Rigney and Department of Family and Community Services - [2000] AATA 640

DECISION AND REASONS FOR DECISION [2000] AATA 640

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N1999/924

GENERAL ADMINISTRATIVE DIVISION       )
           Re      RONALD RIGNEY
  Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION

Tribunal Ms S M Bullock, Member

Date2 August 2000
PlaceSydney

Decision      The decision under review is affirmed.
  [Sgd] S M BULLOCK
  Member
CATCHWORDS
SOCIAL SECURITY - Age Pension – Asset Test income stream – legislative amendment – binding arrangement – severe detriment.

Social Security Act 1991 - s9A and s9B, Schedule 1A, Clause 110

Zoarder and Secretary, Department of Social Security (1998) 26 AAR 342
Green and Daniels v Secretary, Department of Social Security (1977) 13 ALR 1
Secretary, Department of Social Security v Riddell (1993) 30 ALD 31
Re Drake and Minister for Immigration and Ethnic Affairs (2) (1979) 2 ALD 634
Secretary, Department of Social Security v Cooper (1999) 21 ALD 155
Rose v Secretary, Department of Social Security (1990) 19 ALD 601

REASONS FOR DECISION

Ms S M Bullock, Member

This is an application for review to the Administrative Appeals Tribunal ("the Tribunal") by the Applicant, Mr Ronald Rigney, in relation to a decision of the Social Security Appeals Tribunal ("the SSAT") made on 13 May 1999 (T2). The SSAT decided that from 22 September 1998, Mr Rigney's income stream product, a Connelly Temple Public Superannuation Fund CPI Pension, was no longer an Asset Test exempt income stream, nor was Mr Rigney eligible to request an exemption from the new legislation under clause 110 in Schedule 1A to the Social Security Act 1991("the Act"). The SSAT's decision affirmed a decision of an Authorised Review Officer ("an ARO") of the Department of Family and Community Services made on 15 February 1999 (T29) which in turn affirmed the original decision of a delegate of the Department of Family and Community Services made on 18 December 1998 (T15).
The hearing was held before the Tribunal in Sydney on 27 January 2000. Mr Rigney provided oral evidence by conference telephone. He was represented by Ms S Koller, Solicitor with the Welfare Rights Centre, Sydney. The Respondent, the Secretary, Department of Family and Community Services ("the Department") was represented by Mr J Kenny, Departmental Advocate. The Tribunal took into evidence documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("T-documents" – T1-T33) and the following exhibits:
Exhibit No A1 A2 A3 A4 A5 R1 R2 R3 Description Applicant's Statement of Facts and Contentions Connelly Temple Public Superannuation Fund CPI Pension prepared for Mr R Rigney Connelly Temple Public Superannuation Fund Complying Term Pension prepared for Mr R Rigney Departmental Guidelines on "Understanding retirement income streams" Applicant's supplementary submission in relation to subsection 9B(4) of the Social Security Act 1991 Respondent's Statement of Facts and Contentions Centrelink form "Income Stream Product" Respondent's supplementary submission in relation to subsection 9B(4) of the Social Security Act 1991 Date 22 December 1999 4 December 1996 20 November 1998 Undated 21 March 2000 15 December 1999 8 September 1998 (lodged) 14 February 2000

ISSUES

The issues in this matter are:

whether or not Mr Rigney's income stream product, a Connelly Temple Public Superannuation Fund CPI Pension, is Asset-Test exempt; and
whether or not Mr Rigney entered into a binding arrangement when he purchased the Connelly Temple Public Superannuation Fund CPI Pension product in December 1996, to allow him to satisfy clause 110 of Schedule 1A to the Social Security Act 1991 and hence be eligible to seek a Ministerial exemption from the application of legislative amendments from 20 September 1998.

LEGISLATION

A determination in this matter requires consideration of relevant provisions of the Act.
From 20 September 1999, legislative amendments to the Act resulted in changes to the assessment of income stream products. Mr Rigney had such a product in his Connelly Temple Public Superannuation Fund CPI Pension, which he purchased on 16 December 1996. At that time, the superannuation pension was not an allocated pension as defined in the then subsection 9(8) of the Act and, under the provisions of the then subsection 118(d) of the Act, the product was exempt from the Assets Test.
After 20 September 1998, the legislative amendments to the Act resulted in changes to the assessment of income streams. From that date, an income stream is Asset Test exempt only if it meets the provisions of sections 9A or 9B of the Act. Under section 9A, amongst other things, the term of the income stream must be for life. Under section 9B, the term of the income stream, if purchased over Age Pension age, must be for a period of life expectancy or for a period between 15 years and life expectancy, where life expectancy exceeds 15 years. Specifically, sections 9A and 9B of the Act state:
"9A Meaning of asset-test exempt income stream – lifetime income streams
General requirements
9A(1)An income stream provided to a person is an asset-test exempt income stream for the purposes of this Act:
(a)if 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; or
(b)if the Secretary has made a determination under subsection (5) in respect of the income stream.
Requirements of contract/governing rules for provision of income stream
9A(2)A contract, or the governing rules, for the provision of an income stream to a person meet the requirements of this subsection if the contract or governing rules specify:
(a)that payments under the income stream are to be made at least annually throughout the life of the person and, if there is a reversionary beneficiary:
(i) throughout the reversionary beneficiary's life; or
(ii)if the reversionary beneficiary is a child of the person or of a former reversionary beneficiary under the income stream—at least until he or she turns 16; or
(iii)if the child referred to in subparagraph (ii) is a full-time student who has turned 16—at least until the end of his or her full-time studies or until he or she turns 25, whichever occurs sooner; and
(b)the total amount of the payments that may be made under the income stream in the first year after the commencement day of the income stream (not taking commuted amounts into account); and
(c)that the total amount of the payments that may be made under the income stream in any other year (not taking commuted amounts into account) may not fall below the total amount of the payments made under the income stream in the immediately preceding year (the previous total), and may not exceed the previous total:
(i)if subparagraph (ii) does not apply—by more than 5% of the previous total; or
(ii)if the index number for the second last quarter before the day on which the first of those payments is to be made (recent index number) exceeds the index number for the same quarter in the immediately preceding year (base index number) by more than 4% of the base index number—by more than such percentage of the previous total as is worked out under the formula:

Recent index number - Base index number

100 x Base index number + 1

(d)if the income stream is purchased—that the first payment under the income stream relates to the period commencing on the day on which the income stream is purchased; and
(e)if the income stream is not purchased—that the first payment under the income stream relates to the period commencing on the day on which the income stream is acquired; and
(f)if the income stream is not a defined benefit income stream—that the amount paid as the purchase price for the income stream is wholly converted into income; and
(g)that the income stream has no residual capital value; and
(h)that the income stream cannot be commuted except
(i)if 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 10 years after the commencement day of the income stream; or
(iii)if the payment resulting from the commutation is transferred directly to the purchase of another income stream arising under a contract, or governing rules, that meet the requirements of this subsection or subsection 9B(2); or
(iv)to the extent necessary to cover any superannuation contributions surcharge that the person is liable to pay in his or her capacity as purchaser of the income stream; and

(i) that the income stream:
(i) can be transferred only on the death of the person; and
(ii)can then only be transferred to a reversionary beneficiary; and

(j)that neither the capital value of the income stream, nor the income from it, can be used as security for a borrowing; and
(k)that, if the income stream reverts, it must not have a reversionary component greater than the benefit that was payable immediately before the reversion; and
(l)that, if the income stream is commuted, the commuted amount must not be greater than the benefit that was payable immediately before the commutation.

