Bills Digest 63 1996-97 Veterans' Affairs Legislation Amendment (1996-97 Budget Measures) Bill 1996


Numerical Index | Alphabetical Index

WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 5 December 1996.

CONTENTS

Passage History

Veterans' Affairs Legislation Amendment (1996-97 Budget Measures) Bill 1996

Date Introduced: 18 September 1996
House: House of Representatives
Portfolio: Veterans' Affairs
Commencement: The measures contained in the Bill have various commencement dates and these are detailed in the Main Provisions section of this Digest.

Purpose

The amendments contained in the Bill relate to:

  • taking the value of allocated pensions into account for the assets test;
  • abolishing the earnings credit scheme;
  • a minor extension to funeral benefits;
  • changes to the calculation of the preclusion period in respect of lump sum compensation payments to increase the period;
  • modification of the advance payments scheme; and
  • a reduction in the interest rate applicable to advances under the Defence Service Homes scheme and making minor, technical changes to the scheme.

Background

As there is no central theme to the Bill, the Background to the various measures will be discussed below.

Main Provisions

Allocated Pensions

An allocated pension is one where the recipient of the pension can vary the term and amounts received under the pension. Under the veterans' affairs assets test, the amount of pension payable to a recipient is reduced where the assets of the person, or the person and their partner, exceeds a certain threshold. There are separate thresholds for those who have a right or interest in their principal place of residence and the right or interest gives them a reasonable security of tenure.

Under the Veterans' Entitlements Act 1986 (VEA), an investment such as an allocated pension is excluded from the assets test until the recipient of the benefit reaches pension age (section 52). This can be compared with the treatment of allocated pensions under the social security system where the value of an allocated pension is included in the assets test regardless of the person's age. It was announced in the 1996-97 Budget that the treatment of allocated pensions for veterans would be brought into line with the social security treatment. It is estimated in the explanatory memorandum to the Bill that the measure will save $84 000 in 1996-97; $315 000 in 1997-98; $533 000 in 1998-99; and $735 000 in 1999-2000.

Item 3 of part 1 of Schedule 1 will insert a definition of allocated pension into the VEA, which will be a pension purchased after 20 August 1996 where either the rate of the pension or the basis for variations in the rate of payment is not fully defined in the trust deed or contract. Item 4 will include allocated pensions in the assets test by amending section 52 which currently excludes allocated pensions from the calculation.

Commencement: Royal Assent.

Earnings Credits

The scheme aims to address the situation where an eligible person has a short period of remunerated work the income from which would exceed the amount they can earn before the pension is reduced. Normally, such income would be considered to have been earned during the period of the work and this would result in a reduction of the pension for the period of work and a potential loss of other benefits, such as a health card. Under the earnings credit scheme, credits can be accumulated in an account to a certain maximum level (approximately $1 100 for an individual and $2 200 for a couple). Credits are accrued where the persons income for a fortnight is less than the income free level for that period. The amount accumulated is the difference between the actual income and the income free level. The account is debited each time the person's income exceeds the income free level and the amount of the debit is the difference between the income and income free level. If the account balance is nil, the ordinary income test applies. The earning credits scheme therefore allows income earned during a short term of paid work to be spread over a period so that the pension is not immediately effected.

It was announced in the 1996-97 Budget that the earnings credit scheme would be abolished from 20 March 1997. There is no reason given in the second reading speech for the abolition of the scheme, although the explanatory memorandum states:

The Scheme has had a very low take up rate. It is costly to administer and there is some doubt as to whether it really acts as an incentive to find work because it may be difficult to understand. </ ul>

It is also proposed by the Social Security (Budget and Other Measures) Bill 1996 that the social security earnings credit scheme be abolished.

Part 2 of Schedule 1 will remove references to earnings credits contained in various provisions of the VEA and repeal Division 8 of Part IIIB of the VEA which contains the earnings credit scheme.

