Beard and Secretary, Department of Social Services (Social services second review)
[2016] AATA 859
•31 October 2016
Beard and Secretary, Department of Social Services (Social services second review) [2016] AATA 859 (31 October 2016)
Division
GENERAL DIVISION
File Numbers
2016/2185 and 2016/2194
Re
Colin Beard and
Judith Beard
APPLICANTS
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Senior Member A C Cotter
Date 31 October 2016 Place Brisbane The Tribunal affirms the decisions under review.
..................................[sgd]......................................
Senior Member A C Cotter
CATCHWORDS
SOCIAL SECURITY – pensions, benefits and allowances – age pension – extension of deeming rules – asset-tested income stream – amending Act - “grandfathering” provisions - superannuation account-based income stream – adding a new beneficiary - continuously receiving income support payment – statutory interpretation – decisions under review affirmed.
LEGISLATION
Social Security Act 1991 (Cth) ss 8, 9, 23, 38B, 44, 55, 1064, 1072, 1077, 1097A and 1099DA
Social Services and Other Legislation Amendment Act 2014 (Cth) clause 48(2) of Part 2 of Schedule 11
CASES
Naylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 844
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and de Waal [2009] AATA 635
Secretary, Department of Social Services and Graham Catterall and Vanessa Catterall [2016] AATA 691
SECONDARY MATERIALS
Social Services and Other Legislation Amendment Bill 2013 (Cth) Explanatory Memorandum
Department of Social Services, Guide to Social Security Law (Department of Social Services, version 4.226, 2016) para 4.9.3.30
REASONS FOR DECISION
Senior Member A C Cotter
31 October 2016
BACKGROUND
Mr Colin Beard is a member of a couple with Mrs Judith Beard.
Mr Beard commenced receiving age pension in December 2008.[1] In April 2012, Mrs Beard also commenced receiving age pension.[2]
[1] Exhibit 3, Colin Beard T Documents, T 8, page 53.
[2] Exhibit 1, Judith Beard T Documents, T 10, page 57.
On 17 September 2014, the Department of Human Services (“Department”) wrote to Mr Beard about changes to how it would assess superannuation account-based income stream products (also known as allocated income streams and account-based pensions). The letter said that from 1 January 2015, the deeming rules that applied to financial investments would be extended to account-based income stream products, such that all financial assets would be assessed under the same rules. Under the heading, “What this means for you”, the letter relevantly noted the following “savings” or “grandfathering” arrangements:
·If you receive an income support payment, the superannuation account-based income stream products you hold before 1 January 2015 will continue to be assessed under the existing rules.
·If you stop receiving income support payments, your superannuation account-based income stream product may be reassessed using the deeming rules if you receive these payments again in the future.[3]
[3] Exhibit 3, Colin Beard T Documents, T 5, pages 39-40.
In October 2014, Mr and Mrs Beard received advice from their financial adviser, Mr Alex Chote of Commonwealth Financial Planning Limited.[4] There appears to be some confusion as to exactly what steps were taken by the Beards following receipt of that advice. Mr Chote’s advice recommended that Mr Beard commence a new allocated pension and that he nominate Mrs Beard as a reversionary beneficiary “to take advantage of the grandfathering provisions”.[5] Consistent with that advice, it seems that Mr Beard established a superannuation account-based income stream with Colonial First State Investments (“Colonial First State”) on 14 November 2014.[6] However, Mr Beard told me at the hearing that he did not establish a new account and that the Colonial First State account was an existing account; he simply nominated Mrs Beard as the reversionary beneficiary.
[4] Exhibit 5(f), extract of Statement of Advice by Mr Alex Chote dated 16 October 2014.
[5] Ibid, page 3 of 25.
[6] Exhibit 3, Colin Beard T Documents, T 6, page 41, Colonial First State account details.
Before she retired, Mrs Beard had worked for over 16 years as a full-time Administration and Finance Manager at the Henbury and Nemarluk Schools in the Northern Territory. Following her retirement, she relieved in that role at the latter school when the full-time manager was on leave. In late August 2015, the full-time manager’s mother (who lived in Perth) became ill. Mrs Beard agreed at short notice to fill the role for four weeks, to enable the manager to travel to Perth and care for her mother. Near the end of that four week period, the mother’s condition deteriorated, and Mrs Beard reluctantly agreed to stay on for another couple of weeks, working only the absolute minimum hours. Mrs Beard thought that her pension payment would probably cease for a short period because of her working over the limits of her Work Bonus, but she continued to work anyway, out of her commitment and loyalty to the school community.[7]
[7] Exhibit 1, Judith Beard T Documents, T 9, pages 55-56, letter from Principal, Nemarluk School dated 19 February 2016; and Exhibit 5(a), Summary and opening at the Tribunal, pages 1-2.