Matters not required of income stream
9A(3)For the purpose of determining whether an income stream meets the requirements of subsection (2), it is immaterial that:
(a)if the primary beneficiary dies within 10 years after the commencement day of the income stream, a surviving reversionary beneficiary may be paid an amount equal to the total of the payments that the primary beneficiary would (if he or she had not died) have received from the day of the death until the end of the period of 10 years; and
(b)if:
(i)the primary beneficiary dies within 10 years after the commencement day of the income stream; and
(ii)there is no surviving reversionary beneficiary;

an amount, not exceeding the difference between:
(iii)the sum of the amounts that would have been so payable to the primary beneficiary in the period of 10 years; and
(iv)the sum of the amounts paid to the primary beneficiary;

is payable to the primary beneficiary's estate, and

(c) if:
(i)the primary beneficiary dies within 10 years after the commencement day of the income stream; and
(ii)there is a surviving reversionary beneficiary who also dies within that period;

there is payable to the reversionary beneficiary's estate an amount determined as described in paragraph (b) as if that paragraph applied to the reversionary beneficiary.

Determination that income stream not asset-test exempt
9A(4)The Secretary may determine that an income stream that meets the requirements of subsection (2) is not an asset-test exempt income stream if the Secretary is satisfied that the person who has purchased the income stream has commuted an asset-test exempt income stream within 6 months after its commencement day on at least 3 occasions since the person first received a social security payment.
Determination that income stream is asset-test exempt
9A(5)The Secretary may determine, in writing, that an income stream that does not meet the requirements of subsection (2) is an asset-test exempt income stream for the purposes of this Act. In making the determination, the Secretary is to have regard to the guidelines determined under subsection (6).
Guidelines to be complied with in making determination
9A(6)The Secretary may determine, in writing, guidelines to be complied with when making a determination under subsection (5). The determination is a disallowable instrument for the purposes of section 46A of the "Acts Interpretation Act 1901".

9BMeaning of asset-test exempt income stream – life expectancy or 15 year minimum term income streams
General requirements
9B(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 person has reached pension age on or before the day on which the person purchases or acquires the income stream; and
(b)either of the following circumstances apply:
(i)the income stream arises 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;
(ii)the Secretary has made a determination under subsection (4) in respect of the income stream.

Requirements of contract/governing rules for provision of income stream
9B(2)A contract, or the governing rules, for the provision of an income stream to a person meets the requirements of this subsection if the contract or governing rules specify:
(a)that the payments under the income stream are to be made at least annually:
(i)if the person's life expectancy is less than 15 years—throughout a period equal to the person's life expectancy (rounded up at the person's option, if it does not consist of a whole number of years, to the next whole number); or
(ii)if the person's life expectancy is 15 years or more—throughout a period that is not less than 15 years but not more than the person's life expectancy (rounded up at the person's option, if it does not consist of a whole number of years, to the next whole number); and

(b)the total amount of the payments that may be made under the income stream in the first year after the commencement day of the income stream (not taking commuted amounts into account); and
(c)that the total amount of the payments that may be made under the income stream in any other year (not taking commuted amounts into account) may not fall below the total amount of the payments made under the income stream in the immediately preceding year (the "previous total"), and may not exceed the previous total:
(i)if subparagraph (ii) does not apply—by more than 5% of the previous total; or
(ii)if the index number for the second last quarter before the day on which the first of those payments is to be made (recent index number) exceeds the index number for the same quarter in the immediately preceding year (base index number) by more than 4% of the base index number—by more than such percentage of the previous total as is worked out under the formula

Recent index number - Base index number

100 x Base index number + 1

(d)if the income stream is purchased—that the first payment under the income stream relates to the period commencing on the day on which the income stream is purchased; and
(e)if the income stream is not purchased—that the first payment under the income stream relates to the period commencing on the day on which the income stream is acquired; and
(f)if the income stream is not a defined benefit income stream—that the amount paid as the purchase price for the income stream is wholly converted into income; and
(g)that the income stream has no residual capital value; and
(h)that the income stream cannot be commuted except:
(i)if the commutation is made within 6 months after the commencement day of the income stream; or
(ii)if the payment resulting from the commutation is transferred directly to the purchase of another income stream provided under a contract, or governing rules, that meet the requirements of this subsection or subsection 9A(2); or
(iii)if the legal or equitable interest in the payment resulting from the commutation is transferred, on the death of the person, to a reversionary beneficiary or (if there is no reversionary beneficiary) to the person's estate; or
(iv)to the extent necessary to cover any superannuation contribution surcharge that the person is liable to pay in his or her capacity as purchaser of the income stream; and

(i) that the income stream:
(i) can be transferred only on the death of the person; and
(ii)can then only be transferred to a reversionary beneficiary or to the person's estate; and

(j) that neither the capital value of the income stream, nor the income from it, can be used as security for a borrowing; and
(k) that, if the income stream reverts, it must not have a reversionary component greater than the benefit that was payable immediately before the reversion; and
(l)that, if the income stream is commuted, the commuted amount must not be greater than the benefit that was payable immediately before the commutation.

Determination that income stream not asset-test exempt
9B(3)The Secretary may determine that an income stream that meets the requirements of subsection (2) is not an asset-test exempt income stream if the Secretary is satisfied that the person who has purchased the income stream has commuted an asset-test exempt income stream within 6 months after its commencement day on at least 3 occasions since the person first received a social security payment.
Determination that income stream is asset-test exempt
9B(4)The Secretary may determine, in writing, that an income stream that does not meet the requirements of subsection (2) is an asset-test exempt income stream for the purposes of this Act. In making the determination, the Secretary is to have regard to the guidelines determined under subsection (5).
Guidelines to be complied with in making determination
9B(5)The Secretary may determine, in writing, guidelines to be complied with when making a determination under subsection (4). The determination is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901."

The legislative amendments from 20 September 1998 also contained a provision allowing a person who purchased an income stream product prior to 20 September 1998 to request a Ministerial exemption from the new rules in cases of severe detriment. As relevant, clause 110 to Schedule 1A of the Act states:
"110 (1) If:
(a)a person who had entered into a binding arrangement for the provision to the person of an income stream was, on 19 September 1998, receiving a social security payment; and
(b)the Minister declares, in writing, that the Minister is satisfied that the application of this Act (as amended by the amending Act) would cause the person significant disadvantage in relation to the treatment of the person's income stream;
this Act applies to the person in relation to the income stream as if the amendments made by Part 1 of Schedule 3 to the Amending Act had not been made.
110 (2)     Subclause (1) ceases to have effect if:
(a)the social security payment referred to in subclause (1)(a) (the original payment) ceases to be payable to the person; and
(b)another social security payment or a service pension does not become payable to the person immediately after the original payment ceases to be payable.
110 (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 day 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.
110 (4)     In this clause:
'amending Act' means the Social Security and Veterans' Affairs Legislation Amendment (Budget and Other Measures) Act 1998.
'binding arrangement', in relation to a person, includes an arrangement that may only be terminated on terms that are, in the opinion of the Secretary, likely to cause severe detriment to the person."

