Social security amendment (Disposal of assets) Bill 1999
Parliament of the Commonwealth of Australia 1999
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Senate Standing Committees on Community Affairs
PO Box 6100
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MEMBERSHIP OF THE COMMITTEE
LP, Western Australia
Allison, Deputy Chair
ALP, Western Australia
Report - Social security amendment (Disposal of assets) Bill 1999
1.1 The Social Security Amendment (Disposal of Assets) Bill
1999 (the Bill) was introduced into the House of
Representatives on 30 June 1999
and into the Senate on 24 August
1999. On 13 October
1999, the Senate, on the recommendation of the Selection of Bills
Committee (Report No. 17 of 1999), referred the Bill
to the Committee for report by 22 November
1.2 The Committee considered the Bill at a public hearing on
1999. Details of the public hearing are
referred to in Appendix 2. The Committee received six submissions relating to
the Bill and these are listed at Appendix 1.
2.1 The Bill, foreshadowed in the
1999 Budget, introduces changes to the provisions which prescribe how much a
person can dispose of by way of gifts and still remain qualified for income
2.2 The Bill provides for a
reduction in the ‘free area’ that a person or a couple may gift - from
$10 000 per annum to $5 000 per annum - before that gift begins to
impact on the level of assistance provided under the Social Security Act 1991. Any amount given away in excess of the
$5 000 annual free area would, consistent with the current gifting rules,
be counted as an asset for social security purposes (a deprived asset) for five
years from the date of the gift, and would be subject to the income test
2.3 The Minister in the Second Reading Speech
Th[e] annual $10,000 “free area” is anomalous, in that it is
greater than the maximum single pension rate - some $9,400 per annum. The
result is that under the current rules an income support recipient can give
away more than that person is entitled to receive by way of assistance...this
loophole has become a favourite tool for many financial planners who exploit it
to increase the income support entitlement of their customers.
2.4 The reduction in the annual ‘free area’
will have effect from 1 July 1999. However, provision
is made in the Bill to ensure that any income support paid on the basis of the existing
disposal rules before the Royal Assent to the Bill is protected from
being recovered from the income support recipient insofar as these amendments
are concerned. The Bill will also change the basis for the calculation of the concession
relating to gifting from ‘pension year’ to the more widely understood
Effect on pensioners
3.1 Some organisations claimed that the
proposed reduction in the annual gifting ‘free area’ was harsh and would remove
the flexibility in the current rules for many older persons to assist family
members in times of financial crises.
3.2 In response, the Department of Family and
Community Services (FaCS) stated that the existing gifting free area of
$10 000 per annum is very generous and at odds with the underlying
rationale of a needs based social security system whereby people are expected
to use their own income and assets before relying on the community for income
support. The Department noted that an indication of the generosity of the
current system is the fact that the amount that a person can currently give
away before impacting on their pension entitlements is more than the maximum
single rate of pension (that is, $9 500 per annum). This aspect of the current system was
also commented upon by the Association of Independent Retirees.
3.3 The Department emphasised that the
Government is not seeking to discourage gifting and noted that a $5 000
gifting free area would still provide the opportunity for a pensioner to
provide substantial assistance to family members ($100 000 over 20 years).
3.4 FaCS also stated that
only a small number of customers will be affected by the proposed measure (with
some 3 600 FaCS recipients estimated to be affected in 1999-2000). FaCS
indicated that of this number, some 3 100 age pensioners and 300 disability
support pensioners would be affected in 1999-2000 - which represents only 0.2
per cent of age pensioners and 0.05 per cent of disability support pensioners. The Department also noted that the
income and asset test free area means that people with modest incomes, or with
less than sizeable asset holdings, are not likely to be affected by the
Maximising pension entitlements
3.5 FaCS indicated that there was evidence of
people seeking to maximise their pension through the gifting provisions. The
Department cited Department of Veterans’ Affairs (DVA) figures on gifts by
service pensioners below the current gifting free area. DVA data indicate that
for the five year period from 1994 to 1998, 42 per cent of all DVA pensioners
who advised they had made gifts of any value had gifted exactly $10 000 in
an individual year. This compares with 12 per cent who had made gifts in excess
of $10 000 in an individual year. The Department stated that this data
‘clearly illustrates that many individuals are setting their gifting level to
fully utilise the current $10,000 gifting free area’. FaCS noted that given that the DVA
service pensioner population is similar in characteristics to the FaCS age
pensioner population it is reasonable to assume that the gifting patterns
indicated in the DVA data would be similar for the FaCS pensioner group.
