below.
Rent Assistance
Rent assistance is payable to certain recipients of benefits
where they rent privately and the rent they pay is above a certain
threshold. There is a cap on the maximum amount of rent assistance
payable. The actual rate of rent assistance and the maximum amount
payable depends on the person's circumstances, such as the benefit
they are in receipt of, whether they have a partner and whether
they have dependent children. For example, for those in receipt of
job search, newstart, sickness, widow or partner allowances the
following apply:
- no rent assistance is payable if the person is under 18 and has
no partner or dependants unless they receive the benefit at the
homeless or independent rate;
- if the person is between 18 and 21 and has no partner or
dependants, they will be eligible for maximum rent assistance of
$34.60 a week if they pay rent of more than $30.60 per week;
- if the person is over 21 and has no partner or dependants, the
relevant rates are $36.90 where rent is over $35.30 a week;
- where the person is not a member of a couple but has
dependants, the maximum rate is $43.00 per week if the person has
one or two dependants ($48.70 if there are more dependants) where
rent exceeds $46.40 per week; and
- where the person is a member of a couple and has children and
their rent exceeds $68.50 per week, they will be eligible for
maximum rent assistance of $43.00 per week ($48.70 where there are
three or more children).
As the above example shows, rent assistance can be a substantial
amount in relation to the total benefit received. It was announced
in the 1996-97 Budget that the maximum rate of rent assistance for
single people who share accommodation and are not in an exempt
category (which are described in the Main Provisions section) would
be reduced to two-thirds of the current maximum rate. In the second
reading speech to this Bill it is stated that:
.... in most cases, single people
who share accommodation face lower costs through economies of
scale, compared to the costs of living alone. </ ul>
It may be argued that major factors in determining the rate of
rent paid by a person are the quality and location of the
accommodation. For example, people living in inner city areas face
higher accommodation costs than those living in rural areas. Such
differences are not reflected in the calculation of the maximum
rate of rent assistance available to a person.
The explanatory memorandum to the Bill estimates that the
measure will costs $4.2 million in 1996-97; and save $31.76 million
in 1997-98 and $38.66 million in 1998-99.
Item 3 of Schedule 1 of the Bill will insert a new subsection
8(7A) into the Principal Act which provides that superannuation
investment returns will be excluded from the definition of income
if the recipient has not reached pension age or started to receive
a pension or annuity from the fund. However, proposed subsection 7B
provides that the general exemption contained in proposed
subsection 7A will not apply if the person is a prescribed
pre-pension age person. This is defined to be a person who has
reached age 55 and who has, whether before or after the
commencement of the provisions (20 September 1997), received a
social security pension or benefit or a service pension for a total
of 39 weeks since reaching the age of 55. The 39 weeks may be a
continuous period or be made up of separate periods (Item 14 which
will amend section 23 of the Principal Act).
Proposed section 1118A performs a similar role in respect of the
assets test and provides that investments in a superannuation fund,
approved deposit fund, a deferred annuity or a small superannuation
account are not to be included in the assets test unless the person
has reached pension age or started to receive a pension or annuity
from the fund. However, the above will not apply to a prescribed
pre-pension age person (Item 21).
Other amendments in Schedule 1 are consequential on the above
changes, and include the repeal of the current general exemption
for superannuation assets and income.
Schedule 2 of the Bill deals with the maximum rent assistance
available for single people who share accommodation. Item 2 will
insert a new section 5A into the Principal Act which defines when a
person will be treated as single and sharing accommodation. This
will be where the person is not a member of a couple, has no
dependent children and has the right, along with one or more other
people, to use at least one major area of accommodation (ie. a
bathroom, kitchen or bedroom). People will be excluded from the
definition where:
- the person pays for their board and lodging;
- the person resides in a nursing home;
- the person has exclusive rights to use a bathroom, kitchen and
bedroom but shares other major areas of accommodation;
- the person shares accommodation with their recipient child (ie.
a child in receipt of Austudy, Abstudy, a social security payment,
a service pension or the youth training allowance but the child
does not receive rent assistance); and
- the person either lives alone in a caravan, mobile home or on a
vessel, or lives in such a place with a recipient child, and has
the right with one or more other people to use major areas of
accommodation in the caravan park or marina.
Items 3 to 18 will amend various modules in the Principal Act
that refer to the amount of rent assistance payable for various
benefits. The amendments provide that the maximum rent assistance
for single people sharing accommodation will be two-thirds of the
maximum rate that would otherwise apply.
Schedule 3 of the Bill will amend provisions of the Principal
Act dealing with debts arising from pre-payments. The main change
is to provide that if a person receives a benefit, other than
parenting allowance, and that payment is made on the basis of
estimated income or anticipated change in circumstances and the
estimate is wrong or the circumstances do not change as anticipated
and this results in an overpayment, the difference between the
payment and the correct amount payable is a debt due to the
Commonwealth. The amendments aim to correct deficiencies in the
power to recover overpayments.
