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

[2019] AATA 788

Meyers and Secretary, Department of Social Services (Social services second review) [2019] AATA 788 (2 May 2019)

Division:GENERAL DIVISION

File Number:           2018/3376

Re:Secretary, Department of Social Services

APPLICANT

AndAllan Meyers

RESPONDENT

DECISION

Tribunal:Member D K Grigg

Date:2 May 2019

Place:Brisbane

The Tribunal sets aside the decision under review and substitutes it with a decision that the market-linked income stream purchased by the Respondent on 23 July 2009 was not asset-test exempt for the purposes of the Social Security Act 1991 (Cth) and its value must be taken into account when calculating the Respondent's rate of
Age Pension.

...........................[SGD]............................................

Member D K Grigg

CATCHWORDS

SOCIAL SECURITY – age pension – whether income stream asset exempt – decision under review set aside.

LEGISLATION

Family and Community Services and Veteran's Affairs Legislation Amendment (Income Streams) Act 2004 (Cth)

Social Security Act 1991 (Cth)

Social Security (Administration) Act 1999 (Cth)

Social Security (Actuarial Certificate — Lifetime Income Stream Guidelines) Determination 2003 (Cth)

Social Security (Partially Asset-test Exempt Income Stream - Exemption) (FaHCSIA) Principles 2005

Social Security (Retention of exemption for asset-test exempt income streams) (FaHCSIA) Principles 2011

Superannuation Industry (Supervision) Regulations 1994 (Cth)

SECONDARY MATERIALS

Family and Community Services and Veterans’ Affairs Legislation Amendment (Income Streams) Bill 2004

Guides to Social Security Law: Social Security Guide (released 20 March 2019) (Cth)

REASONS FOR DECISION

Member D K Grigg

2 May 2019

BACKGROUND

1. In 2002 Mr Allan Meyers (“Mr Meyers”) established the Meyers Superannuation Fund.[1] On 1 July 2004 Mr Meyers rolled his superannuation benefits into a complying pension scheme.[2]

   [1]     Exhibit 1, T Documents, T12, pages 237-242, Advice from Bendzulla Actuarial Pty Ltd, dated 27 May 2009.

   [2]     Exhibit 1, T Documents, T12, pages 210-235, Authorisation commuting to pension scheme and schedule of additional information; A “complying pension scheme” is one which complies with the Superannuation Industry (Supervision) Regulations1994.

2. On 1 July 2008 Mr Meyers decided to commute the full balance of his defined benefit to a market-linked term allocated pension (“2008 Pension”). Then, on 27 May 2009 Mr Meyers was advised by Consulting Actuaries that the Meyers Superannuation Fund “faces both mortality and investment return risks” due to insufficient assets.[3] As a result of that information, Mr Meyers decided to roll the Meyers Superannuation Fund over to a different market-linked term allocated pension, the Perpetual Wealth Focus Term Allocated Pension on 23 July 2009 (“Perpetual Pension”).[4]

   [3]     Exhibit 1, T Documents, T12, pages 237-242, Advice from Bendzulla Actuarial Pty Ltd, dated 27 May 2009.

   [4]     Exhibit 1, T Documents, T12, pages 256, Details of income stream product for Centrelink.

3. Four years later, on 18 July 2013, Mr Meyers applied for the Age Pension and Pension Bonus.[5]

   [5]     Exhibit 1, T Documents, T5, pages 121 – 145, Age Pension and Pension bonus claim form dated 18 July 2013.

4. The rates at which people (who are not permanently blind) are paid an Age Pension is determined using the Pension Rate Calculator A at the end of section 1064 of the Social Security Act 1991 (Cth) (“Act”) and is affected by, among other things, a person’s income and the value of their assets.[6] The maximum basic rate payable varies depending upon a person’s family situation.[7]

   [6] Section 55(a), of the Act.

   [7] Section 1064-B1, of the Act.

5. Some assets, including certain income streams are not taken into account in calculating a person’s rate of pay and are what is known as “asset-exempt”.[8] Pursuant to section 1118(1A) of the Act, an asset-test exempt income stream includes income streams defined in sections 9A(1) or (1A), 9B(1) or 9BA of the Act (see Legislation section below).

   [8] Section 1118 of the Act relevantly provides:

   Certain assets to be disregarded in calculating the value of a person's assets

   (1)  In calculating the value of a person's assets for the purposes of this Act… disregard the following:

   ….

   (b)           if the person is a member of a couple--the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home

   …

6. It is not in dispute that Mr Meyers complying pension scheme which commenced on 1 July 2004 was a “defined benefit income stream" as defined in section 9(1F) of the Act[9] and would have been exempt from the asset test pursuant to section 9A of the Act.

