Beer and Repatriation Commission

[2006] AATA 395

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 395

ADMINISTRATIVE APPEALS TRIBUNAL          № V2004/49

VETERANS'      AFFAIRS        DIVISION

Re:            ERNEST WILLIAM BEER AND

EVELYN ETHEL BEER

Applicants

And:         REPATRIATION COMMISSION

Respondent

DECISION

Tribunal:       Mr Egon Fice, Member

Date:8 May 2006

Place:Melbourne

Decision:The Tribunal sets aside the reviewable decision dated 26 September 2004 and remits the matter to the respondent for reconsideration in accordance with the direction that the respondent reassess the rate at which service pension has been paid to the applicants from 1991 to the present date.

(sgd) Egon Fice

Member

VETERANS' AFFAIRS – service pension – assets/income tests – Rate Calculator – surrender of life insurance policy – exempt lump sum – income amount

Veterans' Entitlements Act 1986

Social Security Act 1991

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

REASONS FOR DECISION

8 May 2006  Mr Egon Fice, Member

1. Mr and Mrs Beer, who are aged 87 years and 86 years respectively, moved into a nursing home in Moama, New South Wales in about mid‑2003 because they had reached a stage where they could no longer live in their own home without considerable help. To live in the nursing home, they were both required to pay $100,000 by way of an accommodation bond to the owner of the nursing home. In order to do that, Mrs Beer surrendered an AMP life insurance policy she had taken out in 1955. Mr and Mrs Beer notified the Repatriation Commission (Commission) of the redemption of the policy on 27 March 2003. On 17 July 2003 a delegate of the Commission determined that the rate of service pension, which they had been receiving since early 1980, would be reduced. Mr and Mrs Beer sought a review of that decision pursuant to s 57 of the Veterans' Entitlements Act 1986 (the VE Act). The decision of 17 July 2003 was affirmed on 26 September 2003 and the delegate also determined that the reduction should have been effective from 20 May 2003 rather than 8 July 2003. Mr and Mrs Beer seek review of the decision made on 26 September 2003.

CONSIDERATIONS

2. Section 36N of the VE Act provides that a veteran’s age service pension rate is worked out in accordance with the Rate Calculator in Schedule 6. Module A of the Rate Calculator provides that the service pension for a person who is not permanently blind and is not a war widow/war widower is worked in accordance with Method Statement 1.

3.      If two people are a couple, as are Mr and Mrs Beer, they must be treated as pooling their resources (income and assets) and sharing those resources on a 50/50 basis (SCH6‑A2).  Method Statement 1 of Module A requires a number of steps to be taken when calculating the rate of service pension.  After working out a person's maximum basic rate using Module B, a number of adjustments are made to that maximum basic rate in the subsequent steps.  Included in those steps are adjustments for income and assets.  Step 5 of Method Statement 1 requires the application of the ordinary/adjusted income test, using Module E, to work out the reduction for ordinary/adjusted income.  Step 6 requires the reduction for ordinary/adjusted income to be subtracted from the maximum payment rate resulting in what is called the income reduced rate.  Step 7 of Method Statement 1 requires that the assets test be applied, using Module F, to work out the reduction for assets.  The reduction for assets is subtracted from the maximum payment rate resulting in a figure described as the assets reduced rate. 

4.      When Mr and Mrs Beer initially applied for the service pension on 12 November 1980 the pension was assessed by reference to income only, as the assets test had not yet been introduced.  When the assets test was introduced in 1985, the Commission began to include the value of Mr and Mrs Beer’s life insurance policies when calculating their entitlement to the pension.  Mr and Mrs Beer's service pension was cancelled on 25 January 1990 after Mrs Beer inherited some property.  However, on 19 May 1992 the service pension was granted again with effect from 8 August 1991.  Mr and Mrs Beer held a number of life insurance policies and their value was assessed at various times between 1985 and 1991.  When valuing those policies, the Commission claimed that the valuation did not include any earnings on the premium paid under each policy. 

5.      Module E defines ordinary/adjusted income for the purposes of calculations of the rate of service pension as ordinary income.  Ordinary income is defined under s 5H(1) of the VE Act as income that is not maintenance income or an exempt lump sum. An exempt lump sum is defined in s 5H(12) in the following way:

(12)        An amount received by a person is an exempt lump sum if:

(a)it is not a periodic amount (within the meaning of subsection 5K(1A)); and

(b)it is not income from remunerative work undertaken by the person; and

(c)it is an amount, or one of a class of amounts, that the Commission determines to be an exempt lump sum.

6.      According to the Commission, it has not made a determination that the proceeds of whole of life insurance policies are to be treated as an exempt lump sum.  It is clear that the receipt of moneys resulting from the redemption of a life insurance policy is not a periodic amount; nor is it income from remunerative work undertaken by the person.  The issue as to whether the Tribunal, because it stands in the shoes of the original decision‑maker, has power to regard such a payment as an exempt lump sum was fully explored by the President of the Tribunal, Downes J, in Re Strauss and Secretary, Family and Community Services [2005] AATA 608. Although that case dealt with the Social Security Act 1991 (Cth), that Act contains parallel provisions dealing with assets and income to be applied in the case of a person seeking a social security benefit. Section 8(11) of the Social Security Act defines the term exempt lump sum and it includes an amount or class of amount determined by the Secretary to be an exempt lump sum. It is, in effect, the same as the provisions set out in VE Act. There had been no express determination made by the Secretary or any delegate of the Secretary that the amount in question was an exempt lump sum. The question then addressed by the President was whether the Tribunal could make such a determination. He concluded it could not. This was despite the fact that s 43 of the Social Security Act authorised the Tribunal to exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision.  The President said (at para 27 ):

…However, it is fundamental that the Tribunal, and any review body, cannot have power to make a decision which the original decision-maker did not have. 