On 12 October 2015, Mrs Beard declared that she earned an amount of $1,935.30 during the period 29 September 2015 to 12 October 2015.[8] On or about the same date, the Department determined that her rate of age pension for that period was nil.[9]
[8] Exhibit 1, Judith Beard T Documents, T 10, page 61.
[9] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions (Judith Beard application) dated 1 September 2016, [3.6].
Also on 12 October 2015, the Department determined that Mr and Mrs Beard ceased to have the benefit of the “savings” or “grandfathering” provisions associated with the superannuation account-based income stream. The consequence for each of them was that their rates of pension were to be calculated taking into account the deemed income attributable to the Colonial First State account. That resulted in a decrease in their respective pensions of approximately $100.00 per fortnight each, or about $5,000.00 per year.[10]
[10] Exhibit, 5(a), Summary and Opening at the Tribunal, pages 2-3.
Reviews of the Department’s decisions, first by an Authorised Review Officer,[11] and later by the Social Services & Child Support Division (“SSCSD”) of this Tribunal, were unsuccessful.[12]
[11] Exhibit 3, Colin Beard T Documents, T 7, pages 42-52; and Exhibit 1, Judith Beard T Documents, T 7, pages 42-52, decisions of Authorised Review Officer dated 14 January 2016.
[12] Exhibit 3, Colin Beard T Documents, T 2, pages 4-8; and Exhibit 1, Judith Beard T Documents, T 2, pages 4-8, Social Services & Child Support Division decisions and reasons for decisions dated 16 March 2016.
Dissatisfied with the SSCSD’s decisions, Mr and Mrs Beard have each applied for reviews of them by the General Division of the Tribunal. At the commencement of the hearing, I directed that the applications be heard together and that evidence in one application be evidence in both.
THE LEGISLATIVE FRAMEWORK
The relevant provisions are to be found in the Social Security Act 1991 (Cth) (“Act”) and the Social Services and Other Legislation Amendment Act 2014 (Cth) (“Amending Act”). I discuss the relevant provisions below.
The Act
The starting point for a consideration of the relevant legislative provisions is s 55 of the Act, which states that the rate of age pension is worked out using the Pension Rate Calculator A at the end of s 1064 of the Act.
Module A of s 1064 provides a Method statement for calculating the rate of age pension. A person is paid the lower of the “income reduced rate” and the “asset reduced rate”.[13] Where two people are a member of a couple, they are treated as pooling their resources (income and assets) and sharing them on a 50/50 basis.[14]
[13] Social Security Act 1991 (Cth) (“Act”), s 1064-A1, step 11.
[14] Ibid, s1064-A2.
Module E of s 1064 contains a Method statement for working out the effect of a person’s “ordinary income” on their maximum payment rate.[15] “Ordinary income” is defined as income that is not maintenance income or an exempt lump sum.[16] “Income” is in turn relevantly defined as “an income amount earned, derived or received by the person for the person’s own use or benefit”.[17] Later, s 1072 provides that a reference in the Act to a person’s ordinary income for a period is “a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction”, other than a reduction under Division 1A (which relates to business income and is not presently relevant).
[15] Ibid, s 1064-E1.
[16] Ibid, s 8(1).
[17] Ibid.
Section 1077 of the Act applies to members of a pensioner couple. It provides that if one or both of them have financial assets (which term includes financial investments),[18] they are taken, for the purpose of the Act, to receive together ordinary income on those assets in accordance with the section. Effectively, the section operates by assuming that the couple’s financial assets are earning a certain rate of income. That deemed income is added to any other assessable income to work out the total income which is used to calculate the rate of pension.[19]
[18] Ibid, s 9(1).
[19] See Exhibit 5(g),Your guide to Deeming information and changes, page 4.
Section 44(1) of the Act states that, subject to subs (2) (which is not presently relevant), an age pension is not payable to a person if the person’s age pension rate would be nil.
The Amending Act
The Amending Act amended the Act by extending the deeming provisions contained in s 1077 of the Act to superannuation account-based income streams.[20]
[20] Social Services and Other Legislation Amending Act 2014 (Cth), Part 1, Schedule 11.
