Ernest Wilks and Secretary, Department of Social Services
[2014] AATA 195
[2014] AATA 195
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/5007
Re
Ernest Wilks
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Mr S. Webb, Member Date 4 April 2014 Place Perth The decision under review is affirmed.
..(Sgd) S Webb............
Mr S. Webb, Member
CATCHWORDS
SOCIAL SECURITY – Age Pension – rate calculator – member of a couple - ordinary income – income free area – ordinary income excess amount – ordinary income excess reduction factor – published information ambiguous but not binding – decision affirmed
LEGISLATION
Social Security Act 1991, s 55, 1064, 1064-A1, 1064-B1, 1064-E1, 1064-E2, 1064-E4, 1064-E10, 1064-E11, Schedule 1
SECONDARY MATERIALS
A guide to Australian Government payments 20 March – 30 June 2013
Guide to Social Security Law
REASONS FOR DECISION
Mr S. Webb, Member
4 April 2014
Ernest Wilks receives an Age Pension. He is married and his wife works. He challenged the way in which the rate of his Pension is calculated. A delegate of the Secretary decided that the rate calculation was correct. This decision was affirmed by a Centrelink Authorised Review Officer (ARO) and by the Social Security Appeals Tribunal. Unhappy with this result, Mr Wilks applied for review.
The issue to be determined is the correct rate of Mr Wilks’ Age Pension.
The facts are not in dispute. Mr Wilks was first granted Age Pension in 2006. He is covered by the transitional provisions that came into effect on 20 September 2009 when the Social Security Act 1991 (the Act) was amended by the Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Act 2009.
Mr Wilks receives a pension from the United Kingdom. The amount of this pension is affected by the rate of currency exchange. His wife is not yet of pension age. She works and earns income.
Their respective incomes recorded by Centrelink and applied by the ARO for the period 5 to 18 June 2013 are –
(a)Mr Wilks:
(i)deemed income - $0.14 per annum
(ii)UK pension income - $3,124.23 per annum
(b)Mrs Wilks:
(i)Total income - $53,165.27
There is no dispute that these amounts are correct, and I will proceed on that basis.
Furthermore, in respect of the same period, there is no issue regarding the Maximum transitional pension rate for the purposes of s 1064-B1 of the Act, or in respect of the applicable rates of Rent Allowance and the Clean Energy Supplement. These amounts are as follows –
(a)Maximum transitional rate of Age Pension - $14,305.20;
(b)Rent Allowance - $3,005.60;
(c)Clean Energy Supplement - $265.20.[1]
[1] Exhibit 4.
Mr Wilks says that the rate of his Age Pension is not being calculated correctly. He provided a spreadsheet setting out what he considers to be the correct calculation method.[2] In his submission, the combined income free area for a couple should be applied and the income excess factor should be halved when applied to members of a couple in his circumstances. This, he asserts, is consistent with the manner in which the ordinary income of members of a couple is calculated – the income of both members of the couple is combined and then divided by two. In his view, it is unfair and wrong to halve the combined income free area for a couple and to apply the rate reduction factor of 40 cents in the dollar when he is a member of a couple.
[2] Exhibit 1.
In support of these propositions, Mr Wilks took me to information set out in Edition 91 of the News For Seniors publication[3] and information set out in the Centrelink document A guide to Australian Government payment 20 March – 30 June 2013,[4] on which the Secretary relies.
[3] Exhibit 2.
[4] Exhibit 3.
The issue is to be decided under the Act, applying the transitional provisions. Under s 55, the rate of a person’s Age Pension is to be calculated under s 1064, using Pension Rate Calculator A. The steps to be followed when applying this Calculator are set out in s 1064-A1 –
1064‑A1 The rate of pension is a daily rate. That rate is worked out by dividing the annual rate calculated according to this Rate Calculator by 364 (fortnightly rates are provided for information only).
Method statement
Step 1. Work out the person’s maximum basic rate using MODULE B below.
Step 1A. Work out the amount of pension supplement using Module BA below.
Step 2. Work out the amount per year (if any) of pharmaceutical allowance using MODULE C below.
