Longa and Department of Family and Community Services

[2001] AATA 512

DECISION AND REASONS FOR DECISION [2001] AATA 512

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No W2000/420

GENERAL ADMINISTRATIVE  DIVISION       )          
           Re      IMERIO LONGA    
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES        
  Respondent

DECISION

Tribunal       Ms S McKnight, Member  

Date11 June 2001

PlacePerth

Decision      In accordance with s43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision under review.
  ...........(sgd S McKnight).........
  Member
CATCHWORDS
SOCIAL SECURITY – assessment of age pension – applicant in receipt of  Defence Force Retirement and Death Benefits Fund pension - whether this amount could be classified as income – whether a "defined benefit income stream"

Social Security Act 1991 ss 8(1), 8(2), 9(1), 9(1F), 1099, 1099A, Schedule 1A
Social Security and Veteran's Affairs' Legislation Amendment (Budget and Other Measures) Act 1998

REASONS FOR DECISION

11 June 2001          Ms S McKnight, Member              

1. This is an application by Mr Imerio Longa ("the applicant") for a review of a decision of the Social Security Appeals Tribunal ("the SSAT") made on the 11th October 2000.  In that decision the SSAT affirmed the decision of a delegate of the Secretary of the Department of Family and Community Services ("the respondent"), as affirmed by an Authorised Review Officer on 24th July 2000, to assess the applicant's Defence Force Retirement and Death Benefit Fund pension ("DFRDB") as income for the purpose of calculating his age pension entitlements.

2. The applicant appeared by telephone link from Boulder, WA. The respondent was represented by Mr S Ellis of the Advocacy and Administrative Law Team, Centrelink. The Tribunal had before it the documents ("T documents") provided pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. One exhibit was also taken into evidence comprising a small bundle of documents, including a letter from the respondent to the applicant dated 19th March 2001, and a letter from the applicant to the respondent dated 13th March 2001 with attachments (Exhibit A1). The Tribunal also sought further information from the respondent in relation to clause 120A of schedule 1A of the Social Security Act 1991 ("the Act"), which was provided subsequent to the hearing.
   Background

3. The background facts, as found by the Tribunal on the basis of the T documents, relevant exhibits and oral evidence of the applicant were as follows:

4. On the 24th January 1949 the applicant enlisted in the Royal Australian Air Force (RAAF).  After 25 years of service he decided to re-engage for a further period of five years.  He signed an agreement to re-engage for service in the RAAF on 16th October 1973 (T1).

5. Throughout the applicant's employment in the RAAF he was required to contribute to a compulsory superannuation scheme, currently referred to as the DFRDB scheme.  The applicant retired in or about 1978, following his five year period of re-engagement in the RAAF.  On retirement he began receiving payments under the DFRDB scheme. 

6. On the 27th December 1997 the applicant reached the age at which he qualified for an age pension.  He applied for the age pension, which was granted with effect from 8th January 1998.  The applicant's DFRDB payments were assessed as income by the respondent for the purpose of calculating the rate of age pension.

7. On 10th May 2000 the applicant wrote to the respondent requesting that the decision be reviewed (T4).  In that letter the applicant wrote that he considered it to be unfair for the respondent to apply the income test to his DFRDB pension.  He stated that he could not recall being informed that his compulsory contributions to the DFRDB fund would jeopardise his entitlement to a full pension when he reached age pension age.  He maintained that he re-enlisted for five years in the RAAF on the basis that the increased DFRDB pension on retirement would be of benefit to him as an aged person, and that it would not be income tested.

8. A review of the decision was conducted by a delegate of the respondent on the 24th July 2000 (T12), who affirmed the decision.  On the 11th  October 2000 that decision was affirmed by the SSAT (T2).
   Applicable Legislation

9. The following legislation is relevant:

   Social Security Act 1991

   "8(1)    'income', in relation to a person means:

   (a)an income amount earned, derived or received by the person for the person's own use or benefit; or

   …

   8.(2)     A reference in this Act to an income amount earned, derived or received is a reference to:

   (a)       an income amount earned, derived or received by any means; and

   (b)an income amount earned, derived or received from any source (whether within or outside Australia).