Relevantly, the Amending Act contained a “savings” provision in Part 2 of Schedule 11. The provision, in cl 48 of that Part (“cl 48 of the Amending Act”), provides:
48 Application provisions
1The amendments made by Part 1 apply in relation to working out the ordinary income of a person in relation to days occurring on or after 1 January 2015.
2However, if:
(a)a person was receiving an income support payment immediately before 1 January 2015; and
(b)either:
(i) an asset-tested income stream (long term), that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994, was being provided to the person immediately before 1 January 2015; or
(ii) an asset-tested income stream (long term), that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the standards determined in an instrument under subparagraph 1099DAA(1)(b)(ii) of the Social Security Act 1991, was being provided to the person immediately before 1 January 2015; and
(c)since the start of that day:
(i) the person has been continuously receiving an income support payment; and
(ii) that asset-tested income stream (long term) has been provided to the person;
then the amendments made by Part 1 do not apply in relation to the person (the primary beneficiary) and that asset-tested income stream (long term).
…
4In this item:
income support payment has the meaning given by subsection 23(1) of the Social Security Act 1991.
The term “income support payment” includes a “social security pension”, which in turn includes an age pension.[21]
[21] Social Security Act 1991 (Cth), s 23(1).
Further guidance is gained from the Guide to Social Security Law (“Guide”), paragraph 4.9.3.30, which relevantly reads:
4.9.3.30 Income Test Assessment of Asset-Tested Income Streams
…
Income test assessment of asset-tested income streams (long term)
From 1 January 2015, asset-tested income streams (long term) that are account-based are assessed under the deeming income test…This includes account-based pensions and account-based annuities.
Annuities which are not account-based are not included in the deeming provisions and will continue to be assessed under the return of capital rules (i.e. gross annual income less deduction amount).
Existing account-based income streams held by income support recipients as at 31 December 2014 have been ‘grandfathered’ and will continue to be assessed under the existing rules unless the account holder changes products (i.e. commuting and restarting a grandfathered account-based income stream, or commuting a grandfathering account-based income stream and purchasing a new product with a different income stream provider), or ceases to receive [sic] be in continuous receipt of an income support payment.
A person is considered to be in continuous receipt of an income support payment where they receive at least $0.01 of income support in each consecutive fortnight from 1 January 2015.
ISSUE FOR THE TRIBUNAL
The central issue which falls to be determined in these applications is whether, from 29 September 2015, Mr and Mrs Beard’s rates of age pension remained subject to the savings provisions contained in cl 48(2) of the Amending Act.
CONSIDERATION
Before I address that central issue, there are several uncontroversial matters that I should mention.
First, there is no doubt that Mr and Mrs Beard were both age pensioners and were each receiving an income support payment (being age pension) immediately before 1 January 2015.
Second, it is common ground that Mrs Beard earned the amount of $1,935.30 from Nemarluk School Council between 29 September and 12 October 2015. That was ordinary income that she derived within the meaning of the Act.
Third, it is accepted that when that amount was subjected to the income test contained in Module E of s 1064 of the Act, it resulted in a nil rate of age pension being payable in respect of each of them.
Fourth, it is undisputed that the Colonial First State account was an asset-tested income stream (long term) for the purpose of s 9(1) of the Act and that it constituted an account-based income stream (allocated pension).
Finally, it is accepted that the income stream was being provided to Mr Beard immediately before 1 January 2015.
Given those uncontroversial matters, it is clear that up until 29 September 2015, the account-based income stream held by Mr Beard was “grandfathered”. However, following receipt of the payment from Nemarluk School Council, the Beards’ rates of pension for the instalment period 29 September to 12 October were nil. As such, the age pension was not payable to them, by reason of s 44(1) of the Act.
Because the age pension was not payable to him and his wife, Mr Beard could no longer meet the condition of “grandfathering” set out in cl 48(2)(c)(i) of the Amending Act, namely that he had been “continuously receiving” an income support payment since 1 January 2015. As a consequence, the account-based income stream was assessed under the “deemed income” rules.
The Secretary’s representative, Mr Bishop, quite properly referred me to other sections of the Act which might operate to ameliorate this result.
The first of those provisions is s 23(4A) of the Act. Generally speaking, a person is regarded as receiving an income support payment on any day on which the payment is payable to them, even if the payment is not received until a later date.[22] Section 23(4A) provides an exception to that general rule where a member of a couple loses payability because of their partner’s income, part of which is employment income. In such cases, the recipient may qualify for an “employment income nil rate period”, provided the qualification rules are met.[23] However, one of those requirements is that the person has not reached pension age.[24] As both Mr and Mrs Beard were of pension age at the relevant time, subs (4A) does not provide assistance in this instance.
