FISCHER and Secretary, Department of Social Services (Social services second review)

[2018] AATA 4274

FISCHER and Secretary, Department of Social Services (Social services second review) [2018] AATA 4274 (12 November 2018)

Division:GENERAL DIVISION

File Number(s):      2018/1623

Re:Thomas FISCHER   

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Dr I Alexander, Member

Date:12 November 2018

Place:Sydney

The decision under review is affirmed.

............................[sgd].............................

Dr I Alexander, Member

CATCHWORDS

SOCIAL SECURITY – eligibility for Age Pension – assets test cancellation decision based on income derived from BAT Superannuation Fund – whether income stream from applicant’s partner’s account-based pension in self-managed superannuation fund is an asset test exempt income stream – whether the applicant’s combined assets exceed the allowable limit – decision under review affirmed

LEGISLATION

Social Security Act 1991 (Cth) s 9A

Australian Taxation Office, Income tax: when a superannuation income stream commences and ceases, TR 2013/5, 31 July 2013

SECONDARY MATERIALS

Australian Taxation Office, Pension standards for self-managed super funds (1 November 2018) 

REASONS FOR DECISION

Dr I Alexander, Member

12 November 2018

BACKGROUND

1. Mr Fischer was granted an Age Pension on 21 November 2011.

2. On 7 January 2017 Centrelink cancelled Mr Fischer’s pension on the basis that his assets, when combined with the assets of his partner (BT) exceeded the allowable asset limit for Age Pension eligibility.

3. In particular, in the asset assessment, Centrelink had included, BT’s “income stream” from the BAT Superannuation Fund (BATSF), a self-managed superannuation fund.

4. On 11 January 2018, an authorised review officer (ARO) affirmed Centrelink’s decision to cancel Mr Fischer’s Age Pension.

5. On 1 March 2018, the ARO’s decision was affirmed by the Social Securities & Support Division of the Administrative Appeals Tribunal (AAT1).

6. On 29 March 2018, Mr Fischer applied to the General Division of the Administrative Appeals Tribunal (AAT2) for review of the AAT1 decision.

7. Mr Fischer attended the AAT2 hearing on 24 August 2018 and was self-represented.

8. Following preliminary discussion with the parties, the hearing was adjourned in order to seek further information about the BATSF from Mr Fischer’s accountant. The relevant information was subsequently provided in a letter dated 6 September 2018.

9. At a Directions Hearing by telephone held on 19 October 2018, the parties agreed that there was no benefit in resuming the formal hearing and that the Tribunal could proceed to provide a written decision based on the relevant documents currently before the Tribunal.

   ISSUES FOR DETERMINATION

10. In the letter dated 6 September 2018, Mr Fisher’s accountant confirmed that the BATSF is a self-managed superannuation fund that was formed to accumulate contributions for Mr Fischer and BT. Mr Fischer subsequently withdrew all his benefits as a lump sum whereas BT chose to draw her benefits by way of an “allocated pension.”

11. The minutes of the BATSF meeting of trustees dated 1 July 2007 state, inter alia, as follows:

    It was noted that the Trustees have received notice from BT that she has retired   from full time work …. .It was noted that BT has requested that all her accumulated              funds be applied to purchase an allocated pension……It was resolved that the full     entitlements of BT be applied to the provision of an allocated pension to the member commencing from 1 July 2007.

12. Mr Fischer contends that the income stream from his partner’s allocated pension commencing in 2017 was an Asset-Test Exempt (ATE) income stream for the purposes of the Social Security Act 1991 (the Act).

13. Mr Fischer also contends that the income streams resulting from subsequent changes to the “allocated pension” were also ATE income streams and, therefore, the income stream from the account-based pension created on 29 November 2011 should not have been included in the assessment of his eligibility for Age Pension.

14. The Respondent contends the income stream from the “allocated pension” established in 2007 was not an ATE income stream.

15. The Respondent also contends that subsequent serial changes to the original “allocated pension”, now termed an account-based pension, had the effect of ceasing each existing income stream and creating a new income stream, thereby giving rise to a new commencement date for each of the new account-based pensions.

16. Furthermore, the Respondent contends income streams from account-based pensions in self-managed superannuation funds are not and never have been ATE income streams for the purposes of the Act.

17. Therefore, the definitive issue in this matter is whether the income stream from BT’s account-based pension established on 29 November 2011 was is an ATE income stream for the purposes of the Act.