Item 9 will make a similar amendment to that described above to
the Student and Youth Assistance Act 1973.
There has been considerable interest in the effect this Bill may
have on those who have yet to retire or reach pension age and who
have superannuation 'income' that will effect the rate of benefit
received or whose superannuation assets exceed the relevant
threshold, meaning that benefits would not be payable.
It should be noted that the Bill refers to the 'return' a
relevant member of a superannuation fund receives. In relation to
investment income, the Principal Act deems that a return will be at
a certain level, depending on the nature and timing of the
investment (ie. principally whether it is an accruing return
investment or a market linked investment). The basic principal is
that if a person receives an investment return, the relevant amount
of the return will be deemed to have been received even if there is
no actual income received by the investor, in this case a member of
a superannuation fund or like body (eg. an approved deposit
fund).
If a person is aged over 55 and has received benefits for the 39
week period, they will be deemed to receive the relevant investment
return from their superannuation fund, even if no actual income is
received. This becomes particularly important in cases where the
person does not wish to retire and the relevant superannuation fund
has rules that generally prohibit access to superannuation benefits
until the person has reached age 55 and retired from the workforce
(as the Superannuation Standard regulations require). In such a
case, the person's benefits will be reduced according to the amount
of income deemed to have been received, or they will not be
eligible for benefits if they exceed the assets test threshold, and
it can be expected that the person will need to access income from
other sources. As the person would be eligible for social security
benefits under the current income and assets tests that do not
include superannuation, it can be assumed that they do not have
substantial income or assets in other areas. In such a case, the
person may be likely to have to access their superannuation
entitlements to secure a reasonable income.
As noted above, if a superannuation fund prohibits access to
benefits prior to retirement people are likely to have to rely on
the financial hardship provisions to access their superannuation
benefits. To satisfy these requirements, it will be necessary to
convince the Insurance and Superannuation Commissioner that severe
financial hardship exists and the relevant superannuation fund
trust deed will have to provide for early access to benefits for
financial hardship reasons.
The Opposition and a number of media commentators have argued
that the proposed changes will require people affected by the
proposed changes to use some or most of their superannuation
entitlements prior to reaching pension age, thus nullifying the
basic role of superannuation which is to provide income after
retirement. (It should be remembered that such affected people will
have opted not to leave the workforce prior to reaching pension age
and so not to voluntarily access their superannuation entitlements
until that time.) Some commentators have also argued that the
reduced eligibility to access the relevant social security benefits
because they have reached 55, are unemployed and have
superannuation entitlements that effect their social security
benefits may be discriminatory as, unlike those below this age,
they will be denied full access to benefits available to those
under this age with equivalent superannuation benefits.(1)
The exact number of people who may be affected by the proposed
measures is difficult to judge. However, it has been reported that
12 900 people will lose their benefits and that 54 000 will lose
part of their benefits.(2) to the Bill estimates that less than 20%
of relevant pension and allowance customers will be affected by the
proposed changes.
In response to allegations that the proposed changes would
require a number of people to access their superannuation
entitlements before retirement, the Minister, in a Press Release
dated 30 August 1996 stated:
Despite Opposition claims today,
people over 55 will not be required by the new Budget measures to
use up their superannuation before accessing government
payments. </ ul>
The Minister's Press Release then noted that the proposed
changes would place superannuation entitlements in the same
position as other financial assets, such as bank accounts.
The explanatory memorandum to the bill states:
If there are situations when
social security customers genuinely cannot access their
superannuation assets because of superannuation regulations, the
Social Security Act contains a provision (section 1084) that could
allow these assets to be exempted from the extended deeming
rules. </ ul>
That provision allows the Minister a discretion to determine
that the return from certain financial assets may be disregarded
for the purposes of the ordinary income test. It does not affect
the calculation of the value of a person's assets.
It can reasonably be expected that the proposed changes will
require a number of people to access their superannuation
entitlements prior to retirement. This number will be increased if
financial hardship is not considered to be a ground for being
genuinely unable to access their entitlements (ie. a person will
not be entitled to benefits, or entitled to reduced benefits, as
they can access their entitlements on the basis of financial
hardship). It is difficult to see how the substantial savings to be
made by this measure can be achieved without affecting a reasonably
large number of people.
- For example, see The West Australian, 2 September
1996; The Age, 2 September 1996; The Age, 6
September 1996, and Press Release by the Shadow Minister
for Social Security, 30 August 1996.
- The Age, 20 September 1996.
Chris Field Ph. 06 277 2439
8 November 1996
Bills Digest Service
Parliamentary Research Service
This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
amendments.
PRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
the public.
ISSN 1323-9032
© Commonwealth of Australia 1996
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Published by the Department of the Parliamentary Library,
1996.
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Last updated: 13 November 1996
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