3.6 In addition, FaCS
stated that the financial planning industry is promoting ‘gifting strategies’
as part of pension maximisation schemes.
Some groups, however, questioned the extent of the practice. The Department responded that the
practice is ‘actively encouraged by many financial advisers, including advisers
in the mainstream of the profession’.
The Department noted that the training and marketing material for financial
planners and accountants commonly refers to this method and it is accepted in
many quarters as ‘normal’ retirement planning practice. FaCS noted that these practices
involve a significant cost to the social security budget and undermine the
integrity of the social security means test as a means of targeting assistance
to those most in need.
3.7 Some groups raised
issues relating to the alleged ‘retrospective’ nature of the proposed
3.8 In response, the Department
stated that provision is made in the Bill to ensure that no income support payment would be affected by the
new rules until the legislation is passed by the Parliament and has received
Royal Assent. FaCS also noted that the Senate Scrutiny of Bills Committee ‘has
accepted in its 13th Report of 1999 that the Bill does not have
retrospective effect’. The existing
gifting rules will continue to operate in relation to any gifts made before 1 July 1999, with the proposed changes to apply to all gifts made after 1 July 1999.
The Committee reports to the Senate that it has
considered the Social Security Amendment (Disposal of Assets) Bill
1999 and recommends that the Bill
Senator Sue Knowles
Minority report - Australian Labor Party
SOCIAL SECURITY AMENDMENT (DISPOSAL OF ASSETS)
The Bill would reduce from $10,000 to
$5,000 the 'free area' for gifting of assets.
The free area is the maximum value of the assets that may given away
each year without affecting pension
entitlements. Any gifts in excess of the
free area are subject to the assets
test, or the income test, for five years after the gift. Under the Social
Security Act, the Department applies whichever test would result
in the greater nominal gain, that is, whichever would reduce the pension
by the greatest amount.
The current regulations allow
pensioners to dispose of, or give away up to $10,000 per annum without any
effect on their pension entitlement.
Assets beyond this threshold which are disposed of, have income assessed
at the deeming rate, or in cases where the asset was income producing, at the
actual rate if it is higher than the deeming rate.
The Bill would apply this
change equally to single pensioners and to couples. The Bill
is expected to reduce the entitlements of some 3,400 aged pensioners, and 200
disability pensioners, with savings to the Commonwealth rising to an estimated $4.405 million by 2002-03.
Error in 'transitional period'
Government intends that the changes to the gifting rules made by the Bill would apply to
pensioners who between 1 July 1999 and Royal Assent made
gifts in excess of $5,000 and $9,999.
Any reduction of pension payments is supposed to apply after Royal Assent. In other words, the Department would not
regard as over-payments the pension paid prior to Royal Assent.
Opposition wishes to draw the Parliament's attention to a drafting error in the Bill, which would appear to
render inoperative that section (127) which is supposed to provide for this
transitional period. Section 127 refers
not to the Social Security Amendment
(Disposal of Assets) Bill 1999, but to a non-existent Bill, the 'Budget Measures 1999 Legislation Amendment Bill (Social
Security - Disposal of Assets) Act 1999'.
The free area has changed in the
last ten years. Prior to 1991, it was $4,000 for couples and $2,000 for
singles. In 1991 the Keating government
changed the area to $10,000 for both couples and singles. This was justified by the government as both
a reasonable improvement to pensioners' benefits, and a simplification of the
RATIONALE FOR THE BILL
The Government has justified the Bill
on the grounds that:
- it is inequitable for pensioners to be
able to gift without penalty more than the annual maximum single pension;
- the current free area rules are at
odds with the principles underlying a needs-based social security system;
- only a small number of pensioners will
be adversely affected; and that
- abuse of the $10,000 free area is
widely promoted by financial advisers as a pension maximisation technique.
