Bills Digest 52 1996-97 Social Security Legislation Amendment (Further Budget and Other Measures) Bill 1996

Numerical Index | Alphabetical Index

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.


Passage History

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.



  • 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 Superannuation entitlements may also be withdrawn if the person can convince the Insurance and Superannuation Commissioner that they are suffering severe financial hardship and the rules of the fund provide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.

Main Provisions

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.


  1. 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.
  2. The Age, 20 September 1996.

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Chris Field Ph. 06 277 2439
8 November 1996
Bills Digest Service
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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.

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ISSN 1323-9032
© Commonwealth of Australia 1996

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Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 13 November 1996

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