   [9] Section 9(1F) provides that:

7. On 20 August 2013 the Department of Social Services (“Centrelink”) advised Mr Meyers that a decision had been made to grant him the Age Pension from 18 July 2013. Centrelink sent Mr Meyers a notice setting out the rate of Age Pension payable and that the rate had been calculated on the basis that Mr Meyers had a total combined assets value of $443,512.14 and a combined annual income of $16,619.23.[10] Centrelink had determined that Mr Meyers’ Perpetual Pension was not an asset-exempt income stream and it was therefore, taken into account in determining the rate of Age Pension payable.

   [10]    Exhibit 1, T Documents, T6, pages 146–148, Centrelink letter to Mr Meyers dated 20 August 2013.

8. On 9 October 2013 Mr Meyers wrote to Centrelink regarding the fact that Centrelink was currently assessing 100% of his account balance in the Perpetual Pension as an asset for the purposes of calculating his Age Pension. Mr Meyers explained that (“Applicant’s Letter”) :[11]

   …on 1 July 2004, I rolled my superannuation benefits into the Meyers Superannuation Fund and commenced a Defined Benefit or Complying Pension. Within the Complying Pension my superannuation benefits qualified as a Centrelink asset test exempted income stream. However in May 2009 the Meyers Superannuation Fund received a report from Bendzulla Actuarial Pty Ltd. Due to circumstances beyond my control and the impact of the volatile markets the Actuary determined the fund had insufficient assets to continue to fund the lifetime pension obligations. As such I had no other alternative but to rollover my benefits into an Account Based Term Allocated Pension. As a result of taking this action, Centrelink has now determined that the value of my Term Allocated Pension is now fully assessable as an asset.

   (emphasis added)

   [11]    Exhibit 1, T Documents, T7, pages 149–150, letter from Mr Meyers to Centrelink dated 9 October 2013.

9. Mr Meyers contended that the Perpetual Pension qualifies as an asset test exempt income stream and he requested a review of Centrelink’s calculation.

10. Mr Meyers request for a review was referred to an Authorised Review Officer (“ARO”) within Centrelink. The ARO determined the income stream from Mr Meyers’ superannuation fund, the Perpetual Pension, was no longer asset test exempt from May 2009. The ARO explained in their decision that:[12]

    Income streams purchased from 20 September 2007 do not receive any asset test exemption…

    The income stream paid from your self-managed superannuation fund was originally 100% asset test exempt. However, from the time the actuary determined that there was not a high probability that the fund would be able to pay the income stream is required, it was no longer asset test exempt. As your former income stream is not asset test exempt, the income stream you purchased with the funds committed from it is not asset test exempt. This means that the asset value of the income stream is currently being taken into account under the Age Pension assets test.

    [12]    Exhibit 1, T Documents, T8, pages 152–155, Authorised Review Officer’s Decision dated 23 May 2014.

11. On 10 July 2015 Mr Meyers provided Centrelink with an Income and Assets form and supporting documentation which confirmed that the current market value of his personal financial service fund share portfolio was $255,214.54 and that the closing balance of his Perpetual Pension as at 25 June 2015 was $306,479.48.[13]

    [13]    Exhibit 1, T Documents, T9, pages 156–179, Income and assets form and various account statements.

12. On 19 December 2017 Mr Meyers provided Centrelink with a copy of his Perpetual Pension application form dated 7 July 2009 and other relevant documents which indicated that:[14]

    (a)on 7 July 2009 Mr Meyers applied for the Perpetual Pension using a transfer of funds from the Meyers Superannuation Fund totalling $263,145;

    (b)as at 31 July 2009 he was receiving an annual income from the Perpetual Pension of $18,390;

    (c)according to an officer from Perpetual, the income stream was eligible to retain the asset test exempt status; and

    (d)as at 18 December 2017 Mr Meyers’ share portfolio was valued at $250,904.87.

    [14]    Exhibit 1, T Documents, T10, pages 180-200, Financial documents provided by Mr Meyers.