    Minutes of the BATSF Meeting of Trustees

18. The minutes of the BATSF meeting of trustees dated 6 June 2008, 29 June 2011 and 29 November 2011, stated Mr Fischer’s partner requested that the superannuation benefits accumulated during that year be added to her existing “Pension Fund”.

19. On each occasion it was resolved that the existing “Allocated Pension” be commuted and transferred to the “Accumulation Account” and that the full entitlements be applied to the provision of an allocated pension commencing on the date of the meeting.

20. This means that a new allocated pension with an associated income stream was created on each date.

    CONSIDERATION

21. “Pension standards for self-managed superannuation funds”[1] state that all pensions that commence on or after 20 September 2007 must meet a minimum standard including that “the pension must be account based” and that the capital base supporting the pension cannot be increased “using contributions or rollover amounts once the pension has started.”

    [1]Australian Taxation Office, Pension standards for self-managed super funds (1 November 2018)  <>

    The meaning of “commutation”, although not defined in the Act, generally means “the process of converting a pension or annuity into a lump sum payment. This payment can be paid to the beneficiary or rolled over to another product with the same superannuation fund or to another superannuation fund.”[2]

    [2] Ibid.

22. Also, a “superannuation income stream ceases when a request from a member or a dependent beneficiary to fully commute their entitlements to future superannuation stream benefits for an entitlement for a lump sum takes effect.”[3]

    [3] Australian Taxation Office, Income tax: when a superannuation income stream commences and ceases, TR 2013/5, 31 July 2013.

23. It is clear from the documentary evidence that the existing account-based pension in the BATSF was fully commuted on three occasions and that each time the capital base of the pension account was increased. This means that on each occasion a new account-based pension with an associated income stream was created.

24. Section 9A(1) of the Act provides for the meaning of an asset‑test exempt income stream—as follows:

    (1) An income stream provided to a person is an asset‑test exempt income stream for the purposes of this Act if:

    (aa) subject to subsection (1AA), the income stream’s commencement day happens before 20 September 2007; and

    (a)   it is an income stream arising under a contract, or governing rules, that meet the requirements of subsection (2) and the Secretary has not made a determination under subsection (4) in respect of the income stream; and

    (b) subject to subsections (1B), (1C) and (1D), the Secretary is satisfied that in relation to an income stream, provided by a class of provider specified by the Secretary for the purposes of this paragraph, there is in force a current actuarial certificate that states that the actuary is of the opinion that, for the financial year in which the certificate is given, there is a high probability that the provider of the income stream will be able to pay the income stream as required under the contract or governing rules; and

    (c) the Secretary is satisfied that the requirements of subsection (2) are being given effect to from the day the income stream commences to be paid.

25. Subsection 9A(2) of the Act provides for the requirements of a contract, or the governing rules, for the provision of an income stream and, in particular, subsection 9A(2)(h) provides:

    h)    that the income stream cannot be commuted except:

    (i) if the income stream is a non‑commutation funded income stream and the commutation is made within 6 months after the commencement day of the income stream; or

    (ii) if the commutation is made to the benefit of a reversionary beneficiary or of the person’s estate, on the death of the person within the life expectancy period for the income stream; or

    (iii) if the payment resulting from the commutation is transferred directly to the purchase of another income stream that is an asset‑test exempt income stream.

26. Although, the income stream from the “Allocated Pension” established in July 2007 was established prior to 19 September 2007, it is clear from the evidence that the rules governing that income stream allowed for a full commutation of the pension account which occurred on 6 June 2008.

27. Similarly, a full commutation of existing pension accounts on 29 June 2011 and 29 November 2011 was allowed.

28. This means that the rules of the BATSF governing the provision on an income stream from an account–based pension allowed full commutation of the pension account.

29. It follows that any income stream from an account-based pension provided by the BATSF cannot satisfy s 9A(2)(h) and cannot be an ATE income stream for the purposes of the Act.

30. This includes the income stream from the “Allocated Pension” established in 2007.

31. For the reasons set out above, I am satisfied that the decision to include BT’s income stream from the account-based pension established in the BATSF on 29 November 2011 is correct.

    DECISION

32. The decision under review is affirmed.

I certify that the preceding 33 (thirty-three) paragraphs are a true copy of the reasons for the decision herein of Dr I Alexander, Member

................................[sgd]..................................

Associate

Dated: 12 November 2018

Dates of hearing:	24 August 2018
Applicant:	In person
Solicitors for the Respondent:	Mr D McLaren, Department of Human Services