   9(1) … deductible amount, in relation to an income stream, means the amount that would be the deductible amount in relation to the income stream under subsection 27H(2) of the Income Tax Assessment Act, if the references in that subsection to an annuity were references to an income stream.
   …

   Income stream means:
   …
   (b)       an income stream arising under a public sector scheme (within the meaning of that Act); or
             …

   9.(1F)  An income stream is a defined benefit income stream if the amount of the payments under it:

   (a)       is not fully determined by the purchase price; but
   (b)       is determined:

   (i)by reference to the purchaser's salary before retirement or the purchaser's years of service; or

   (ii)       by the governing rules. 

   1099A. If the asset-test exempt income stream is a defined benefit income stream, the amount that the person is taken to receive from the income stream each year is worked out as follows:
             Annual payment – Deductible amount
   Where:
   Annual payment means the amount payable to the person for the year under the income stream.
   Deductible amount has the meaning given by subsection 9(1)."

   Schedule 1A of the Act

   "120A.(3) If a person was receiving a social security payment on 19 September 1998, the person's annual rate of ordinary income from:

   (a)       an asset-test exempt income stream; or
   (b)       an asset-tested income stream (long term); 

   that is a defined benefit income stream whose commencement date is earlier than 20 September 1998 is to be worked out as if the amendment made by item 40 of Schedule 3 to the amending Act had not been made."

   Social Security Act 1991 as at 18 May 1998

   "1099 Superannuation pensions
   For the purpose of working out the annual rate of ordinary income of a person from a superannuation pension payable from a superannuation fund, the person is taken to receive from that pension each year an amount worked out by reducing the amount payable each year by the deductible amount in relation to the superannuation pension."

The Issues

1. In his evidence before the Tribunal the applicant claimed that he decided to re-engage for a further term of service in the RAAF in 1973 due to the favourable treatment of recipients of superannuation pensions at that time.  He referred to the Australian Bureau of Statistics Official Year Book of Australia for 1974 where it stated:

   "A special concession is made available to recipients of superannuation pensions and annuities, the annual rate of such payments being converted to a property equivalent for means test purposes by reference to a specific conversion factor." (A1)

1. The applicant stated that this concession induced him to re-engage in a binding contract of service. He contended that the respondent should have provided him with a choice of method by which his superannuation was to be means tested – according to provisions applying in 1973 or according to current provisions. To not do so, he claimed, breached natural justice and procedural fairness. The applicant stated that he and his wife were receiving about half the full rate of age pension due to the respondent treating his DFRDB payments as income. He submitted that he should have been given the option to be assessed according to the Social Services Act 1947-1973 rather than according to the current Act. He maintained that he would not have re-engaged had he known the method by which his superannuation payments would be assessed in determining his age pension entitlement.

2. The issue to be determined by the Tribunal is whether the applicant's DFRDB payments are correctly assessed as income for the purpose of calculating age pension.
   Consideration of the Law

3. Under section 8 of the Act the term "income" refers to an income amount earned, derived or received by a person, by any means and from any source, for that person's own use or benefit. Section 8 of the Act also identifies amounts that are excluded from the definition of income for the purposes of the Act.

4. The applicant is receiving payments from the DFRDB scheme. The DFRDB is a public sector superannuation fund established by the Commonwealth government. Payments under the DFRDB are determined by reference to a member's length of service and annual pay before retirement, and not merely by the member's contributions to the scheme. Payments from the scheme therefore meet the criteria set out under the definition of an "income stream" and a "defined benefit income stream" pursuant to sections 9(1) and 9(1F) of the Act.