13. On 12 January 2018 Mr Meyers lodged an application for review of the ARO decision with the Social Services and Child Support Division (“SSCSD”) of this Tribunal.[15] In support of his application for review Mr Meyers provided additional documents including a submission from Ms Helen Stevenson from Strategic Retirement Solutions.[16] According to Ms Stevenson:[17]

    (a)at the time of applying for the age pension in 2013 Mr Meyers Perpetual Pension was incorrectly recorded by Centrelink as a standard allocated pension resulting in the capital being fully assessed under the assets test;

    (b)the findings reached by Centrelink were based on an incorrect statement contained in the Applicant’s Letter of 9 October 2013. The actuary had not in fact determined that the Meyers Superannuation Fund had insufficient assets only that it was at risk because of the global financial crisis;

    (c)the Meyers Superannuation Fund remained solvent for all periods when it operated as a defined benefit fund;

    (d)at no time did the actuary determine that the fund had insufficient assets to continue to fund the lifetime pension obligations;

    (e)she had spoken to actuaries to investigate why Mr Meyers believed the actuary determined the fund had insufficient assets and the actuaries advised that, whilst they cannot attest to the specific case, it is common practice to discuss risk mitigation strategies with clients. Due to the severity of the share market crisis of 2008 and the impact on valuations, the actuaries held conversations with several of their clients around that time to talk about the possibility of the consequences of funds failing insolvency tests and to consider what actions to be taken to avoid the situation. Those actions included retaining the defined benefit fund, reducing exposure, or exiting the defined benefit fund and converting to a market linked term allocated pension;

    (f)Mr Meyers elected to avoid the risk of his fund failing the insolvency test and elected to wind up the defined benefit and convert his full entitlement to a market linked term allocated pension which was implemented on 1 July 2008; and

    (g)the use of the word “determined” in the Applicant’s Letter to Centrelink was not only technically incorrect but resulted in Centrelink forming a decision based on incorrect information.

    [15]    Exhibit 1, T Documents, T11, pages 201–203, Request for statement dated 12 January 2018.

    [16]    Exhibit 1, T Documents, T12, pages 204-256, Email and documents supplied by Mr Meyers for the purposes of the SSCSD hearing.

    [17]    Exhibit 1, T Documents, T12, pages 206 – 209, Submission of Ms Stevenson dated 12 January 2018.

14. On 14 March 2018 Mr Doug McBirnie, General Manager of Accurium Actuary, reported to Ms Stevenson that he had reviewed his records for the Meyers Superannuation Fund and noted that he sent a report to Mr Meyers on 21 May 2009 regarding the options available for commuting his defined benefit pension. The only option available under the legislation for commuting the defined benefit pension and retaining the assets within the Meyers Superannuation Fund was to use the proceeds to immediately commence a market linked pension as defined in 1.06(8) of the Superannuation Industry (Supervision) Regulations1994 (“SIS Regulations”). The actuarial certificate for the 2007-08 financial year noted that Mr Meyers complying lifetime defined benefit pension was commuted on
    

    [18]    Exhibit 1, T Documents, T13, pages 257-275, Email from Mr McBirnie dated 14 March 2018.

    1 July 2008 and there was nothing on the records to show that the commuted defined benefit pension had been committed to anything other than a market linked pension with effect from 1 July 2008.[18]

15. On 27 June 2017 the SSCSD set aside the ARO’s decision on 27 June 2017 and found that Centrelink relied on the Applicant’s Letter in finding that his income stream was not asset exempt. The SSCSD remitted the matter to Centrelink for further consideration on the basis that the original pension had at all times held a valid actuary certificate.[19]

    [19]    Exhibit 1, T Documents, T2, pages 4-9, SSCSD’s Decision and Reasons for Decision dated 10 May 2018.

16. The Secretary has sought a review of the SSCSD’s decision by this Tribunal on the grounds that the SSCSD Member erred in finding Mr Meyers’ Age Pension should be reassessed and that the provision of a valid actuarial certificate enlivened some potential level of asset test exemption to be applied to Mr Meyers’ income stream product.[20]

    [20]    Exhibit 1, T Documents, T1, pages 1-3, Application for review dated 18 June 2018.

    ISSUES FOR DETERMINATION

17. The issue for determination is whether Mr Meyers’ Perpetual Pension purchased on
    23 July 2009, and market-linked pension purchased 1 July 2008, are asset-exempt income streams for the purpose of calculating the rate of his Age Pension. This involves determining when the pension income streams commenced.

    LEGISLATIVE REQUIREMENTS

18. Sections 9A, 9B and 9BA of the Act relevantly provide:

    9A   Meaning of asset-test exempt income stream--lifetime income streams

    General requirements

    (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.

    Note:   For paragraph (b), financial year means a period of 12 months commencing on 1 July: see the Acts Interpretation Act 1901.

    Determination under subsection (5)

    (1A)  An income stream provided to a person is an asset-test exempt income stream for the purposes of this Act if the Secretary has made a determination under subsection (5) in respect of the income stream.