Step 3. Work out the amount per year (if any) for rent assistance in accordance with paragraph 1070A(b).
Step 4. Add up the amounts obtained in Steps 1, 1A, 2 and 3: the result is called the maximum payment rate.
Step 5. Apply the ordinary income test using MODULE E below to work out the income reduction.
Step 8. Take the income reduction away from the maximum payment rate: the result is called the income reduced rate.
Step 9. Apply the assets test using MODULE G below to work out the reduction for assets.
Step 10. Take the reduction for assets away from the maximum payment rate: the result is called the assets reduced rate.
Step 11. Compare the income reduced rate and the assets reduced rate: the lower of the 2 rates, or the income reduced rate if the rates are equal, is the provisional annual payment rate.
Step 12. The rate of pension is the amount obtained by:
(a) subtracting from the provisional annual payment rate any special employment advance deduction (see Part 3.16B); and
(b) if there is any amount remaining, subtracting from that amount any advance payment deduction (see Part 3.16A); and
(c) adding any amount payable by way of remote area allowance (see Module H).
Members of a couple
1064‑A2 Where 2 people are members of a couple, they will be treated as pooling their resources (income and assets) and sharing them on a 50/50 basis (see points 1064‑E2 and 1064‑G2 below). They will also be treated as sharing expenses (e.g. for rent) on a 50/50 basis (see section 1070V).
[Notes omitted]
At this point it is important to note that members of a couple are to be treated as pooling their income.
This is consistent with the method adopted in the ordinary income test in Module E. The steps to be followed when applying this Module are set out in s 1064-E1, as follows –
Effect of income on maximum payment rate
1064‑E1 This is how to work out the effect of a person’s ordinary income on the person’s maximum payment rate:
Method statement
Step 1. Work out the amount of the person’s ordinary income on a yearly basis.
Note 1: For the treatment of the ordinary income of members of a couple see point 1064‑E2.
Note 2: Module F contains provisions that may apply to working out the ordinary income of a person, and the ordinary income of a partner of the person, for the purposes of disability support pension.
Step 2. Work out the person’s ordinary income free area (see points 1064‑E4 to 1064‑E9 below).
Note: a person’s ordinary income free area is the amount of ordinary income that the person can have without any deduction being made from the person’s maximum payment rate.
Step 3. Work out whether the person’s ordinary income exceeds the person’s ordinary income free area.
Step 4. If the person’s ordinary income does not exceed the person’s ordinary income free area, the person’s ordinary income excess is nil.
Step 5. If the person’s ordinary income exceeds the person’s ordinary income free area, the person’s ordinary income excess is the person’s ordinary income less the person’s ordinary income free area.
Step 6. Use the person’s ordinary income excess to work out the person’s reduction for ordinary income using points 1064‑E10 to 1064‑E12 below.
Note 1: see point 1064‑A1 (Steps 5 to 8) for the significance of the person’s reduction for ordinary income.
Note 2: the application of the ordinary income test is affected by provisions concerning:
· the general concept of ordinary income (sections 1072 and 1073);
· business income (sections 1074 and 1075);
· deemed income from financial assets (sections 1076 to 1084);
· income from income streams (sections 1095 to 1099DAA);
· disposal of income (sections 1106 to 1112);
As can be seen, these provisions are squarely directed to ‘the person’. In this case, the person is Mr Wilks. This singular approach underlies all aspects of the ordinary income test. Provision is made is s 1064-E2 to take account of the combined income of both members of a couple, consistent with the underlying policy expressed in s 1064-A1(2), when calculating the ordinary income of a person who is a member of a couple -
Ordinary incomes of members of couples
1064‑E2 If a person is a member of a couple, add the couple’s ordinary incomes (on a yearly basis) and divide by 2 to work out the amount of the person’s ordinary income for the purposes of this Module.
This means that Mr Wilks ordinary income is calculated by adding his income with that of his wife and dividing the total by two –
$0.14 + $3,124.23 + $50,040.90 = $53,165.27 = $26,582.64
2
By this calculation Mr Wilks’ ordinary income as of 5 June 2013 is $26,582.64.