5. Part 3.10 of the Act deals with general provisions relating to the ordinary income test. Section 1099A sets out the amount of income each year that a person is taken to receive from an asset-test exempt income stream that is a defined benefit income stream.
   It is worked out according to the formula:

   "annual payment – deductible amount"

as defined in sections 9(1) and 1099A of the Act.

1. The applicant began receiving payments from the DFRDB in or about 1978. Subsequently he commenced receiving the age pension from 8th January 1998. Clause 120A(3) of schedule 1A of the Act requires that:

   "If a person was receiving a social security payment on 19 September 1998, the person's annual rate of ordinary income from:
   (a) an asset test exempt income stream; or
   …
   that is a defined benefit income stream whose commencement date is earlier than 20 September 1998 is to be worked out as if the amendment made by item 40 of Schedule 3 to the amending Act had not been made."

The amending Act referred to is the Social Security and Veteran's Affairs' Legislation Amendment (Budget and Other Measures) Act 1998. Item 40 of Schedule 3 of the amending Act repeals Subdivision B of Division 1C of Part 3.10 of the Act. Relevantly it substitutes section 1099A, as well as sections 1098, 1099, 1099B, 1099C and 1099D.

1. Prior to the amendment made by item 40 of Schedule 3 to the amending Act, Subdivision B of Division 1C of Part 3.10 of the Social Security Act 1991 as at 18th May 1998 stated at section 1099:

   "Superannuation pensions
   For the purpose of working out the annual rate of ordinary income of a person from a superannuation pension payable from a superannuation fund, the person is taken to receive from that pension each year an amount worked out by reducing the amount payable each year by the deductible amount in relation to the superannuation pension."

For all relevant purposes this is the same as an assessment under section 1099A of the amended Act.

1. No evidence was provided to the Tribunal about the specific calculation of the amount of ordinary income arising on an annual basis from the applicant's DFRDB payments, or whether the applicant is entitled to a deductible amount pursuant to section 27H(2) of the Income Tax Assessment Act. For that reason the Tribunal is unable to check the accuracy of the calculation of the amount of income received by the applicant. The matter before the Tribunal is whether the applicant's DFRDB payments should be treated as income by the respondent. 

2. On the evidence before it the Tribunal finds that the applicant's DFRDB is properly treated as income for social security purposes. The decision of the respondent to assess the applicant's DFRDB payments as income for the purpose of calculating his age pension entitlements is in accordance with the requirements of part 3.10 of the Act. The payments from the DFRDB scheme meet the specific criteria for a "defined benefit income stream" as set out in section 9(1F) of the Act.

3. The applicant queried whether there are provisions in the legislation applying to his situation that would provide relief from the application of the income test to his DFRDB payments. In particular he referred to clause 120A(1) of Schedule 1A of the Act. The Tribunal considered this provision of the Act. It does not relate to the decision under review concerning whether the applicant's DFRDB payments should be assessed as income for social security purposes. There are no provisions in the Act that allow the applicant's DFRDB to be disregarded or excluded as a source of income for the purpose of calculating his age pension payments.

4. The applicant claimed that he should be given the choice as to whether his DFRDB payments are assessed according to the provisions of the 1947 Act or the Act as it currently applies. The Tribunal notes that the respondent is bound by the provisions of the Social Security Act 1991, and has no discretion to apply the 1947 Act which is no longer in force. The Tribunal finds that the respondent's decision to treat the applicant's DFRDB as income for social security purposes is correct and in accordance with the requirements of the Act.
   Decision

5. For the reasons expressed above and in accordance with section 43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision under review.

I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Ms S McKnight, Member

Signed:

.................................(sgd S Railton)................................
Associate

Date of Hearing  26 March 2001
Date of Decision  11 June 2001
Counsel for the Applicant        In person
Solicitor for the Applicant          
Counsel for the Respondent    Mr S Ellis
Solicitor for the Respondent    Advocacy and Admin Law Team, Centrelink