BACKGROUND

The information contained in this section is provided by way background and the facts contained within are not in dispute:

Mr Rigney was born on 4 November 1931. His wife, Mrs S V Rigney, was born on 29 August 1932. Mr Rigney is in receipt of an Age pension.
On 16 December 1996, Mr Rigney purchased a Connelly Temple Public Superannuation Fund Fixed Term CPI Pension product for $52,100 (T3, Exhibit A2). The pension's term was for 24 years and 6 months, commencing on 15 February 1997 and ceasing in July 2021. Other features of this product were that it could be commuted at any time in part or in full and would revert to Mrs Rigney in the event of Mr Rigney's demise.
The Connelly Temple income stream product was, at the time of purchase, asset test exempt for the purposes of determining the rate of Age pension.
From 20 September 1998, new legislation was enacted which impacted upon Mr Rigney's Connelly Temple product in that the product was thereafter considered to be an asset tested income stream and hence included in the Asset Test for the purposes of determining the rate of Mr and Mrs Rigney's Age Pension.
Just prior to the legislative amendments, Mr Rigney was advised by departmental letter of 16 September 1998, that his Age Pension would reduce to $254.30 per fortnight from 1 October 1998 as a result of legislative change (T8). Prior to this, Mr Rigney's Age Pension was approximately $298.50 per fortnight.
On 17 November 1998, Mr Rigney requested that his Connelly Temple income stream product be exempt from the Assets Test and on 3 December 1998, this request was refused (T14).
Mr Rigney then sought an internal review of the decision and when the decision was affirmed, sought a review by an ARO on 12 January 1999.
On 15 February 1999, an ARO affirmed the Departmental Delegate's original decision (T29).
On 15 February 1999, Mr Rigney sought review of the ARO's decision by the SSAT (T31) and on 13 May 1999 the SSAT affirmed the decision under review (T2).
On 21 June 1999, Mr Rigney made application for review to the Tribunal and was subsequently granted an extension of time. Mr Rigney noted in his application for review that the SSAT had not addressed all of the issues he had discussed at the hearing before that Tribunal.

APPLICANT'S EVIDENCE

Mr Rigney told the Tribunal that he had decided to purchase the Connelly Temple Public Superannuation Fund CPI Pension product because it met his and his wife's needs in addition to being Asset Test exempt for the purposes of determining the rate of Age Pension. An important consideration for Mr Rigney was that the product gave a pension for 24 years and 6 months and could revert to his wife in the event of his demise. This reversion condition was extremely important to Mr Rigney as Mrs Rigney 's health was problematic and he was worried that if he died, Mrs Rigney would need to have provision made for her future health and other needs. Mr and Mrs Rigney do not have Private Health Insurance and because they live in the country, they require funds for transport, particularly in Mrs Rigney's case, in being transported to doctors' appointments or indeed to hospital as occurred in 1998.
Mr Rigney described for the Tribunal his wife's hospitalisation for two and a half months in late 1998. Mrs Rigney has suffered from diabetes for the last five years. At the time of her hospital admission, it was not clear to her medical advisers what her medical problem was, but she was admitted to hospital trembling and shaking. There was consideration of the possibilities that Mrs Rigney had septicaemia, Legionnaire's disease or some other infection but it was never fully diagnosed. Whilst in hospital, Mrs Rigney developed a clot and also picked up a staphylococcal infection.
Mr Rigney stated that Mrs Rigney's doctor bulk bills Medicare and they have a Pharmaceutical Benefits and Pensioner Health Card. Mr Rigney estimated that his wife's medication for her various conditions would cost approximately $20.00 per month.
Mr Rigney stated that his health is generally all right, though he is blind in one eye and slightly deaf. Mr Rigney worked as a motor mechanic and had an accident at work in 1967. He was paid a lump sum compensation settlement and has his ongoing treatment for his eyes and for glasses covered by insurance.
When the legislation changed on 20 September 1998 in relation to Mr Rigney's income stream product no longer being Asset Test exempt, Mr Rigney stated that he was advised by a Centrelink Officer to reduce his assets. Accordingly, Mr and Mrs Rigney had two holidays after Mrs Rigney's hospital admission and they recarpeted their home. In addition, Mr Rigney gave $15,000.00 to their children, including providing funds to a grandson to assist with his University education. In total, Mr Rigney reduced his assets by $30,000.00. Currently, the asset value of the Connolly Temple product is no longer causing their Age Pension to be reduced and Mr and Mrs Rigney now receive the full Age Pension. Mr Rigney told the Tribunal that prior to the legislative change, he and his wife had a $30,000.00 buffer. After the legislative amendments he had to rearrange his assets to ensure that the Age Pension was received at the full rate. Mr Rigney considers that he was disadvantaged by the loss of this $30,000.00. Currently, he is on the "borderline of the Assets Test", Mr Rigney told the Tribunal.
When Mr Rigney learned of the legislative amendments and the impact on his Connolly Temple income stream product, he obtained advice from Bridges Personal Investment Services as to alternative products. An alternative product could be arranged, Mr Rigney told the Tribunal, as he was able to commute his original income stream product. The alternative product suggested would, however, only have a duration of 15 years. Mr Rigney stated that this product was not suitable because his expectation is that he is likely to live beyond 80 years of age which is when the alternate product would end. Mr Rigney's father's age is 95 and his mother died when she was 86 years old. Thus, it is highly probable that Mr Rigney will live longer than the alternate product allows for and under the alternate scheme, his capital would have run out when he was 80 years old and not at age 89 years as with the original product. Mr Rigney is also concerned that the alternate product would not revert to his wife on his demise.
The features of the original Connolly Temple income stream product are summarised as follows:

the term was 24 years and 6 months;
the gross annual pension prior to indexation was $2,784.12;
there is a reversion to Mrs Rigney in the event of Mr Rigney's demise;
payments commenced from 15 February 1997.

The alternate product suggested to Mr Rigney has the following features:

the value was $47,783.00 at the time of the SSAT hearing;
the term is 15 years and although it has higher fortnightly payments, these payments end after 15 years;
there is no reversion to Mrs Rigney in the event of Mr Rigney's demise;
a commutation would involve taxation estimated to be approximately $3,000.

Mr Rigney reiterated that the alternate product suggested by Bridges Personal Investment Services would not meet his needs, particularly his concern about his wife's health and the possibility that she might need nursing home care. Mr Rigney is also concerned that the alternate product would not revert to his wife.