The Government insists that its policy is based
on the assumption that some 'free area gifting' (that is, gifting without loss
of pension entitlements) is reasonable. 
The amount not the
principle is in dispute
There has been a political consensus in Australia
that some amount of gifting by pensioners is a legitimate practice.
Essentially the Opposition is not convinced that the
Government has made the case for the the Bill's
basic premise: that the current free area of $10,000 is too generous to
pensioners. The Opposition was more impressed by evidence from senior's groups
that a $5,000 free area would impose an excessive penalty on gifts of assets to
a family member, and that $10,000 remains the more appropriate level.
government's main justification for the Bill appears to be that it is inherently
inequitable for a pensioner to be able to give away without loss of pension
more than the annual rate of the maximum single pension (approximately $9,400).
The Opposition has a number of objections to this argument.
appears to be a recently discovered and hastily prepared rationale for what
would otherwise be seen as an unadorned savings measure. No evidence has been
provided by the Government that the maximum single pension has ever been used
as an upper limit for the free area.
The Government has simply asserted this principle, which is generally
rejected by the groups representing retirees.
there have been a number of statements from the Government implying that under
the current arrangements individual pensioners
are able to give away without penalty more than they receive from the
Government in pension payments. For
example, the chair of the Committee asked one witness,
Do you think it is fair, in all honesty, to be
able to say to someone, ‘You can give away more money than the other taxpayers
are going to give you in pension in a year.'
to this rhetorical question is that the perceived inequity could never occur,
as according to the Department no one in
receipt of the full pension of $9,400 could have sufficient assets to be
subject to the assets and income tests:
A maximum rate pensioner who gifts cash or
other financial assets cannot be affected by the proposed change to the gifting
free area regardless of the value of the gift.
This is because assets owned by maximum rate pensioners and assessed
income (including deemed income on financial assets) must be below the existing
asset and income test free areas.
Cost of living: $10,000 remains an appropriate
Opposition was impressed by evidence submitted to the Committe that a free area
of $10,000 is more appropriate than $5,000, given the cost of living and the
demands placed on families. For example,
Welfare Rights Network stated:
Our main concern, however, is that the proposal
is merely a mean savings measure. In our experience, the $10,000 for gifting is
adequate. To reduce it to $5,000 seems
to be harsh and unnecessary.
public hearing, the Opposition pointed out that the decision to set the free
area at $10,000 was made eight years ago
and asked the Department whether cost of
living increases since then warranted a reassessment of the level.
In fact, based on CPI increases
since then, $11,600 is now needed to purchase the goods and services which
could then have be bought for $10,000.
In terms of the cost of living, the case for the free area being set at
$10,000 is, if anything, stronger than in 1991.
Legitimate uses of gifting
Opposition believes that the Bill does not adequately recognize that gifting of
assets by part-pensioners is generally legitimate and socially beneficial.
Having heard the evidence put before the Commitee the Opposition considers
that objections to the Bill by senior's organisations are reasonable and
based on understanding of how the gifting rules are actually used by most
reitrees. Labor believs that the Bill would penalise attempts by older
Australians to assist younger or less fortunate members of their own
families. This aspiration was noted by
the 1994 Strategic Review of the Pension's Income and Assets Test.
Many pensioners with few assets have indicated
that at points where they have realised those assets, usually on the sale of
the family home, they would like to be able to assist their children.
is also made in submissions to the Bill inquiry. COTA deplored the notion that “where
somebody is in a family crisis [that] there is a penalty on the older person
for assisting the other family member at that time...”
In their written submissions, and evidence before the Committee,
representative organizations argued that pensioners generally gifted assets to
meet family need rather than to maximise pensions. (In fact, the value of the gift is always
much greater than the pension gain.)