The next step is to determine the ‘income free area’ for Mr Wilks. This is an amount that is set out in s 1064-E4, subject to indexation -
How to calculate a person’s ordinary income free area
1064‑E4 A person’s ordinary income free area is worked out using Table E‑1. Work out which family situation in Table E‑1 applies to the person. The ordinary income free area is the corresponding amount in column 3 plus an additional corresponding amount in column 5 for each dependent child of the person.
Table E‑1—Ordinary free area limits
Column 1
Item
Column 2
Category of person
Column 3
Basic free area per year
Column 4
Basic free area per fortnight
Column 5
Additional free area per year
Column 6
Additional free area per fortnight
1.
Not member of a couple
$2,080
$80
$639.60
$24.60
2.
Partnered (partner getting neither pension nor benefit)
$1,820
$70
$639.60
$24.60
3.
Partnered (partner getting benefit)
$1,820
$70
$639.60
$24.60
4.
Partnered (partner getting pension)
$1,820
$70
$319.80
$12.30
Note 1: for member of a couple, partnered (partner getting neither pension nor benefit), partnered (partner getting benefit) and partnered (partner getting pension) see section 4.
…
Note 4: the basic free area limits are indexed annually in line with CPI increases (see sections 1191 to 1194).
It is quite clear that the income free areas or amounts set out in Table E are those applying to ‘the person’ – the amount of $1,820 in the second row under column 3 applies to Mr Wilks. Of course, this amount is subject to indexation. The indexed amount as of 5 June 2013 is $3,484. This amount is Mr Wilks’ income free amount.
The income free amount calculated under Table E is the amount of income the person may obtain before his or her pension is affected. Any amount of income above this limit is the person’s ‘ordinary income excess’ -
Ordinary income excess
1064‑E11
A person’s ordinary income excess is the person’s ordinary income less the person’s ordinary income free area.
Applying this formulation, Mr Wilks’ ordinary income excess is $26,582.64 minus $3,484 – an amount of $23,098.64.
This amount will affect the rate of Mr Wilks’ Pension. A reduction factor is to be applied. This is set out in s 1064-E10 -
Pension reduction for ordinary income in excess of ordinary income free area
1064‑E10 A person’s reduction for ordinary income is:
Ordinary income excess x 0.4
This calculation in Mr Wilks’ case is as follows –
$23,098.64 x 0.4 = $9,239.45
Under Step 8 of s 1064-A1(1), this amount is to be subtracted from the maximum transitional Age pension rate previously calculated, as follows –
$17,576 - $9,239.45 = $8,336.55
This is the annual rate of Mr Wilks Age Pension as of 5 June 2013. The fortnightly rate of his Pension is derived by dividing the annual rate by 26 - $320.64.
As Mr Wilks was paid $320.64 in the fortnight 5-18 June 2013, his Age Pension rate for this period is correct. The method used to calculate his Pension amount does not accord with the method set out in the legislation, however.
As can be seen, Module e of Rate Calculator A does not set out, or provide for, an income free area for a couple. And it does not set out or provide for the ordinary income excess reduction factor to be halved for members of a couple. Those effects may result from operation of the calculus set out in the legislation in practice, but it is not correct to approach the calculation of a person’s Age Pension in that manner. Doing so may lead to confusion, as occurred in this case.
I completely understand Mr Wilks’ difficulty understanding how his Age Pension had been calculated under the legislation. He was not assisted by the ARO’s calculations, which suggested that the income free area for a member of a couple is $6,968 per annum, and which applied an ordinary income excess reduction factor of 20 percent[5].
[5] T9 folio 27.
He was not assisted by information published in the News For Seniors publication, in which the following appears –
“…; for those paid under the transitional arrangements, the pension reduces by 40 cents in the dollar for singles and 20 cents in the dollars each for couples.”
I accept that on this information, Mr Wilks formed the view that the reduction factor that applied to him is 20 cents in the dollar.