Mr M Barlow, Branch Manager/Authorised Representative of Bridges Personal Investment Services noted on 22 March 1999 the features of an alternate income stream product. Mr Barlow wrote:
"… The commutation value was $7,561.00. Mr Rigney had up until that time received 20 monthly payments of $232.01 amounting to $4,640.20 up until the commutation value. If Mr Rigney had accepted the commutation to invest in a currently assets test exempt pension, he would have received $4,640.20 of income payments plus the $47,561.00 commutation value, giving him a total of $52,201.20.
This means, had Mr Rigney accepted the commutation he would have had an invest (sic) return of $101.20 on his $52,100 original investment over a 20 month period. This represents a 0.1165% per annum return on his investment. This is an incredibly meagre return even when compared to Centrelink's lower deeming rate of 3%.
Mr Rigney's original intentions were to buy a long term retirement income stream so as to ensure his capital would last till he turned 89. Now he is being told that this is not satisfactory under the assets test exemption rules, however, if he shortens the term so that his capital runs out when he is 80 then this income stream will be more favorably treated.
If the original retirement income stream was made non commutable, then surely Mr Rigney would be complying with the spirit of the 20 September changes at no cost to himself. I fail to see the logic in making a shorter term Retirement Income stream more favourably assessed, especially when it is obvious that Mr Rigney is financially disadvantaged." (T32)

If Mr Rigney took the alternate product, it would not meet his requirements of duration of the product and reversion to his wife, Mr Rigney concluded.
Mr Rigney described his assets which included his home, furniture and car. Mr Rigney also has $20,000.00 in a term investment and, at the time of hearing, between $6,000.000 and $7,000.00 in a Credit Union cheque account. He also has a portfolio of shares which are valued at approximately $80,000.00 and for which he receives a return of $5,000.00 per annum. This is addition to the original Connolly Temple income stream product.
SUBMISSIONS
Ms Koller referred the Tribunal to sections 9A and 9B of the Act which describe "asset-test exempt income stream". Section 9B describes a range of criteria for products that have a life expectancy term or a 15 year minimum term. Subsection 9B(4) permits the Secretary to exempt an income stream, having regard to any guidelines. Ms Koller submitted that there were in fact no guidelines issued under subsection 9B(5) of the Act. Ms Koller submitted that some guidance in this matter could be derived from the Explanatory Memorandum relating to income streams and the purpose of the legislative amendments commencing on 20 September 1998. Explanatory Memorandum Schedule 3 noted that the purpose of the amendments commencing on 20 September 1998 was to:
"… ensure that income streams are classified for means testing purposes on the basis of their characteristics, rather than arbitrary factors such as where an income stream is paid from (eg a superannuation fund or a life office)...."

The Explanatory Memorandum later discussed other reasons why the Social Security Means Test has had difficulty assessing income stream noting that:

"· The trend in product design has meant that the traditional model of retirement income stream – a lifelong pension with no accessible capital is no longer the norm. Instead many retirees are opting for products that entitle them to retain full access to their capital over the term of income stream, often with substantial 'residual capital value' (or lump sum) available to them at the end of the term.
·The increasing difficulty in determining whether, for social security purposes, an income stream should primarily be treated as an asset that is being gradually depleted over a number of years.
·Some of the new products on the market have been specifically designed to take advantage of the loopholes in the current social security treatment, which was originally structured around the traditional model of a retirement income stream."

Ms Koller submitted that the purpose of the new legislation was to continue to exempt from assets assessment products which resulted in a lifelong pension without accessible or residual capital at the end of the term irrespective of the source of the product. The Explanatory Memorandum noted:
"… It has become increasingly common for financial arrangements to be set up that look like income streams but which do not provide a flow of income through an orderly draw down of capital. In particular these arrangements are used to hide assets. …"

The legislation retained the exemption from the Assets Test for the products meeting the description in section 9A and section 9B of the Act, Ms Koller submitted. Generally, such products are long term income stream products except where a person's life expectancy is less than 15 years, in which case the product can be only for the person's life expectancy as referred to in subsection 9B(2)(a)(i) of the Act or where the products have no residual capital, for example as referred in subsection 9A(2)(g) and 9B(2)(g) of the Act and there are limitations on the quantum and frequency of payments and upon commutation.
Ms Koller submitted that section 9A is concerned with products which are purchased at any time and are lifelong products without a fixed term. Mr Rigney's original product does not meet section 9A because it is a fixed term product for 24.5 years and because it is commutable. Section 9B is concerned with fixed term products. Mr Rigney's product does not meet subsection 9B(2) because, while the fixed term is longer than 15 years, it is also longer than his notional life expectancy, and because it is commutable. Ms Koller submitted that the restriction on a minimum term is consistent with the policy revealed by the Explanatory Memorandum. However, Ms Koller submitted that there is nothing in the Explanatory Memorandum which reveals a rationale for limiting the maximum fixed term to the notional life expectancy. Given that section 9A permits lifelong payments and reversions, Ms Koller submitted that this made little sense. In this regard, Mr Rigney had a notional life expectancy of 16.5 years, that is to about age 81 at the time he purchased his Connolly Temple income stream product in 1996. Mr Rigney's family history, however, gives him reason to expect to live for a longer period. His father is aged 95 years and his mother died at age 86 years. Mr Rigney had sought financial security to age 90 with the Connolly Temple product he originally purchased. While it was commutable as indicated in Mr Rigney's evidence, for a range of reasons Mr Rigney had no desire to commute the product except that the legislation changed. These reasons included seeking security for himself and Mrs Rigney in their later years. Mrs Rigney suffers from diabetes and requires numerous medications. In the past, she has been hospitalised due to complications arising out of her diabetes. Mr Rigney wanted to ensure that his investments last as long as possible so that any future expensive medical care is covered, including nursing home care. It was also important to Mr Rigney that he and his wife retain the capacity to maintain a reliable motor vehicle so that Mrs Rigney can travel to medical appointments as they live in a country region, Ms Koller submitted. The reasons for taking up the Connolly Temple product allowed Mr Rigney to plan his long term future. This changed with the legislative amendment. Ms Koller contended that Mr Rigney had taken the "traditional approach to organising his retirement income".
Mr Rigney's reasons for not wishing to commute his Connolly Temple product were sound ones, Ms Koller submitted. In this regard, if Mr Rigney commuted his income stream product within two years of purchase he would receive a very poor return on his investment. While acknowledging that Mr Rigney would receive his original investment back, less amounts already paid, this still denied him the earning capacity of his capital during the period. Had Mr Rigney known that the legislative changes were to occur and that he was therefore only making a short term investment, Mr Rigney could have selected a more suitable investment which would have paid a far higher amount of interest over the period, Ms Koller submitted. Further, Ms Koller contended that if Mr Rigney commuted his product to a lifelong income stream, he would receive less income from it. Because the balance of risk differs between term limited products and lifelong products, the latter pays smaller amounts of income. By way of example, Ms Koller referred to the Department's quotation for an AMP product. In the year 2000, which is year four on Mr Rigney's original product (Exhibit A2), the projected net pension for year four is $3,132.00. The projected net income for the AMP example, submitted by the Department, for the year 2000 to 2001 is $2,785.00. At such an early stage of the product's life, this difference would not be attributable to differences in CPI assumptions. The gap between the two products increases with time, Ms Koller submitted. For example, in the year 2013, which is year 17 on the product purchased by Mr Rigney, there would be a net income of $5,215.00. On the AMP product, the net income would be $4,090.00. Ms Koller submitted that the difference is not solely attributable to the different CPI assumptions.
Referring to subsections 9A(5) and 9B(4) of the Act, Ms Koller noted that these are discretionary provisions. Each requires the Secretary only to "have regard" to any guidelines issued under the subsequent sections. Such guidelines are not conclusive, but merely matters to which the Secretary is to have regard, Ms Koller contended. Ms Koller submitted that if the guidelines were something more than this, they would fetter the discretion and not be valid and referred the Tribunal to Zoarder and Secretary, Department of Social Security (1998) 26 AAR 342. Other examples of overly restrictive guidelines and policies which have been set aside could be found in Green and Daniels v Secretary, Department of Social Security (1977) 13 ALR 1; Secretary, Department of Social Security v Riddell (1993) 30 ALD 31; and also Re Drake and Minister for Immigration and Ethnic Affairs (2) (1979) 2 ALD 634.
There are only guidelines made in respect of subsection 9A(5) and that describes two particular types of exempt superannuation schemes which provide lifetime income stream products. Neither of these are similar to Mr Rigney's product. Ms Koller submitted that there is nothing preventing other products being made exempt for other reasons. The guidelines do not, Ms Koller submitted, set out a set of general principles to assist in making a decision to exempt, as might have been expected, they simply exempt two particular products in relation to subsection 9A(5).
In Mr Rigney's matter, Ms Koller submitted that the decision-maker is left to determine whether in the individual case, the product should be exempt. In making a decision about this matter, Ms Koller contended that it is appropriate to consider the purpose of the provision and equally appropriate to consider whether in the particular case there is something that would make it inappropriate to apply the ordinary rule. One reason, the Department has accepted, is where the product requires legislation for alteration, however, it is unknown whether or not it was possible for persons using these products to exit anyway. This does not exclude other reasons, Ms Koller strongly submitted. Mr Rigney's product did substantially comply with the purpose of the legislation. He was behaving as a "traditional retiree". His product provided a genuine retirement income stream and was not a product designed to hide an asset such as those set out by way of example in the Explanatory Memorandum. There was no residual benefit at the conclusion of the term, the instalments were payable at a reasonable level and were not skewed towards saving a residual capacity. Nor could Mr Rigney's product be likened to a scheme designed to hide an asset in the short term. The term of Mr Rigney's product was lengthy and set at a length commensurate with Mr Rigney's reasonable assessment of his own individual life expectancy.