Throughout Australia, COTA is aware of the increasing
pressures placed on older Australians as a result of family breakdown and other
problems such as unemployment. Many
older people are called upon to assist family members in times of crisis and
financial need. These include assisting
with the deposit on a home when there is a marriage separation; family illness;
onset of disability; unemployment where the family member has
commitments...Limiting the annual gifting to $5,000 has been seen as mean
spirited and in contrast to the willingness of parents to assist other family
members when misfortune strikes.
seniors' organizations agreeds that it was common for gifts to be made to
assist younger family members with major purchases, such as a mortgage deposit,
or education fees. The AP & SF
We have found that most of our older people who
deem over $10,000 to families to either put a deposit on a home or educate
benefit of retirees helping younger or less fortunate relatives
cases gifting assets helps the younger family members concerned, but is also of
wider social benefit. The inquiry was told that assistance from older relatives
could prevent younger family members from having to use publicly-funded
For instance an Aged Pensioner, Ed, may give his frail widowed sister,
Margaret, an amount of $20,000 to enable her
to pay for a place in a nursing home, in the area that she has lived [in] all
her life. Margaret does not want to sell her house,
because her house, because her sole parent daughter and grandchildren are
currently living in the house with her.
If she sells the house to purchase a place in the nursing home, he
daughter would probably have to rely on public housing. The only solution for this family is for Ed to give her the money. The current rules would mean that Ed's Age Pension would be affected for
the following five years by the $10,000 he has 'given away'. No
regard is given for the amount of public money that is saved by the sole parent
and her daughter not having to rely on public housing in an area some
distance from her mother's nursing home.
can also be of social value even when the public benefit is less
immediate. Pensioners who help younger
relatives with mortgage deposits are assisting them to enjoy a better standard
of living during their working lives, and in retirement. In fact, home
ownership contributes to the self-reliance in retirement which is one of the
stated principles informing this Bill.
Unfortunately there is evidence that first home buyers are finding it
more difficult to purchase a first property.
The Senate Community
Affairs Commitee's inquiry into the GST received detailed evidence about the
likely effects of the GST on first home buyers.
Evidence on this issue was submitted by
housing policy research
organisations such as the Urban Development
Insitute of Australia, and the major industry bodies: the Master Builders' Association, and the Housing Industry Association. The HIA concluded that:
...the GST and other tax changes on the residential construction industry will increase the cost
of new house prices by 5 per cent in the long term and 8 per cent in the short
to medium term...HIA stated
that the FHOS [First Home Owner's Subsidy Scheme] will only be available to
about 15 per cent of new homebuyers.
was particularly concerned that the GST would be levied directly on newly-built
homes in the outer suburbs.
homes tend to be located on the fringe of our major cities. Young families have tended to move new
suburbs because of the lack of affordability in established areas. These new
residential suburbs are often the most affordable in our major cities.
Unfortunately the GST only applies to new homes. As a result new and emerging suburbs
(generally more affordable) will be subject to a tax that established suburbs
concluded on the basis of such evidence
that "...the new tax arrangements will adversely affect housing
clear evidence that young families on low-middle incomes already experience
difficulty in buying a first home, and that this problem is likely to be
intensified by the introduciton of the GST. Given these conditions, the
Opposition is greatly concerned that the Bill would penalise attempts by older
relatives to help first home buyers secure a mortgage deposit.
Labor accepts the evidence
given by senior's groups that the Bill would
discourage retirees from helping other family members, despite the government's
insistence that families should take a greater role in supporting themselves,
and particularly their younger members. The Bill
would be particularly harsh on modest income families who are supporting young
people who are studying or unemployed.
the introduction of Youth Allowance in 1998,
families are now generally required to support unemployed young people
to the age of 21 and students to the age of 25. Youth Allowance has effectively
shifted the burden of youth unemployment onto families. At 22.9%, the youth
unemployment rate is more than three times the national average for all
workers. In such an environment, assistance provided through the generosity of
extended family is one way of relieving the financial impact, the introduction
of Youth Allowance has had.
The Government has reduced public assistance for families, and with this Bill
it is penalising social assistance within families.
