This Digest was available from 5 December 1996.
As there is no central theme to the Bill, the Background to the
various measures will be discussed below.
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.
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.
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
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
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
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
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.
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
Commencement: 20 March 1997.
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
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
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
- 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%
- 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.
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
PRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
© 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
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
Back to top