The only difference from the type of income stream product for which the legislation intended to retain the exempt status, was that Mr Rigney's product retained a capacity for commutation. In the case of his particular product, to receive a genuine benefit from it, it was necessary to remain in it for a long time otherwise, as Mr Rigney's financial adviser, Mr Barlow, pointed out, the product compared unfavourably with alternate forms of shorter term investment. Further, Mr Rigney had no intention to utilise the commutation capacity unless a health emergency arose in respect of Mrs Rigney. Finally, Ms Koller submitted that Mr Rigney purchased the product at a time when the pension rules made it reasonable for him to expect that the product would continue to be Asset Test exempt. Accordingly, it would not be beyond the scope of the legislation to exempt Mr Rigney's individual Connolly Temple product in his particular circumstances, Ms Koller contended. Any absence of guidelines in respect of subsection 9B(4) should not prevent the exercise of the discretion contained in subsection 9B(4). The Tribunal should consider the detriment to Mr Rigney because of the legislation, the issue of his wife's ill health, living in the country, transport costs and the need to secure his assets longer than 15 years.
Ms Koller also referred the Tribunal to clause 110 under Schedule 1A to the Act which contains a provision for Ministerial exemption of income streams from the Asset Test. Subclause 110(4) to Schedule 1A defines "binding arrangement" referred to in subclause 110(1). Ms Koller submitted this was not an exhaustive definition. While conceding that there was no legal barrier to Mr Rigney exiting the original product, Ms Koller submitted that Mr Rigney could not obtain the benefit of favourable terms from a new product. An alternative product would not allow reversion to Mrs Rigney should he exit the product before the term of its expiry date. While Mr Rigney could exit his original product and re-enter another product, it was to his detriment.
Ms Koller submitted that the definition of "binding arrangement" should be given a beneficial interpretation so as to include persons who had actually purchased income stream schemes which were Asset Test exempt at the relevant date but not to include people who had not yet entered into formal arrangements. In Secretary, Department of Social Security v Cooper (1990) 21 ALD 155, the Federal Court noted in relation to a Handicapped Child's Allowance, that decision-makers should attach importance to the fact that sections of the Act operate by a way of the extension of benefits conferred by beneficial legislation. The Court noted, in relation to the legislation:
"Its language should be applied, in accordance with the obvious intent, so that, if possible, a benefit which ought to have been received shall not be excluded by the failure of a disadvantaged person to put in the 'right claim in a technical sense'. To construe the words of the subsection in a narrowly technical spirit would be quite perversely contrary to its evident purpose. It is intended to overcome technicality and to have as broad an operation as its language will allow."