Commencement: 20 March 1997

Funeral Benefits

The VEA provides that benefits are payable on the death of recipients of certain benefits and that there is a cap on the amount of funeral benefits payable ($550 subject to indexation). There is also an additional benefit available where the recipient died in certain circumstances, including where they were poor or died in an institution or after discharge from an institution where the Repatriation Commission approved the discharge. The additional benefit is generally equal to the funeral benefit, although a greater amount that is reasonable for the cost of transportation, is also available. The reasonable cost additional benefit is aimed to assist in transport costs where the recipient of a relevant benefit dies sufficiently away from their residence and was at the place where they died in relation to an approved medical treatment. The additional reasonable cost benefit is not available where the recipient received the general funeral benefit on the grounds that they were poor or if it relates to the transportation of the body from outside Australia or within a metropolitan area of a capital city (section 99).

Part 4 of Schedule 1 will amend section 99 to provide that the additional reasonable cost benefit will be available to those who died in while poor.

Commencement: For applications for benefits after 20 August 1996.

Lump Sum Compensation

The VEA provides that where a person receives lump sum compensation they may be excluded from receiving a benefit for the lump sum preclusion period. Where the person is entitled to periodic compensation payments, the compensation is taken into account for the purposes of the income test. The provisions, which in intent reflect those contained in the Social Security Act 1991, aim to prevent a person receiving a benefit in respect of an incident that gave rise to a compensation payment and so preventing the person from receiving double compensation/benefits in respect of the same event.

To determine the period for which the lump sum contribution will preclude the payment of benefits, the compensation part of the lump sum is currently divided by average weekly earnings. Part 6 of Schedule 1 provides for the introduction, from 20 March 1997, of a new formula to be used to calculate the period for which benefits will not be payable. The formula is the compensation part of the lump sum (as currently applied) divided by the income cut-out amount. This is based on the maximum basic (single) rate and the pharmaceutical allowance, plus the income free area for a single person. As this amount will be less average weekly earnings, for a given lump sum payment the preclusion period will be greater under the new rules than those currently in force. To prevent any impact on lump sum payments received before 20 March 1997, the Schedule also contains transitional provisions that provide that payments received before this date are to be treated under the old rules.

Similar changes to the social security system are contained in the Social Security (Budget and Other Measures) Bill 1996.

Application: For lump sum compensation payments received on or after 20 March 1996.

Extended Deeming

The VEA, as with the Social Security Act 1991, contains provisions that deem a person to receive a rate of return from certain investments. The deeming rate applies to relatively easily accessible assets, including deposits with financial institutions, managed investments, shares, loans and debentures. The current deeming rates are 5% for such assets up to $30 000 for a single person, $50 000 for a couple, and 7% for such assets above the threshold amount. In relation to veterans, there is also a category of deposit concessionary money, $2 000 for an individual and $4 000 for a couple, where the actual return on the deposit is taken into account, rather than the deemed rate.

Amendments contained in part 7 of Schedule 1 will remove the category of deposit concessionary money, so that the deemed rate of return will apply to this amount. This will place veterans in the same position as social security benefit recipients. This will be achieved by removing references to deposit concessionary amount from the method Statements used to calculate the deemed income for a recipient with such assets. The amendments will also remove the definition of deposit concessionary amount.

The measure is estimated in the explanatory memorandum to save $483 000 in 1996-97; and $2.467 million each year from 1997-98 to 1999-2000.

Commencement: 20 March 1997.

Advance Payments

Part IIID provides that an advance payment of a service pension or income support supplement may be made where the person has been in receipt of the benefit for three months prior to making the application for an advance payment; the Repatriation Commissioner is satisfied that the advance will be used to help meet the living cost of the person; and that repayment through reduction in future payments will not cause the person financial hardship. The maximum amount of the advance is the lesser of the advance applied for; $500; and 6% of the persons annual payment rate (section 67C). As noted above, the amount of the advance is later recouped through reductions in future payments.

Advance payments will be amended by Part 9 of Schedule 1. Item 64 will amend section 61 of the VEA to remove the requirement that the applicant satisfy the Commissioner that the advance will be used to help meet the person's living expenses. Section 61 of the VEA will also be amended to provide that only one advance payment will be available in a 12 month period and that the receipt of an advance of a social security payment during this period will prevent the payment of a veterans advance during the same 12 months (item 65). Application: For advances made on or after 1 January 1997. However, the amendments preventing more than one advance in a year will also apply to advances made before 1 January 1997 so that not more than one advance may be made in a year.

