Baker and Secretary, Department of Families, Community Services and Indigenous Affairs

[2006] AATA 515

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 515

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No S2005/169

GENERAL ADMINISTRATIVE DIVISION		)
Re		MARGARET BAKER

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr J G Short (Member)

Date14 June 2006

PlaceAdelaide

Decision The decision under review is affirmed.

..............................................

J G SHORT
  (Member)

CATCHWORDS

SOCIAL SECURITY – pensions, benefits and allowances – Age Pension – power of the Tribunal to exempt lump sum payments from treatment as income – delegation of Secretary’s power – no delegation at time of original decision – life insurance – payment on death treated as income received within a 12 month period – decision affirmed

Social Security Act 1991 ss 8(11)(d), 1073

Re Strauss and Secretary, Department of Family and Community Services [2005] AATA 608

Re Varcoe and Secretary, Department of Family and Community Services [2000] AATA 1002

REASONS FOR DECISION

14 June 2006   Mr J G Short (Member)    

introduction

1.      Margaret Baker is seeking review of a decision made by the respondent (the Department) on 26 October 2004 to treat the proceeds of a life insurance policy (in the sum of $51,357.97 less deductions reflective of the purchase price and premiums paid, thus presenting a total of $44,994.00), as income for Centrelink purposes for 12 months from the date of receipt, thus precluding Mrs Baker from receiving, initially Widows Pension and later, Age Pension.  The decision in respect of Widows Pension was made on 22 December 2004 and the decision regarding Age Pension was made on 28 January 2005.

2. Mrs Baker suggested that in reviewing these decisions, the Tribunal should exercise a power under s 8(11)(d) of the Social Security Act 1991 (the Act) to exempt the proceeds of the policy of insurance from treatment as income.  The net proceeds of the insurance policy (which named Mrs Baker as the beneficiary), were paid to her benefit in October 2004.

3. The Department said that the Secretary had not delegated his power (to exempt from treatment as income) to the original decision-maker at the time the original decision was made and consequently neither the original decision-maker nor the Social Security Appeals Tribunal (the SSAT) nor indeed this Tribunal has power to now exercise the Secretary’s power to treat the payment as an exempt lump sum. In the alternative, the Department submitted that, even if the Tribunal did have power to make a determination under s 8(11)(d) of the Act to exempt the payment, the Tribunal should not do so having regard to the policy of the Act. After considering the evidence and authority I agree both of these two last mentioned submissions.

4.      Mrs Baker agreed the accuracy of the findings of fact recorded at paragraph 9 of the Reasons for Decision drawn by the SSAT following a hearing conducted 8 May 2005 as follows:

“On the basis of the evidence before it and the documents on the Centrelink file, the Tribunal made the following findings:

(i)Mrs Baker and her late husband took out an AMP life insurance policy in about 1973

(ii)The policy was taken out in Mrs Baker’s own name

(iii)      Premiums were paid in respect of the policy over a number of years

(iv)On 3 September 2004 Mrs Baker’s husband died after a battle with Motor Neurone Disease

(v)On 26 October 2004 the proceeds of the AMP life insurance policy in the sum of $51,357.97 were paid into Mrs Baker’s uniting church investment fund.

(vi)The allowable income limit under the widow allowance income test at the relevant time was $16,862.82

(vii)Mrs Baker turned 62.5 years of age on 7 January 2005 and before met the age qualification for age pension

(viii)In the relevant period the allowable income limit for a single person under the age pension income test was $34,144.50.”

I adopt those findings of fact as my own.

5.      Mrs Baker, with some minor exceptions which do not impact on the determination of the issues in this case, also agreed the accuracy of the evidence the SSAT had recorded in paragraph 5 of its Reasons for Decision.   In summary, Mrs Baker’s evidence was to the effect that she and her husband, Lawrence, took out 2 life insurance policies with AMP in June 1973.  In 2003 Mr and Mrs Baker cashed in one of these policies and received an amount of $14,000.00.  Mr Baker was eventually diagnosed with motor neurone disease and Mrs Baker dutifully cared for him during the course of that disease which finally claimed his life in September 2004.  In October 2004 the proceeds of the remaining life insurance policy, after deduction of the purchase price and premiums paid (that is the sum of $44,994.00), was paid to Mrs Baker’s benefit.  It was asserted by the Department and not disputed by Mrs Baker that this last mentioned sum exceeded the allowable limits for payment of Widows Pension ($16,862.82) and Age Pension ($34,144.50) in effect at the time each of the decisions was made.  Mrs Baker said that as a result of Centrelink’s decisions she had to live off her assets for 12 months.  She confirmed that she has been in receipt of the Age Pension since October 2005.

application of the law

6.      The issue of the treatment of lump sum payments made pursuant to life insurance policies was considered by Justice Downes, President of the Administrative Appeals Tribunal, in ReStrauss and Secretary, Department of Family and Community Services [2005] AATA 608. Justice Downes discussed the relevant legislation in this decision. He concluded that in order for this Tribunal to have the power to exempt a lump sum from treatment as income, under s 8(11)(d) of the Act, the Secretary must have delegated that power to the original decision-maker. Section 8(11) of the Act reads as follows:

“8(11)  An amount received by a person is an exempt lump sum if:

(a)the amount is not a periodic amount (within the meaning of subsection 10 (1A)); and

(b)the amount is not a leave payment within the meaning of points 1067G-H20, 1067L-D16 and 1068-G7AR; and

(c)the amount is not income from remunerative work undertaken by the person; and

(d)the amount is an amount, or class of amounts, determined by the Secretary to be an exempt lump sum.