The definition of "binding arrangement" includes arrangements that may be terminated on terms that are likely to cause "severe detriment to the person". Ms Koller referred the Tribunal to the Macquarie Dictionary definition which included "detriment" as harm or loss or damage, and "serious" as grave or solemn, not trifling, hard or rigid. Therefore, Ms Koller submitted that serious detriment referred to something serious and harsh, not slight. In taking the ordinary dictionary definition, Ms Koller submitted that the changes which Mr Rigney would experience from having to change his income stream product would cause him harm and was a serious change. He would lose $84.00 per fortnight in income from his Age Pension and this was a significant amount for a pensioner. The amendments would cause him significant serious disadvantage and detriment not only financially but also because he was being faced with the possibility of taking another product which he had not planned to do, but for the legislative amendments.
The severe detriment does not only include financial disadvantage, Ms Koller submitted. Mr Rigney also suffers loss of peace of mind, particularly in light of his expectations of his longevity. Ms Koller submitted that this matter is not about what other assets Mr Rigney has but is about the harm the legislative change has caused him and the impact that this has on his particular circumstances. Mr Rigney made a decision about his future based on the knowledge at the time and had accordingly arranged his affairs in a planned manner. To have to change these plans, and to take up another income stream product which did not provide the duration that he required nor had the reversionary provisions to his wife and also which caused him to suffer some financial disadvantage by tax liabilities and losing part of his pension, were all matters which Ms Koller submitted caused Mr Rigney serious disadvantage. Thus, although it was true that Mr Rigney could commute his Connolly Temple income stream product, to do so was not without great difficulty and serious disadvantage to him. Ms Koller contended that these particular circumstances brought Mr Rigney within the provisions of clause 110 to Schedule 1A of the Act.
Ms Koller concluded that people should not lose benefit because of legislative change and there should be a broad approach as to the interpretation of binding arrangement. Ms Koller contended that the legislative change would cause Mr Rigney loss of security because of having to change to another product to bring him within the Asset Test exemption. This meant that he did not have security into the future which the original product provided for him and his wife. He was forced to use his funds at a more rapid rate and he was being caused to do something completely different from that which he had done in purchasing the Connolly Temple product which had personal features that suited his circumstances. Ms Koller further contended that clause 110(1)(b) is satisfied as the rate reduction which affected Mr Rigney and his wife caused by the application of the amending Act, is a significant disadvantage.
Mr Kenny submitted that one of the fundamental principles of income stream initiatives implemented through the legislative changes on 20 September 1998 is that if an income stream product allows access to capital, it is subject to the Assets Test. As Mr Rigney's Connolly Temple income stream product allows him access to its capital, it was assessed under the Assets Test from 20 September 1998. Mr Rigney's product was not asset tested before this date because of a legislative provision whereby products which were classed as "superannuation pensions" were not subject to the Assets Test. Previously, recipients of superannuation pensions did not have access to the Used Purchase product and on that basis, they were not subject to the Assets Test. In the area of pensions and annuities products, Mr Kenny submitted that between 1990 and 1998, this period was characterised by rapid innovation. In this regard, income stream products were developed that met the requirements for classification as a superannuation pension for Social Security purposes yet allowed a person access to the capital. Mr Rigney's Connolly Temple income stream product was one such product.
Mr Kenny noted Ms Koller's submissions on Mr Rigney's behalf that the power in subsection 9B(4) of the Act be exercised to determine that Mr Rigney's Connolly Temple income stream product be Asset Test exempt. Noting the arguments, Mr Kenny summarised Ms Koller's arguments as: because there were no guidelines for the exercise of the discretion under subsection 9B(4) of the Act, the Secretary is at liberty to exercise subsection 9B(4) in a wide variety of circumstances. Further, Ms Koller's contention was that because Mr Rigney entered the product before 20 September 1998 and had made plans on the basis of the former legislative provisions, he should be exempted from the effect of the 20 September 1998 rules. Ms Koller also argued, Mr Kenny noted, that suitable alternate products in which to reinvest any commutation from the existing product were not available and finally, clause 110 of Schedule 1A to the Act has been applied inappropriately to the assessment of Mr Rigney's product.
In relation to Ms Koller's submissions on subsection 9B(4) of the Act, Mr Kenny noted that the Secretary made it clear a product is to be an asset exempt product even though it does not meet all the requirements of subsection 9B(2) of the Act. This subsection also requires that any decision of the Secretary under subsection 9B(4) be made in accordance with guidelines issued under subsection 9B(5). There are no guidelines under subsection 9B(5) currently in existence. Notwithstanding this, Mr Kenny submitted that the subsection does not oblige the Secretary to provide guidelines for the determination of an Asset Test.
Mr Kenny submitted that the absence of specific guidelines in subsection 9B(5) of the Act does not by itself imply that there should be no limitations to the Secretary's discretion to apply subsection 9B(4), even in circumstances where the legislation gives the bearer significant discretionary powers. In exercising discretionary powers, Mr Kenny submitted that decision-makers should comply with "standards of rationality, purposiveness and morality". At a minimum, Mr Kenny contended that such standards require:
"· that the exercise of powers be based on reasons, and that the reasons be applied consistently, fairly and impartially;
·that the reasons be intelligibly related to a framework of equally intelligible purposes, principles and rules (in general standards) which can be seen fairly to fall within and be the basis of the delegated authority;
·that in matters of procedure and substance, there be compliance with general, critical considerations of morality. (See d j Galligan "Discretionary Powers: A Legal Study of Official Discretion", Claredon Press, Oxford)." (Exhibit R3, paragraph 9)

Mr Kenny asked the Tribunal to consider that the Department's treatment of Mr Rigney's income stream product did not contravene the standards. Mr Rigney's case had been considered twice by departmental delegates who clearly declined to exercise the discretion. The exercise of the discretion by the Tribunal in Mr Rigney's circumstances, Mr Kenny submitted, would be inconsistent with the purpose and intent of the provision.
Mr Kenny opined that the policy intent behind subsections 9B(4) and (5) is to enable the Secretary to class a product as Asset Test exempt for Social Security purposes where the product substantially complies with the requirements in subsection 9B(2) and where the product provider would have considerable difficulty in altering the product's terms and conditions to fully comply with the requirements for Asset Test exemption. Mr Kenny pointed to current examples where this approach is applied to lifetime pensions such as in the Defence Force Retirement and Death Benefits Scheme and the Military Superannuation and Benefits Scheme. Both these schemes, Mr Kenny submitted, have been declared to be Asset Test exempt under subsection 9A(5) because they are very similar to Asset Test exempt income streams and their alteration would require the passage of legislation through the Commonwealth Parliament. Another example is an exemption which is present for all public sector superannuation pensions. In Mr Rigney's case, there are no comparable circumstances with his income stream product and it would be inappropriate, Mr Kenny emphasised, to use subsections 9B(4) and (5) to determine that the product is Asset Test exempt.
Mr Kenny submitted that the terms and conditions of Mr Rigney's current income stream product, when seen in light of the Department's contact with Connelly Temple, indicate that Mr Rigney's could commute his income stream product and purchase another Asset Test exempt product at any time.
Referring to the Department's contact with Connelly Temple, as recorded in Attachment 1 to the Respondent's submission dated 14 February 2000, Mr King recorded on 13 November 1998 that Mr Rigney's could commute from his original Connelly Temple income stream product without the imposition of exit fees. Accordingly, Mr Kenny submitted that the terms and conditions of Mr Rigney's income stream product could be changed with comparative ease by simply commuting from his original product and purchasing a suitable complying product. Mr Kenny noted that Mr Rigney may also be able to obtain other products but this has not been tested.
Referring to the new legislation, Mr Kenny noted that to remove the anomaly which existed in products such as that held by Mr Rigney and to consider them to be Asset Test exempt would be to advantage them unfairly against those other customers who were in similar circumstances. The amending legislation includes suitable provisions contained in clause 110 to Schedule 1A to the Act to exempt those customers who would experience significant disadvantage under the new rules.
Referring to Ms Koller's submissions, Mr Kenny concluded that the Applicant appeared to make four major objections to commuting his current product and purchasing a new Asset Test exempt product. These arguments are that the commutation value is too low or the term offered by a new complying product offered too short a term. Further, Mr Rigney objected that the new product(s) would not have a reversionary income stream in the event that Mrs Rigney survived Mr Rigney and, finally that the commutation of the product would incur substantial taxation liabilities to Mr Rigney.
In relation to the issue of commutation value, Mr Kenny suggested the issue was whether the amount offered as a commutation value at the time of the SSAT hearing constituted a significant financial impediment to Mr Rigney if he were to commute his original income stream product. Mr Kenny noted that the commutation value of a product is a matter between the customer and the product provider. Accordingly, the actual value offered is a function of market conditions at the time that the commutation value is calculated. It is not proper that the administration of the Act is undertaken in response to changes in investment market conditions. To do so would reduce the predicability in decision-making, Mr Kenny submitted. In the alternative, Mr Kenny submitted that if the Tribunal was to decide that the commutation value was unfair at the time the decisions were made, it should note that as at the SSAT hearing, the Applicant argued that any reduction in the value of his Connelly Temple product indicated that he was financially disadvantaged.
From the terms of Mr Rigney's contract, Mr Kenny submitted that it is clear that the income is to be paid for a period of approximately 24 years. At the end of that period, Mr Rigney's capital is exhausted. Therefore, the income stream paid to Mr Rigney includes part of the capital being returned to him and of necessity, the value of the income stream product would reduce over time. Mr Kenny submitted that it is appropriate to ask the question as to whether the commutation value of the Connelly Temple product would accelerate the inevitable decline in the original product's value in an unfair manner. The answer to such a question would have to take into account the capital amount returned over the period since the product was first produced, in this case 16 December 1996. Noting that such assessments are more properly the task of a qualified actuary, Mr Kenny provided an approximate assessment for the assistance of the Tribunal, noting:
"·the amount of capital returned would be roughly be (sic) equal to the purchase price divided by the term of the product. ie $522,000/24.6 = $2,122 per year;
·the period of time between the date of purchase and the SSAT hearing was about 41 months or 3.42 years;
·the total amount of capital returned during this time is $2,122 * 3.42 years = $7,258." (Exhibit R3, paragraph 21)