    …

    9B Meaning of asset-test exempt income stream--life expectancy income   streams

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

    (a)the following criteria are satisfied:

    (i)the income stream's commencement day happens before 20 September 2007;

    (ii)subsection (1A) applies; or

    (b)subsection (1B) applies.

    (1A)  This subsection applies if:

    (aa)the person to whom the income stream is being provided is:

    (i)the primary beneficiary; or

    (ii)the primary beneficiary's reversionary partner (if any) on the day of the primary beneficiary's death; and

    (a)the income stream 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 (3) in respect of the income stream; and

    (b)subject to subsections (1C), (1D) and (1E), 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) have been given effect to from the day the income stream commenced to be paid; and

    (d)in the case of an income stream acquired before 20 September 2004 that is provided to a primary beneficiary's reversionary beneficiary--the remaining term (in years) of the income stream is equal to the life expectancy (in years) of the primary beneficiary's reversionary beneficiary.

    Note:   For paragraph (b), financial year means a period of 12 months commencing on 1 July: see the Acts Interpretation Act 1901.

    (1B)  This subsection applies if the Secretary has made a determination under subsection (4) in respect of the income stream.

    …

    9BA  Meaning of asset-test exempt income stream–market linked income stream

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

    (a)all of the following criteria are satisfied:

    (i)the income stream's commencement day happens during the period from 20 September 2004 to 19 September 2007 (both dates inclusive);

    (ii)the person to whom the income stream is being provided is the primary beneficiary or the primary beneficiary's reversionary partner (if any) on the day of the primary beneficiary's death;

    (iii)the income stream is an income stream arising under a contract, or governing rules, that meets the requirements of subsection (2);

    (iv)the Secretary has not made a determination under subsection (10) in respect of the income stream;

    (v)the Secretary is satisfied that the requirements of subsection (2) have been given effect to from the day the income stream commenced to be paid; or

    (b)the Secretary has made a determination under subsection (11) in respect of the income stream.

    …

    (emphasis added)

19. Pursuant to section 1118(1A)(b) of the Act, regard must be had to the Social Security (Retention of exemption for asset-test exempt income streams) (FaHCSIA) Principles 2011 (“the Principles”)[21] when making a determination regarding whether a previously exempt income stream retains it asset-exempt status.[22]

    [21] The Principles were made by the Secretary pursuant to section 1118(1A)(b)(ii) of the Act.

    [22] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions dated 6 September 2018, at [38].

20. Section 1118(1A)(b) of the Act provides that a partially asset-test exempt income stream includes an income stream that:

    (i)     has a commencement day happening on or after 20 September 2007; and

    (ii)    is covered by principles, determined for the purposes of this subparagraph, by legislative instrument, by the Secretary.

1. The Principles specify the criteria:

   (a)that exclude an income stream from the class of partially asset‑test exempt income streams established by paragraph (a) of the definition of partially asset-test exempt income stream set out in subsection 1118 (1A) of the Act; and

   (b)to be satisfied by an income stream covered by paragraph (b) of that definition.

2. Pursuant to section 2.2 of the 2011 Principles, the following income streams are covered as asset-exempt:

   Part 2     Asset‑test exempt income streams

   2.1      Principles

   For subparagraph (a) (iii) of the definition of partially asset‑test exempt income stream in subsection 1118 (1A) of the Act, the Principles are the Principles set out in this Part.

   Note   For the definition of asset‑test exempt income stream, see subsection 9 (1) of the Act.

   2.2Asset‑test exempt income stream resulting from original asset‑test exempt income stream purchased before 20 September 2004

   (1)    These Principles cover an asset‑test exempt income stream if:

   (a)the income stream (the present income stream) is covered by section 9A or 9B of the Act; and

   (b)it is purchased by the primary beneficiary on or after 20 September 2004 from funds arising from the commutation of another asset‑test exempt income stream (the original income stream); and

   (c)the original income stream was purchased before 20 September 2004; and

   (d)the original income stream is a kind of income stream to which one of the following subsections applies.

   (2)    This subsection applies to an original income stream if:

   (a)it is covered by subsection 9A (1) or (1A) or section 9B of the Act; and

   (b)it was purchased by the primary beneficiary for the benefit of the primary beneficiary and a reversionary beneficiary; and

   (c)payments made under the income stream are calculated on the basis of the life expectancy of the reversionary beneficiary; and

   (d)the reversionary beneficiary predeceases the primary beneficiary.