Note:  Some examples of the kinds of lump sums that the Secretary may determine to be exempt lump sums include a lottery win or other windfall, a legacy or bequest, or a gift – if it is a one-off gift.”

In this case the Department said that no such delegation had been made at the time of the original decision, although I note that the letter from Mr Nick Hartland, Branch Manager of the Seniors and Means Test Branch to Welfare Rights in Adelaide dated 28 September 2005 does indicate that, at least by that time, Mr Hartland had been delegated the authority to make a determination exempting a lump sum payment from treatment as income.  I note that the letter goes on to indicate a view that Parliament did not intend to exempt the proceeds of life insurance policies.

7.      I am of the view however that I can only exercise the Secretary’s power under s 8(11)of the Act if the original decision-maker had been delegated this power.  In this case I am satisfied that, at least at the time the decisions were made, neither the original decision-maker nor the Authorised Review Officer had been delegated this power.  It follows therefore that I do not have power to now effectively make a determination, purporting to exercise the Secretary’s power under s 8(11) of the Act.  This view is determinative of the application before me and follows the decision of Justice Downes in Re Strauss. 

8.      In Re Strauss, Justice Downes, after determining that (absent the delegation of the Secretary’s power under s 8(11) of the Act, to the original decision-maker), he did not have power to exercise the Secretary’s discretion, went on to say at paragraph 43:

“Had I the jurisdiction to deal with the question whether the amount paid to Mr Strauss as bonuses should be determined to be an “exempt lump sum” under para 8(11)(d) of the Act I consider that the preferable decision would be to decline to make the determination .  That is consistent with the policy of the Act.  It is consistent with the policy of the Secretary and the Department.  There are no countervailing considerations which mean that the preferable decision in the present case is otherwise.”

9.      Justice Downes reviewed a line of cases dealing with this issue commencing with Re Varcoe and Secretary, Department of Family and Community Services [2000] AATA 1002. Justice Downes noted that the decision in Re Varcoe was favourable to the applicant in that case.  He went on to conclude that the decision had been wrong.  He noted that the Guidelines under the Act supported a view that lump sum insurance payments were not intended to be exempt from treatment as income.  He said in Re Strauss at paragraph 41:

“I have referred to the policy contained in the Act and the Guidelines.  Although the Tribunal can depart from policy it should be restrained in doing so (see Drake (No 2) at 645).  The policy of the Act, as appears from subs 8(11) and its note, does indicate that the circumstances in which an amount will be determined to be an exempt lump sum will be limited.  The words of the note give some guidance as to where the exceptions may lie.  They would not seem to encompass the proceeds of insurance policies.  However, that does not preclude the exercise of a discretion to include such a payment.  Nevertheless, the policy of the Guidelines appears also not to favour the inclusion of such amounts.  That must be the basis upon which the Act relevantly has been administered although the decision in at least one matter in the Tribunal would seem to be at odds with this.”

10.     Guideline 4.3.2.31 “Other Income Exempt from Assessment – Specifically Approved” lists a number of payments which had been specifically exempted from treatment as income.  These payments include such things as “approved” scholarships awarded outside Australia; personal care support scheme payments; credit from approved exchange trading systems and lump sums exempted under s 8(11) of the Act.  It is common ground and I find that the Secretary has not made any determination exempting insurance payments made on death from treatment as income.  Specifically Guideline headed 4.3.9.20  “Income from Life Insurance Products” refers to conventional life insurance policies – bonuses as follows:

“Bonuses on conventional life insurance policies are NOT assessed as ongoing income during the term of the policy.  On maturity, the difference between the maturity payment and the sum of the purchase price and the premiums paid by the investor IS assessed as income for 12 months.  This applies for both pension and benefit purposes”.

The Guide therefore expressly indicates an intention that conventional life insurance policies not be exempted from treatment as income.

11.     Mrs Baker suggested that Re Strauss and indeed other cases in that line could be distinguished on the basis that the products in those cases did not mature on death, but rather with the effluxion of time.  Again, the Secretary could have, but has apparently chosen not to, draw such a distinction.  I can see no reason for such a distinction.  Mrs Baker also suggested that the decisions, the subject of this appeal, are unfair because they follow changes to the legislation which occurred after the policies were taken out.  I cannot see that this either provides me with power to make a determination under s 8(11) of the Act or provide a reason to exempt the payment, if I had power to do so.

12.     I have decided not to cite all the legislation relevant to this case.  It appears that over the time leading up to hearing Mrs Baker has familiarised herself with that legislation.  I follow Justice Downes’ determination in Re Strauss and find first that I do not have power to make the suggested determination under s 8(11)(d) of the Act to exempt from treatment as income, a lump sum payment received in the circumstances of this case. If I am wrong in this view, perhaps because after the decisions had been made, it appears that Mr Nick Hartland purported to exercise delegated powers, then I point out that I would have declined to do so in any event noting the policy embodied in the legislation and Guidelines.

13.     I affirm the decision under review.

I certify that the 13 preceding paragraphs are a true copy of the reasons for the decision herein of Member J Short

Signed:         .....................................................................................
  Associate

Date of Hearing  19 May 2006
Date of Decision  14 June 2006
Counsel for the Applicant         In person
Solicitor for the Applicant          -
Counsel for the Respondent     Mr C Goldsworthy
Solicitor for the Respondent     Centrelink Legal Services Branch