In such circumstances, Mr Kenny submitted that the purchase price minus the capital returned ($52,000.00 minus $7,258.00) equals $44,742.00. As Connelly Temple offered a commutation value of some $47,783.00 at the time of the SSAT hearing, Mr Kenny submitted that it is unlikely that the offered commutation value has unfairly reduced the value of the product. In such circumstances, Mr Kenny submitted that there was no financial impediment to commutation.
In the Applicant's Statement of Facts and Contentions (Exhibit A1), it is emphasised that Mr Rigney wishes to ensure that his remaining capital will last during his lifetime and that of his wife. Mr Kenny noted that Mr Rigney had expressed a concern that alternative products, which are based on average community life expectancies calculated by the Australian Government Actuary, would not provide income over Mr and Mrs Rigney's individual expected life spans. Mr Kenny submitted that although the requirements for an Asset Test exempt life expectancy product in subsection 9B(2) of the Act stipulate that the term can be no longer than a customer's average life expectancy, the Applicant can purchase a lifetime income stream that is Asset Test exempt if it meets the requirements in subsection 9A(2) of the Act. The purchase of a reversionary lifetime income stream product would ensure that both Mr and Mrs Rigney would continue to receive income from the income stream product for as long as each of them lives.
Mr Kenny did not agree with the Applicant's contention that the purchase of an Asset Test exempt income stream would require the exhaustion of Mr Rigney's capital over a 16 year term. Mr Kenny submitted that as the option to purchase a lifetime income stream is open to Mr Rigney, and referred to Attachment 2 to Exhibit R3 as providing an example that there is a product from AMP which Mr Kenny has found which quotes for options of a lifetime, reversionary, CPI indexed income stream product. Thus the AMP Guaranteed Income Plan provided by Mr Kenny would suit Mr Rigney's stated requirements. Accordingly, Mr Kenny submitted that there are no significant obstacles to Mr Rigney purchasing an income stream product that would make reversionary payments to Mrs Rigney if she survives him.
In relation to the issue of tax liability, Mr Kenny submitted that this would arise only if Mr Rigney's current income stream product were commuted and the proceeds of such a commutation were taken outside this superannuation environment. If Mr Rigney was not planning to purchase another superannuation income stream product with his funds, the available capital for the repurchase of an income stream would be reduced by the amount of tax paid. This would automatically lead to a lower level of income stream payments being made. Further, Mr Kenny noted that an income stream purchased with the proceeds of such a commutation would not receive the benefit of the 15% tax rebate available to recipients of pensions and annuities paid from superannuation monies. This is because the commuted funds would no longer be superannuation monies once lump sum taxes had been paid. Accordingly, Mr Kenny submitted that the tax consequences of inappropriate commutation is a strong incentive for Mr Rigney to purchase an Asset Test exempt income stream product and that such a product is available.
Mr Rigney's financial adviser has provided only one quotation for an alternative income stream product which is also offered by Connelly Temple. While Mr Kenny accepted that there may be advantages in securing a quote from his current product provider, Mr Rigney does so at the risk of restricting his choice of other suitable alternative products, Mr Kenny submitted. As Mr Kenny had referred, the AMP, an alternative product provider, has a lifetime Asset Test exempt income stream and yet it was but one example of readily available alternative products which appear to meet Mr Rigney's needs, Mr Kenny submitted.