   (3)    This subsection applies to an original income stream if:

   (a)it is covered by subsection 9A (1) or (1A) or section 9B of the Act; and

   (b)it is not an income stream to which section 2.4 or 2.5 of these Principles applies; and

   (c)it is purchased by the primary beneficiary for the benefit of the primary beneficiary and a reversionary beneficiary who, at the time of the purchase, are members of a couple together; and

   (d)the primary beneficiary and reversionary beneficiary are no longer members of a couple together.

   Example

   On 1 March 2002, J purchased an income stream (the original income stream) covered by subsection 9A (1) of the Act for the benefit of J, the primary beneficiary, and H, the reversionary beneficiary. At the time of the purchase, J and H were members of a couple together. On 1 December 2005, J and H ceased to be members of a couple together. On 15 December 2005, J commutes the original income stream and purchases another income stream (the new income stream) covered by subsection 9A (1) of the Act. The new income stream is covered by these Principles and retains the 100% exemption from the social security assets test.

   (4)    This subsection applies to an original income stream if:

   (a)it is a defined benefit pension covered by section 9A or 9B of the Act that is provided by a regulated superannuation fund; and

   (b)it is an income stream in relation to which the Secretary is not satisfied as required by paragraph 9A (1) (b) or 9B (1A) (b) of the Act, as applicable.

   Example

   On 1 March 2002, P purchased a 100% asset-test exempt income stream (the original income stream) that is a defined benefit pension covered by section 9A of the Act that is provided by a regulated superannuation fund. Paragraph 9A (1) (b) of the Act applies to the original income stream. On 1 September 2005, the Secretary is not satisfied that the requirements of paragraph 9A (1) (b) of the Act are met in relation to the original income stream. On 15 September 2005, P commutes the original income stream to purchase another income stream (the new income stream) that is covered by section 9A of the Act. The new income stream is covered by these Principles and retains the 100% exemption from the social security assets test.

   Note Paragraphs 9A (1) (b) and 9B (1A) (b) of the Act require the Secretary to be satisfied, in relation to an income stream, that there is in force a current actuarial certificate stating that in the actuary’s opinion there is a high probability that the provider of the income stream will be able to pay the income stream as required under the income stream’s contract or governing rules.

   (5)    This subsection applies to an original income stream if:

   (a)it is an immediate annuity under a statutory fund established by a life company, or under a benefit fund; and

   (b)it:

   (i)is an income stream in relation to which the Secretary is not satisfied as required by paragraph 9A (1) (b) or 9B (1A) (b) of the Act, as applicable; or

   (ii)fails to satisfy relevant standards published by the Australian Prudential Regulation Authority about minimum surrender values and paid up values.

   Note: Paragraphs 9A (1) (b) and 9B (1A) (b) of the Act require the Secretary to be satisfied, in relation to an income stream, that there is in force a current actuarial certificate stating that in the actuary’s opinion there is a high probability that the provider of the income stream will be able to pay the income stream as required under the income stream’s contract or governing rules.

   CONTENTIONS

3. It is not in dispute that the 2004 income stream from the Meyer Superannuation Fund was an asset-exempt income stream. The issue is whether it maintained its asset exempt status after it was rolled over in 2008 and 2009.

4. The Secretary contends that pursuant to section 2.2(1) of the Principles, where a person, such as Mr Meyers, commutes an existing asset-test exempt income stream, which was purchased before 20 September 2004, the asset exemption can only apply if the new income stream is covered by section 9A or 9B of the Act.[23]

   [23] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions dated 6 September 2018, at [40].

5. The Secretary referred the Tribunal to the Guides to Social Policy Law: Social Security Guide (“the Guide”) which is used by Centrelink as a Guide to the application of the social security law. The Tribunal is not bound to apply the Guide, but it may, and it should, apply it in exercising its discretion unless it is unlawful or “tends to produce an unjust decision”.[24]

   [24]    ReDrake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 645.

6. The Guide sets out in section 4.9.1.40 that:

   In limited circumstances, certain ATE [asset-test exempt] income streams purchased prior to 20 September 2007 that are commuted and rolled over into post 20 September 2007 ATE income streams can retain their 50% or 100% ATE status provided certain conditions are satisfied - refer to 4.9.2.17.

7. The Guide sets out in section 4.9.2.17 that:

   Primary conditions for relief - 100% exemption

   To be eligible for relief, (i.e. for the new income stream to continue to receive a 100% asset test exemption), the original income stream must be:

   ·a lifetime or life expectancy ATE income stream (satisfies SSAct section 9A or 9B), AND

   ·purchased prior to 20 September 2004, AND

   ·commuted in full to purchase a new income stream that satisfies SSAct section 9A or 9B (4.9.2.15), as they applied before 20 September 2007.