[22] See Social Security Act 1991 (Cth), ss 23(2) and 23(4).
[23] See Guide to Social Security Law, paragraph 3.1.12.
[24] Social Security Act 1991 (Cth), s 23(4A)(c).
The other provision to which Mr Bishop referred me was s 38B of the Act, which relevantly provides:
38B Notional continuous period of receipt of income support payments
1The object of this section is to treat a person in certain circumstances as having received an income support payment in respect of a continuous period even though the person did not actually receive such a payment during a part or parts of the period.
2A continuous period in respect of which a person has received income support payments can only start on a day on which the person is receiving such a payment and can only end on a day when the person is receiving such a payment, and the following provisions of this section have effect subject to this section.
3Subject to subsection (4), in determining the continuous period in respect of which a person has received income support payments, any period of not longer than 6 weeks in respect of which the person did not receive an income support payment is taken to have been a period in respect of which the person received such a payment.
It was contended on behalf of the Secretary that s 38B has no application to this matter. Three reasons were advanced for that position.
First, it was said that s 38B deals with the assessment of a “continuous period”, not whether someone was “continuously receiving” a payment at a particular time. The former expression is used in several provisions in the Act, whereas the term “continuously receiving” only appears in notes to ss 1097A and 1099DA, which make reference to the transitional provisions of the Amending Act.[25]
[25] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions (Judith Beard application) dated 1 September 2016, [4.23]; and Exhibit 4, Secretary’s Statement of Issues, Facts and Contentions (Colin Beard application) dated 1 September 2016, [4.24].
Second, it was submitted that the provision cannot be extended to the operation of a transitional provision of amending legislation unless there is a clear direction that it should be applied. While cl 48 of the Amending Act specifically referred to importing the definition of “income support payment” from s 23(1) of the Act into the transitional provision, no such importing reference was made in relation to s 38B.[26]
[26] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions (Judith Beard application) dated 1 September 2016, [4.24]; and Exhibit 4, Secretary’s Statement of Issues, Facts and Contentions (Colin Beard application) dated 1 September 2016, [4.25].
Finally, it was noted that the Tribunal had previously accepted that the section had a limited effect:[27]
In my opinion s 38B should be interpreted as a provision in aid of interpretation of other provisions in the [Act] that refer to benefits having been received in respect of a continuous period. I think that this conclusion is reinforced by the context in which s 38B appears in the Act, namely as part of a group of sections in Part 1.3 that are aids to interpretation. I do not consider that s 38B has the general effect contended for by counsel…[28]
[27] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions (Judith Beard application) dated 1 September 2016, [4.25]; and Exhibit 4, Secretary’s Statement of Issues, Facts and Contentions (Colin Beard application) dated 1 September 2016,[4.26].
[28] Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and de Waal [2009] AATA 635, [54] (Deputy President Jarvis). See also, Naylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 844, [19] (Senior Member McDermott); and Secretary, Department of Social Services and Graham Catterall and Vanessa Catterall [2016] AATA 691, [34] (Senior Member Dunne).
I agree with the reasons outlined on behalf of the Secretary, and accept that s 38B has no application in the present case. In reaching that conclusion, I am also persuaded by the reasoning of Senior Member Dunne in the recent matter of Secretary, Department of Social Services and Graham Catterall and Vanessa Catterall.[29]
[29] Op cit., [29]-[34].
Mr Beard attended the hearing by telephone, on behalf of himself and his wife. He submitted that the central issue was whether the inclusion of Mrs Beard as a beneficiary constituted a change in the relevant product. He argued that it did not, and that therefore, the “grandfathering” remained unaffected. While I am inclined to favour Mr Beard’s contention that the change in beneficiary does not represent a change in the product, it is unnecessary for me to decide that question here. Even if it did constitute a change, that occurred before the Amending Act commenced on 1 January 2015; as far as I am aware, there were no changes to the product after that date.
What Mr Beard’s submission failed to address is the requirement, in cl 48(2)(c)(i) of the Amending Act, that he and his wife had been “continuously receiving an income support payment” since 1 January 2015. For the reasons I have outlined above, I consider that they failed to satisfy that requirement from 29 September 2015 and that the “grandfathering” ceased as from that time.
Mr Beard also indicated that he and his wife continued to rely on the submissions they made during the course of the earlier reviews. I deal with those matters below.