Information set out in Centrelink’s A guide to Australian Government payments 20 March – 30 June 2013 did not contradict, but appeared to confirm, his view. The information set out on pages 12 and 13 of this guide in respect of Age Pension refers, very briefly, to the transitional arrangements and to the income test with reference to Chart C on page 32. This Chart is not well explained. It is ambiguous and it does not clarify the point of Mr Wilks’ enquiry. It sets out the following information –
…
(c) Income test for pensioners-Transitional rules
The notional maximum pension for transitional rate pensioners is $694.80 per fortnight for a single pensioner and $1,120.80 per fortnight combined for pensioner couples.
This rate excludes rent assistance.
Family situation
For full pension (pf)*
For part pension (pf)#
Single
up to $152.00
less than $1,889.00
Couple (combined)
up to $268.00
less than $3,070.00
Illness separated
(couple combined)
up to $268.00
less than $3,742.00
…
…
*… For transitional or saved cases income over these amounts reduces the rate of pension payable by 40 cents in the dollar (single), 20 cents in the dollar each (for couples).
Information of a similarly ambiguous (and confusing) kind is set out in the Guide to Social Security Law at 4.2.1.10 –
Income free area limits
Information on current income free areas and income limits can be obtained from the A guide to Australian Government payments booklet on the DHS website.
These limits are indexed from 1 July each year.
How income reduces payments
Income over the income free area limits reduces the payment by:
Family Situation
Pre 1 July 2000
On or After
1 July 2000
On or After
20 September 2009*
Single
50 cents in the dollar
40 cents in the dollar
50 cents in the dollar
Each partner in a couple
25 cents in the dollar
20 cents in the dollar
25 cents in the dollar
*From 20 September 2009, the rate at which extra income above the threshold affects pension payments changed from 40 cents to 50 cents in the dollar for singles as part of 2009-10 Budget. For couples, the rate changed from 20 cents to 25 cents in the dollar for each member of a couple. The 2009 changes also included pension increases and changes to indexation.
Transitional arrangements were introduced for pensioners who were receiving a payment on 19 September 2009 and who would otherwise have had their payments reduced by the new income test rules. These pensioners will continue to receive their payment based on the 40 cent withdrawal rate and the additional income test free area for dependent children, until they are better off under the new rules, including the 50 cent withdrawal rate.
The example set out in 5.1.8.40 of this Guide would appear to confirm the erroneous understanding Mr Wilks formed -
Example: Mary is receiving an Age [sic – Pension]at 19 September 2009. Her partner Barry is not receiving any income support payments. Mary and Barry's only income is $1,500 per fortnight that Mary earns from employment.
Mary's pension is assessed under the transitional rate provisions because she receives a higher rate of pension than if the work bonus and 50 cent taper rate was applied in working out her rate of her pension. As Mary's pension is calculated under the transitional safety net rules, half of Mary's earnings ($750), being half of Barry and Mary's combined income is used to work out the pension payable to her. Mary's pension is reduced by 20 cents for each dollar (based on the income withdrawal rate of 40 cents) of her share of the couple's income in excess of the income test allowable income threshold.
[Emphasis added]
Mr Wilks has drawn notice to the confusing and ambiguous information provided to Age Pensioners, such as himself. To my mind, it is desirable for this to be addressed by the Secretary.
Nonetheless, Mr Wilks is not correct in the assumptions he has made about the operation of the legislation and the way in which his Age Pension is to be calculated. But I can well understand the source of his confusion, when the information on which he relied is scrutinised.
I am satisfied that, even though the method used does not strictly accord with that set out in the legislation, the end result is the same, and the rate of Mr Wilks’ Age Pension in the example period I have considered is correct.
For this reason the decision under review must be affirmed.
I certify that the preceding 35 (thirty -five) paragraphs are a true copy of the reasons for the decision herein of Mr S. Webb, Member
...(Sgd) T Freeman.............
Associate
Dated 4 April 2014
Date(s) of hearing 27 March 2014 Applicant In person Representative for the Respondent Ms S Yik Long Solicitors for the Respondent
Australian Government Solicitor
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