Opposition shares the concerns expressed by witnesses about the Bill's inflexibility. It fails to recognize that
pensioners whose family circumstances compel them to make a substantial gift in
a particular year may not necessarily engage in what the Department calls
'serial gifting' over several years.
Other options could have been taken to accommodate legatee gifting while
addressing any problem of 'serial gifting' for pension maximisation. The Strategic Review of the Pension's Income and
Assets Tests (1994) canvassed a number of options for reconciling
flexibility and revenue protection.
Questions of Balance present an option for cumulative
gifting to apply. It was suggested that
pensioners be allowed to build up a credit so that at particular times, eg at
retirement and/or on the sale of the family home, they could give away greater
amounts than is presently allowed.
supported the need for a more flexible approach.
AP&SF does not consider that believe that
older people are acting 'irresonsibly by wishing to help their families facing
difficult circumstances - quite the contrary.
AP&SF notes that the gifting provisions were the subject of some
discussion during the 1994 Strategic Review of the Pension's Income and
Assets Tests. While our own organisation viewed the current rules as
satisfactory, we also called for more greater flexibility in the provisions for
people facing exceptional circumstances.
It is extremely dissapointing to AP&SF that this proposal was not
further investigated. We urge the
Commitee to consider ways of addressing the issue.
Opposition is of the view that the government should give serious consideration
to innovative proposals for making the gifting rules more flexible while
retaing the principles of a needs-based social security system.
Government has not established that the Bill is a reasonable response to 'serial gifting'
Much of the
Government's rhetoric has concerned the practice of financial advisers
encouraging retirees to maximise their pensions by repeatedly gifting assets
with the main purpose of maximising their pension. The AP & SF argued, however, that:
If, as Government claims, the behaviour of the
financial planning industry is causing these problems, the difficulty should be
attacked at its root, rather than by penalising pensioners, and taking away
legitimate flexibility within the current rules to assist needy family members.
Opposition accpets that pension maximisation
through gifting does occur, but in the course of the inquiry the Government has failed to convince us
- the practice is so widespread that the free area should be reduced
to $5,000 in order to make such pension maximisation more difficult to achieve;
- the Bill would in fact prevent the kind of schemes that the
Government has rightly criticised;
- pensioners who legitimately gift between $5,000 and $9,999 should
there is a gap between the government's insistence that the Bill would close down a major area of
unethical pension maximisation, and its admittance that:
- many pensioners gift legitimately;
- the Bill would only affect 0.198% of aged pensioners and 0.034% of
- the Bill would only save the Government about 0.23% of its
pensioner budget for 1999.
impressed by the evidence of seniors' groups that the proposed reduction of the
free area was mean-spirited. We are not satisfied that the government has made
the case for the Bill. If the Goverment objects to the actions of financial planners, it
should address those concerns in the appropriate area, rather than penalising
the legitimate use of gifting by part-pensioners. The Opposition would support
any reasonable measure to address the abuse of gifting, but we are not
convinced that this Bill deals with the problem in an appropriate way. On balance the Opposition was more convinced
by the evidence of community groups that the Bill was unfair and misconceived than by
the Government's contentions that it was equitable.
It is recommended that the Bill should not be passed.
(ALP, Western Australia)
22 November 1999
Appendix 1 - Submissions
received by the committee
Information, dated 21 October 1999
Department of Family and
Information, dated 26 October 1999
Pensioners’ and Superannuants’ Federation (AP&SF)
the Ageing (Australia)
of Independent Retirees, Inc.
Seniors Association Limited
Appendix 2 - Public hearing
A public hearing was held on the
Bill on 21
October 1999 in Senate Committee Room 1S2.
Committee Members in attendance
Senator Sue Knowles
Senator Kay Denman
Senator Chris Evans
Senator Brett Mason
Senator Tsebin Tchen
National Welfare Rights Network
Council on the Ageing
National Executive Director
Australian Pensioners’ and Superannuants’
Federation (via teleconference)
Department of Family
and Community Services
Assistant Secretary, Seniors and Means Testing Branch
Kennedy, Director, Retirement Policy Section
Legal Services Branch
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