   Note: A partial commutation is only allowed for payment due to income stream payment split (additional condition no. 6), payment of a superannuation contribution surcharge debt (additional condition no. 7), or payment for a hardship amount (additional condition no. 8). Where an existing income stream is commuted in full to meet these payments, that part of the commuted amount not used to meet the liability must be rolled over to the new income stream.

   Primary conditions for relief - 50% exemption

   There are 2 sets of primary conditions depending on the type of income stream:

   1)To be eligible for relief, (i.e. for the new income stream to continue to receive a 50% asset test exemption), the original income stream must be:

   ·    a lifetime or life expectancy ATE income stream (satisfies SSAct section 9A or 9B), AND

   ·    purchased from 20 September 2004 and before 20 September 2007, AND

   ·    commuted in full to purchase a new income stream that satisfies SSAct section 9A , 9B, or 9BA (4.9.2.15), as they applied before 20 September 2007.

   2)To be eligible for relief, the income stream must be:

   ·    a market-linked partially ATE income stream (satisfies SSAct section 9BA), AND

   ·    commuted in full to purchase a new income stream that satisfies SSAct section 9BA, as it applies before 20 September 2007.

   (emphasis added)
   

8. The Secretary submits that the 2008 Pension and Perpetual Pension income streams are not asset-exempt because they:[25]

   did not satisfy sections 9A, 9B or 9BA of the Act as they were purchased after 20 September 2004; and

   do not meet the exceptions provided for in the Principles (as summarised in section 4.9.2.17 of the Guide).

   [25] Exhibit 2, Secretary’s Statement of Issues, Facts and Contentions dated 6 September 2018, at [43].

9. Mr Meyers contends that:[26]

   [26]    Exhibit 3, Respondent’s submissions of 8 October 2018.

   (a)the authorised officer from Perpetual confirmed that the Perpetual Pension satisfied all of the characteristics required under section 9A, 9B or 9BA of the Social Security Act 1991 to qualify as an asset test exempt income stream;[27]

   [27]    Exhibit 1, T Documents, T13, pages 257-275, Documents submitted by Mr Meyers for SSCSD review, 15 March 2018.

   Bendzulla Actuarial Pty Ltd actuarial certificate dated 27 May 2009 confirms the Perpetual Pension income stream “may be fully or partially asset exempt for social security benefits”;[28] (emphasis added)

   [28]    Exhibit 1, T Documents, T12, pages 237-242, Advice from Bendzulla Actuarial Pty Ltd, dated 27 May 2009.

   the Applicant’s Letter made unnecessary (and inaccurate) reference to circumstances surrounding the reason for the commutation and subsequent winding-up of the self-managed super fund and formed the sole basis of Centrelink’s rejection and that this basis of rejection was ruled invalid by the SSCSD;

   his lifetime pension fund at all times held a valid actuary certificate until its commutation;

   each subsequent pension was established from funds that were rolled over the previous fund and because the “original” pension was asset-test exempt pursuant to section 9A of the Act, the subsequent market-linked term pensions sourced from this original fund, are also asset exempt;

   when he applied for the Age Pension, Centrelink made no enquiries about the Perpetual Pension;

   had Centrelink followed the actuary’s indication that the Perpetual Pension was asset exempt, it would have been classified as a ‘market-linked term allocated pension’ and would have been eligible for a 50% exemption under the Assets Test;

   section 9A(5) and 9A(5A) of the Act permit a discretion to be exercised to determine that his investment in the Perpetual Pension is asset test exempt irrespective of the income stream’s commencement date.

10. Following the hearing, further written submissions were provided by both parties.
    

    [29]    Mr Meyers’ submissions dated 13 March 2019.

    Mr Meyers submitted that: “…I accept (with the benefit of hindsight) that the facts raised by [the Secretary] are correct - insofar as the dates of my various transactions and how they relate to the legislation that applied at that time, including the amendments that were made to the Act that have impacted on my situation”. However, Mr Meyers wanted an explanation for why a processing error was made at the time he lodged all of the relevant information with Centrelink and asked that the decision be made not purely on legal grounds but on ethical and moral grounds.[29]

    CONSIDERATION

11. On 20 September 2004, section 9BA was inserted into the Act via section 24 of the Family and Community Services and Veterans’ Affairs Legislation Amendment (Income Streams) Act 2004 Act No 116 of 2004 ("the Amending Act"). In conjunction with the Amending Act, the Social Security (Partially Asset-test Exempt Income Stream - Exemption) (FaHCSIA) Principles 2005 ("the 2005 Principles") were also enacted and commenced on 20 September 2004.