7. The powers of review granted to the Tribunal under VE Act appear to be even more limited than those granted under the Social Security Act. Section 175 of the VE Act, in so far as it is relevant to this matter, provides:

175(1)     …

(1A)        …

(2)          Where the Commission, under section 57B, affirms a decision of the Commission referred to in section 57 or sets it aside and substitutes another decision for it, a person may apply to the Administrative Appeals Tribunal for a review of the decision so affirmed or substituted.

In this case, the decision of a delegate of the Commission made on 17 July 2003 was reviewed under s 57 of the VE Act by another delegate of the Commission on 26 September 2003. It is clear from the reasons of the decision of the delegate made on 26 September 2003 that he did not deal with or determine that the money received by Mrs Beer on redemption of her life insurance policy was an exempt lump sum. It is therefore clear that the Tribunal does not have the power in this case to make such a determination.

8.      The other question which arises is whether the proceeds of Mrs Beer's life insurance policy fall within the definition of income amount. Section 5H(1) of the VE Act defines income amount as:

income amount means:

(a)valuable consideration; or

(b)personal earnings; or

(c)moneys; or

(d)profits;

(whether of a capital nature or not).

It seems to me that the profit or bonus component of the proceeds of Mrs Beer's life insurance policy are in fact moneys or profits within the meaning of s 5H(1). I therefore agree with the submission made by the Commission that those proceeds need to be included in the income test assessment.

9.      However, that does not resolve the matter.  After the conclusion of the hearing, I requested that the Commission provide me with documents disclosing the manner in which the life insurance policies held by Mrs Beer were treated at the time Mr and Mrs Beer applied for a service pension on 12 November 1980.  The information that the Commission has provided indicates that at that stage, their service pension was assessed by reference to income only because the assets test had not been introduced into the Repatriation Act at that time.  In fact, Mr and Mrs Beer’s service pension was cancelled on 25 January 1990 after Mrs Beer had inherited some property.  On 19 May 1992, the service pension was again granted with effect from 8 August 1991.  Among the documents produced to the Tribunal by the Commission is a document entitled Payment Authority Supporting Data which appears to have been made on 20 November 1991.  Included in that document are income/asset details which list both the income and assets declared by Mr Beer, no doubt upon re‑application for the service pension.  Amongst the asset details is an AMP policy number V0158151 which was valued on 2 August 1991 at $23,182.10.  However, in a questionnaire completed by the fund manager upon the redemption of Mrs Beer's AMP life insurance policy number V015815, the fund manager has noted that the total of all premium payments made by Mrs Beer up to the redemption date total $11,812.75.  The fund manager has also noted that the amount received upon redemption was $52,553.90. 

10.     It seems reasonably clear that in 1991, the value attributed to this particular insurance policy, when assessing it as an asset of Mr and Mrs Beer, must have included a profit component in reaching the figure of $23,182.10.  After all, the total premiums paid by Mrs Beer upon that policy were less than the stated value of that asset.  If that is correct, then it seems to me that the Commission has considered a substantial component of Mrs Beer's life insurance policy as an asset at the time the pension was re‑instated in 1991, and also as income upon its surrender.  This is despite the fact that the Commission submitted that no income had been attributed to the policies for the purposes of the assets test assessment.  On the material before me, I cannot come to any other conclusion.  It is also reasonably clear that if a component of profit was included when the policy was valued for the purposes of the assets test, that same component cannot be also included as income received upon the surrender of the policy.  To do so would be to treat a component of the value of the policy both as an asset and as income.  That cannot be correct.

CONCLUSIONS

11.     In my opinion, there is a real possibility that the Commission has taken into account earnings or profit on premiums paid by Mrs Beer in respect of life insurance policy number V0158151 when calculating the value of Mr and Mrs Beer assets in order to determine the rate of service pension which should be paid. Upon redemption of that life insurance policy, the Commission has determined that the entire profit component, that is the sum of $40,741.15 should be included in Mr and Mrs Beer’s income over the subsequent 12 months divided into 52 weekly amounts in accordance with s 46A of the VE Act. Given that the total premiums paid by Mrs Beer on this particular policy up to the time of redemption on 5 May 2003 amounted to $11,812.75, it does appear that a profit component has been included in the valuation of Mr and Mrs Beer's assets upon re-application for the service pension. Although I cannot be certain on the evidence before me, that may also have occurred when valuing Mr and Mrs Beer’s other life policies as well.

12.     Accordingly, the reviewable decision made on 26 September 2003 should be set aside and the matter remitted to the Commission for the purpose of re-assessing the rate of service pension which has been paid to Mr and Mrs Beer between 1991 and the present date, in light of the reasons I have set out above.

I certify that the twelve [12] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr Egon Fice, Member

(sgd)       Catherine Thomas

Clerk

Date of Hearing:  23 March 2006

Date of Decision:  8 May 2006
Advocate for the applicant:        Mr Wilson Beer
Advocate for the respondent:     Mr Robert Douglass

Solicitor for respondent:            Advocacy Section, Department of Veterans’ Affairs