If a widow or widower is receiving an age service pension, an invalidity service pension or a carers service pension and is also eligible for a pension as a dependant of a deceased veteran who would have been eligible for a service pension, section 45 of the VEA applies to place a ceiling on the maximum rate of the service pension (currently $3 122.60 per year). Pensioners may also be eligible for an income support supplement if they satisfy a number of criteria, including that they have a dependant child, are permanently incapacitated for work or caring for a handicapped child.

In both of these cases (ie. where the ceiling or income supplement apply), the maximum amount of advance that may be made is less than $500 when the formula for calculating the maximum amount of advance contained in section 67C is applied (see above). Item 71 will amend section 67C to provide that the maximum advance that may be made to such people will be $500.

In calculating the rate of benefit payable to a veteran, various rate calculations are made in accordance with the various method statements contained in the VEA. The final steps before determining the amount payable to a person is to calculate their conditional payment rate and to then deduct from this amount any advance payment deduction. Section 67J provides that where this is the case, the advance payment deduction will be deemed to be the conditional payment rate. Item 77 will make this rule subject to proposed sections 67JA and 67JB, which provide that where a person is in receipt of a pension at a ceiling rate as they are a widow or widower of a person who would have been eligible for a service pension, or is in receipt of income supplement, the difference between the conditional payment rate for those benefits and the advance payment deduction may be deducted from any service pension payable to the person.

Application: For advance payments made on or after 1 January 1997.

Defence Service Homes

The Defence Service Homes (DSH) scheme provides financial benefits to certain people who have served in the Defence Forces. The main benefit available under DSH is interest subsidies. The maximum loan available is $25 000 with the loan repayable over 25 years. For new borrowers, the interest rate is currently fixed at 6.85% for the term of the loan. Under an agreement between the government and Westpac, the government provides a subsidy to the bank which provides the low interest rate loans. Eligibility under the scheme is restricted to those who enlisted on or before 14 May 1985. Those eligible and who joined after this date are covered by the Defence HomeOwners scheme.

Where a person has taken less than the maximum amount of the loan, they may request an additional advance. Currently, section 33 of the Defence Service Homes Act 1918 provides that the rate of interest for an additional advance is 10%. In the current interest rate climate, the rate of 10% is not competitive, although it does have the advantage that the rate is fixed for the life of the loan. Item 4 of Schedule 2 will substitute a new section 33 into that Act. Under the proposal, the following rates will apply:

  • if the person's current loan is subject to the 6.85% interest rate, that rate will apply to an additional advance;
  • if the person's current loan is subject to the 3.75% interest rate (which applied prior to the 6.85% rate) and they have already received an additional advance (at the 10% rate), then additional advances up to $10 000 will be subject to the 10% rate; additional advances between $10 000 and $13 000 will be subject to a 7.25% rate; and amounts in excess of $13 000 will be subject to the 3.75% rate;
  • the proposed section also contains other rates that will apply in restricted circumstances, but which reflect the monetary values and rates described above. The various rates aim to ensure that when combined the rate will be 6.85%.

The Bill also contains two minor, technical amendments to the DSH scheme. First, eligibility under the scheme is to be extended to people who first served on or before 14 May 1985 and who served in the operational areas of Iraq, Kuwait and other Gulf countries, Cambodia, the former Yugoslavia and Somalia during Australia's deployment to those areas (item 1 of Schedule 2). This aims to address the situation where the person had broken service to complete the six year eligibility criteria. Secondly, a widower who was eligible in their own right to receive a loan and who's wife was also eligible for a loan, will be able to access an advance in either their own right or as a widower. The change will apply to widowers of World War II servicewomen and corrects an anomaly where access to the advance is available to widows of World war II servicemen but is not available to relevant widowers.

Commencement: 1 January 1997.

Contact Officer and Copyright Details

Chris Field Ph. 06 277 2439
28 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 1323-9031
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 2 December 1996

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