12. The Explanatory Memorandum to the Family and Community Services and Veterans’ Affairs Legislation Amendment (Income Streams) Bill 2004  to the Amending Act states:

    Item 24 inserts a new section 9BA. This section provides for a new category of asset-test exempt income streams, being market-linked income streams. It is worth noting that whilst these income streams are called "asset-test exempt" in this item, they will only ever attract a 50% asset test exemption (see amendments to section 1118 in item 29).

    New subsection 9BA(1) sets out the requirements that a market-linked income stream must satisfy to attract the asset-test exemption for the purposes of the Act. Such an income stream must either have had a determination made by the Secretary, under subsection (11), in regard to it or else meet all of the following criteria:

    •     The income stream commences on or after 20 September 2004;

    •     The income stream is either provided to the primary beneficiary or the reversionary partner of the primary beneficiary;

    •     The contract or governing rules of the income stream satisfy the requirements of subsection 9BA(2);

    •     The Secretary, or his or her delegate, has not made a determination in regard to the income stream under subsection 9BA(10). Subsection (10) allows the Secretary, in certain circumstances, to determine that an income stream, whose contract or governing rules would otherwise meet the requirements of subsection (2), is not an asset-test exempt income stream for social security purposes. These circumstances are specified in new subsection 98A(10); and

    •     The Secretary is satisfied that the income stream has complied with the requirements of subsection (2) from its commencement date.

    …

13. As a result of the Amending Act, when the 2004 fund was rolled over it became a market-linked pension and therefore section 9BA of the Act is the relevant section to consider.[30]

    [30] Pursuant to sections 9BA and 1118(1)(da) of the Act only half of the value of market-linked income streams are asset exempt.

14. As the 2008 Pension and Perpetual Pension were market-linked incomes streams, they have to meet the requirements of section 9BA of the Act to retain a partial exemption. Both income streams do not the requirements of section 9BA(1)(a)(i) of the Act because they commenced after 19 September 2007.[31]

    [31] Applicant’s Further Submissions dated 21 January 2019, at [15].

15. One must also consider the Principles. On 19 September 2007, the 2007 Principles were enacted.

16. Section 3.8 of the 2007 Principles state:

    3.8 Partially asset-test exempt market-linked income stream resulting  from commutation of another partially asset-test exempt market-linked income stream

    These Principles cover a partially asset-test exempt income stream if:

    (a) it is covered by section 9BA of the Act or would have been covered by that section if subparagraph 9BA (1) (a) (i) of the Act did not apply; and

    (b)    it results from the commutation and rollover of all the assets supporting another partially asset­ test exempt income stream (the original income stream); and

    (c) the original income stream was covered by section 9BA of the Act.

17. On 15 November 2011, the 2011 Principles commenced operation. Section 3.8 of the 2011 Principles states:

    3.8Partially asset-test exempt market linked income stream resulting from commutation of another partially asset-test exempt market-linked income stream

    These Principles cover an income stream if:

    (a) it is covered by section 9BA of the Act or would have been covered by that section if subparagraph 9BA (1) (a) (i) of the Act did not apply; and

    (b)    it results from the commutation and rollover of all the assets supporting a partially asset-test exempt income stream (the original income stream); and

    (c) the original income stream was covered by section 9BA of the Act or would have been covered by that section if subparagraph 9BA (1) (a) (i) did not apply; and

    (d)    the original income stream:

    (i)was purchased on or after 20 September 2004 and before 20 September 2007; or

    (ii)until the commencement of these Principles, was covered by the 2007 Principles; or

    (iii)was covered by these Principles

18. All of the requirements in section 3.8 must be met in order for the income stream to maintain its asset exempt status.

19. The 2008 Pension does not meet the requirements of subsection 3.8(c) of the Principles because the original income stream (i.e. the 2004 income stream) was not covered by section 9BA of the Act.

20. The Tribunal finds that the 2008 income stream was not partially asset-test exempt.

21. The Perpetual Pension does not meet the requirements of subsection 3.8(d) of the Principles because it is not by section 9BA of the Act in that it did not commence during the period 20 September 2004 to 19 September 2007.

22. The Perpetual Pension also does not meet the requirements of paragraph 3.8(b) because it was the result of the commutation of the 2008 income stream which the Tribunal has found was not partially asset-test exempt.