At the SSCSD hearing, Mr and Mrs Beard’s submission was twofold. First, it was said that they were not told by either Centrelink or their financial adviser that they would lose their entitlement to “grandfathering” should they not receive age pension payments for a short time. Second, they said that the spirit of social security law is to assist people, and as Mrs Beard had undertaken work for altruistic reasons, they should not be penalised by losing their “grandfathering” entitlements.[30]
[30] Exhibit 1, Judith Beard T Documents, T 2, page 7, Social Services & Child Support Division Decision and Reasons for Decision dated 16 March 2016, [13] and Exhibit 3, Colin Beard T Documents, T 2, page 7, Social Services & Child Support Division Decision and Reasons for Decision dated 16 March 2016, [13].
It was not disputed that Mr Beard received the Department’s letter of 17 September 2014 and that the letter contained the passages I quoted earlier in paragraph 3 above. That letter expressly stated that if Mr Beard stopped receiving income support payments, his superannuation account-based income stream product may be reassessed using the deeming rules if he received those payments again in the future. Notwithstanding that statement, Mr and Mrs Beard contended that the letter was “legally deficient” in a number of respects, such that it failed to correctly advise about the changes.[31] That is a matter beyond the scope of the present applications, which are concerned with the correctness or otherwise of the actual decisions that Mr and Mrs Beards’ age pensions were no longer subject to the savings provision in the Amending Act. If, however, Mr and Mrs Beard maintain that they have suffered loss as a result of the Department’s defective administration in failing to properly or adequately describe the changes and their implications, it is open to them to take that issue further with the Department or request that the matter be dealt with under the auspices of the Compensation for Detriment caused by Defective Administration Scheme (“CDDA Scheme”). The Tribunal has no jurisdiction in respect of the adequacy or otherwise of the advice provided by the Beards’ financial adviser. No doubt, any complaints that Mr and Mrs Beard have in that regard will be raised directly with the adviser and the company he represents.
[31] Exhibit 1, Judith Beard T Documents, T 1, pages 2-3, Application for Second Review of Decision dated 20 April 2016 and Exhibit 3, Colin Beard T Documents, T 1, pages 2-3, Application for Second Review of Decision dated 20 April 2016.
Although the circumstances under which Mr and Mrs Beard lost their “grandfathering” status is unfortunate, and while I sympathise with the situation in which they find themselves, I have no discretion under the Act, or the Amending Act, to effectively override what I consider to be the correct operation of cl 48. As I have mentioned earlier, Mr and Mrs Beard may have recourse to compensation under the CDDA Scheme, but that is a matter beyond the scope of this application.
It was also contended by Mr and Mrs Beard that the intent of the Amending Act was directed at those who changed their account-based income stream or who started a new one; it was not intended to deprive “grandfathering” status to those who “just made an error or mistake in earning over the Work Bonus in a month.”[32] No basis was given in support of that contention. In particular, it was not explained how that legislative intent was determined. I am not persuaded by that contention. It invites the reader to ignore cl 48(2)(c)(i) altogether, without offering any justification for doing so. Further, the submission is at odds with the Explanatory Memorandum to the Social Services and Other Legislation Amendment Bill 2013, which described the intended purpose of cl 48(2) in the following way:
It is intended that, if a person’s income support payment ceased to be payable and, on a later date, the same or another income support payment becomes payable to the person, that person would be subject to the amendments made by Part 1 from the day that the income support payment ceases to be payable to that person.[33]
[32] Exhibit 5(b), Re: Review Outcome letter dated 14 January 2016, page 3.
[33] Explanatory Memorandum to the Social Services and Other Legislation Amendment Bill 2013, page 72, quoted in Secretary, Department of Social Services and Graham Catterall and Vanessa Catterall [2016] AATA 691, [31].
It follows from what I have said that I do not accept the submissions advanced by Mr and Mrs Beard.
CONCLUSION
To summarise, I consider that Mr and Mrs Beard were not continuously receiving an income support payment after 29 September 2015. Consequently, from that date they were no longer entitled to the exemption provided by cl 48(2) of the Amending Act in relation to Mr Beard’s Colonial First State account.
Accordingly, the decisions under review were correct and are therefore affirmed.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for the decision herein of Senior Member A C Cotter ................................[sgd].......................................
Associate
Dated 31 October 2016
Date of hearing 12 October 2016 Applicants Mr Colin Beard (by telephone)
Solicitors for the Respondent Department of Human Services
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