23. At the hearing Ms Stevenson, as representative for Mr Meyers, submitted that there was no investigative work done at the time Mr Meyers lodged the relevant documentation and if Centrelink had simply followed the indications of the actuary that the fund was asset-exempt, there would have been no problem. In other words, Ms Stevenson contended that the investigative work to discover Mr Meyers’ pension history has only been done as a result of Mr Meyers application for review and it would not be known that the pension did not meet the criteria in section 9BA of the Act. This is not a relevant factor to the decision before this Tribunal. If the legislation provides that the fund does not meet the asset-exempt criteria, what Centrelink did or did not do in terms of investigating or making inquiries about Mr Meyers income stream is not relevant to this decision. It is of no import that Centrelink were not aware of certain information at the time or if Centrelink made its original determination on a false premise (which has not been determined).

24. The SSCSD found that because actuary certificates were in place, that this meant the fund was asset exempt. This is incorrect.

25. Regardless of whether an actuary certified the fund as having a high probability of being able to pay the pension, it is still necessary to determine whether the fund met the asset-exempt criteria. Further, the Social Security (Actuarial Certificate — Lifetime Income Stream Guidelines) Determination 2003 (which was in force at the relevant time)[32] made under section 9A(1B) of the Act provides in section 2.4 that:

    (1)If the actuarial certificate provided to Centrelink by the person or the trustee of the fund under subsection 2.1(1) or subsection 2.2(1) does not certify that there is a high degree of probability that the fund will be able to pay the pension as required under the fund’s governing rules then paragraph 9A(1)(b) of the Act is considered to be not satisfied and the income stream is to be determined to be an asset tested income stream (long term).

    [32]    The 2003 Determination was replaced by the Social Security (Actuarial Certificate — Lifetime Income

    Stream Guidelines) Determination 2012 and then the Social Security (Actuarial Certificate — Lifetime Income Stream Guidelines) Determination 2019.

26. The actuary noted in its report to Mr Meyers in 2009 that the Meyers Superannuation Fund “faces both mortality and investment return risks” due to insufficient assets and that “the Trustees have not matched their liability to pay pensions from this Fund with the purchased annuities from a life insurance company”.[33] This is not a certification that there is a high degree of probability that the fund will be able to pay the pension as required.

    [33]    Exhibit 1, T Documents, T12, pages 237-242, Advice from Bendzulla Actuarial Pty Ltd, dated 27 May 2009.

1. Mr Meyers requested that a discretion be exercised to deem the Perpetual Pension asset-exempt. Section 9BA(10)-(12) of the Act provides that the Secretary may determine, in writing, that an income stream is an asset-test exempt income stream for the purposes of this Act regardless of its commencement date. However, in doing so the Secretary must have regard to guidelines determined under section 9BA(12) of the Act. The Tribunal is not aware of any guidelines having been made under this section or any other basis for this section to be enlivened or any power which would enable the Tribunal to exercise a discretion in Mr Meyers’ favour.

2. In the circumstances the Tribunal finds that the correct decision is that the Perpetual Pension was not asset-exempt for the purposes of the Act and its value must be taken into account when calculating the Respondent's rate of Age Pension.

   DECISION

3. The decision under review is set aside and substituted with a decision that the market-linked income stream purchased by the Respondent on 23 July 2009 was not asset-test exempt for the purposes of the Social Security Act 1991 (Cth) and its value must be taken into account when calculating the Respondent's rate of Age Pension.

I certify that the preceding 49 (forty-nine) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg

.........................[SGD]............................................

Associate

Dated: 2 May 2019

Date of hearing:	11 December 2018
Date reserved:	27 March 2019
Advocate for the Applicant:	Mr Rick McQuinlan, Principal Government Lawyer
Solicitors for the Applicant:	Department of Human Services
Representative for the Respondent:	Ms Helen Stevenson

An income stream is a defined benefit income stream if:

(a)     under the Superannuation Industry (Supervision) Regulations 1994 , the income stream is taken to be a pension for the purposes of the Superannuation Industry (Supervision) Act 1993 ; and

(b)    except in the case of an income stream arising under a superannuation fund established before 20 September 1998--the income stream is provided under rules that meet the standards of subregulation 1.06(2) of the Superannuation Industry (Supervision) Regulations 1994 ; and

(ba)        in the case of an income stream arising under a superannuation fund established before 20 September 1998--the income stream is provided under rules that meet the standards determined, by legislative instrument, by the Minister; and

(c)     in any case--the income stream is attributable to a defined benefit interest within the meaning of the Superannuation Industry (Supervision) Regulations 1994 (for this purpose, disregard subparagraph 1.03AA(1)(b)(ii) of those regulations).