Accordingly, Mr Kenny disputed the Applicant's contention that there is no alternative product available to Mr Rigney. Contrary to the barriers noted in evidence from the Applicant and his representative, Mr Kenny submitted that there does not appear to be any substantial obstacle to Mr Rigney commuting his current product and purchasing a more suitable one.
Mr Kenny turned then to discuss clause 110(1) of Schedule 1A to the Act. This clause provides a mechanism for the exemption of an income stream from assessment under the post 20 September 1998 rules if there is an income stream which is a binding arrangement and the Minister is satisfied that the customer will experience significant disadvantage.
Referring to the guidelines developed by the Department of Family and Community Services and subsequently approved by the then Minister in August 1998, these stipulate that an income stream product is subject to a "binding arrangement" if it cannot be commuted. The guidelines give effect, Mr Kenny submitted, to the intent expressed in Item 43 of the Explanatory Memorandum to the amending Act. As indicated previously, Mr Kenny noted that the provisions of subclause 110(4) also stipulate that an income stream is subject to a binding arrangement if commutation would cause severe detriment.
Mr Kenny submitted that Item 43 of the Explanatory Memorandum indicated that Parliament expected that subclause 110(1) would not be widely used. Accordingly, Mr Kenny submitted that any interpretation of subclause 110(1) which allows for a wide interpretation would not appear to be in accord with Parliament's intention. Mr Kenny submitted that it is clear that Parliament intended that the term "binding arrangement" meant an arrangement from which the customer could not extract him or herself or one that could be exited only with severe detriment. Mr Kenny submitted that Mr Rigney's Connelly Temple income stream product is not subject to a binding arrangement because it can be commuted at any time without the imposition of an exit fee.
In relation to the issue of "severe detriment", Mr Kenny referred the Tribunal to subclause 110(4) which he stated made it clear that a customer would only be classed as being in a binding arrangement if the Secretary considered that he or she would experience severe detriment by exiting the product. Mr Kenny submitted that care should be taken to ensure that the basis for assessing "severe detriment" is based on the level of exit fees associated with the commutation. It is Mr Kenny's clear belief that severe detriment is not caused by a reduction in the commutation value caused by market fluctuations or the imposition of a tax liability upon commutation. Any attempt to assess severe detriment on the basis of such factors would be mistaken, Mr Kenny contended, because that would increase the degree of uncertainty in the administration of the Act as it would mean that decisions were made on a changing basis dependent on the state of investment markets. Further, it would be inconsistent with the administration of the Means Test which is based upon gross income and which takes no account of tax liabilities in the administration of the Income Test, Mr Kenny submitted.
Mr Kenny then turned to consider Ms Koller's submission in relation to the Tribunal taking a beneficial interpretation of subclauses 110(1) and (4) of the Act. Mr Kenny noted that, given that there were available alternative products such as the AMP product, there was sufficient evidence to support his contention that Mr Rigney would be able to secure favourable terms of a new product which would not disadvantage him as compared with the original Connelly Temple product. The income stream provisions of the Act which include subclauses 110(1) and (4) are a part of the Means Test, Mr Kenny submitted. The main function of the Means Test is to permit the payment of benefit to all who fall within its limits and to exclude from receiving payments those who do not, that is, the Means Test has both "excepting" and "enabling" provisions. Mr Kenny referred the Tribunal to Rose v Secretary, Department of Social Security (1990) 19 ALD 601 which noted that the application of the abovementioned provisions do not necessarily require a beneficial interpretation.
Mr Kenny referred the Tribunal to Mr Rigney's claim that for a time he and his wife experienced a reduction in the rate of Age Pension paid to them after 20 September 1998 as they were assessed under the Assets Test after that date. Noting Mr Rigney's suggestion that there had been significant disadvantage to them because of this reduction, Mr Kenny referred the Tribunal to Mr Rigney's evidence that they gave $15,000.00 of their assets to a family member(s) and also spent a further $15,000.00 on a number of holidays, and recarpeting the house to ensure that Mr and Mrs Rigney's total assets would fall below the amount which had prevented them receiving the full rate of Age Pension. Such circumstances were not those of disadvantage nor those which should cause the Tribunal to consider that Mr Rigney had entered into a binding arrangement from which he would suffer severe detriment or disadvantage by exiting.
A pension reduction does not of itself satisfy sub clause 110(1)(b) for the application of the savings provisions contained in clause 110, Mr Kenny submitted. A pension rate reduction is not and should not be the standard used for assessing significant disadvantage in these cases. The Ministerial policy on "significant disadvantage" for these purposes is set out in paragraph 1.1.S.176 of the current "Guide to the Administration of the Act" which is attachment 3 to Exhibit R3. This policy in relation to "significant disadvantage" includes a requirement that as at 20 September 1998, a couple's gross income from all sources should be equal to or below $20,098.00 per annum, being the maximum combined rate of pension, including pharmaceutical allowance, in addition to the income free area permitted under the Income Test as at 19 September 1998. Centrelink's records indicate that Mr and Mrs Rigney's gross income from all sources at 20 September 1998 was $23,568.00 per annum. On this basis, Mr Kenny submitted that Mr and Mrs Rigney's application would not meet the test for significant disadvantage.
In all the circumstances, Mr Kenny submitted that the decision of the SSAT should be affirmed.
FINDINGS
The Tribunal has reached a decision in this matter, taking into account the oral and documentary evidence and by applying the law and case law. Mr Rigney was co-operative in the provision of his evidence and the Tribunal considered him to be a person of truth.
In this matter, Mr Rigney had purchased a Connelly Temple Public Superannuation Fund CPI Pension product which suited his requirements for a long term product of 24.5 years with the possibility of reversion to his wife. This product suited him because of his concerns about his wife's health, the need to provide for this in the event of his demise, also to have funds available to ensure that transport costs in the country were covered and to take account of his family history of longevity.
The difficulty for Mr Rigney arose when legislative changes occurred on 20 September 1998 and his Connolly Temple product was considered an asset for the purposes of determining his rate of Age Pension which subsequently reduced from $298.50 to $254.30. He found that the couple's pension was reduced by approximately $84.00 per fortnight. The amending legislation made Mr Rigney's Connolly Temple product no longer Asset Test exempt under the new rules. Subsequently Mr Rigney expended $30,000.00 of his funds in legitimate expenses such as holiday, recarpeting his house and providing financial assistance, amounting to $15,000.00, to his children and grandchildren.
The SSAT, while it decided in this matter that the decision under review should be affirmed, it considered only section 9A(2) and 9B(2) of the Act and clause 110 of Schedule 1A to the Act. The Applicant submitted, however, that the provisions of subsection 9B(4) of the Act were satisfied and accordingly Mr Rigney should in those circumstances have his Connolly Temple product Asset Test exempt. The Applicant also submitted that Mr Rigney's circumstances satisfied clause 110 to Schedule 1A of the Act in that he was involved in a binding arrangement which if terminated, would cause him severe detriment. The SSAT decided that under section 9A of the Act, which dealt with the term of the income stream being for life, that Mr Rigney's product did not meet those requirements. Further, under section 9B of the Act, the term of the income stream if purchased over Age Pension age, must be for a period of life expectancy or for a period between 15 years and life expectancy, where life expectancy exceeds 15 years. Noting Mr Rigney's income stream product is for 24 years and 6 months, and his life expectancy for these purposes is 16 years, the SSAT decided that from 20 September 1998, Mr Rigney's income stream no longer was an Asset Test exempt stream. Considering clause 110 to Schedule 1A of the Act, the SSAT further decided that the termination of Mr Rigney's current income stream product would not cause him severe detriment to come within the exemption contained in clause 110 as the value on the termination of the product was not less than the purchase price of $52,100.00. The SSAT noted that although the return may not be substantial, this did not amount to a severe detriment. It found that the terms of any new Connolly Temple product proposed at that time would not amount to a severe detriment to Mr Rigney.
Turning to the application of sections 9A and 9B, the Tribunal considers that Mr Rigney's current product does satisfy the requirements of section 9A of the Act because it is a fixed term product and is commutable. In relation to section 9B of the Act, Mr Rigney's product does not meet subsection 9B(2) of the Act, though it substantially meets the requirements. In such circumstances, the Tribunal turned to consider whether or not Mr Rigney's product met the requirements of subsection 9B(4) of the Act which allows for exemption of income streams from an Asset Test, which do not meet the requirements of subsection 9B(2) of the Act. In making such a decision, the Secretary or decision-maker is to have regard to guidelines which are issued under subsection 9B(5) of the Act. There have been no guidelines issued at this time.
Ms Koller argues that the absence of such guidelines should not prevent the enactment of subsection 9B(4) and the Tribunal should adopt a beneficial interpretation of these provisions.
The Tribunal considered the Explanatory Memorandum in relation to these provisions and while the Tribunal accepts the beneficial nature of Social Security legislation and its construction, the Tribunal takes the view that it must have regard to the scope of the particular legislative provision or amendment. In this case, the Tribunal takes the view that subsections 9B(4) and (5) of the Act were intended to allow Asset Test exemption in circumstances in which the product concerned did not meet subsection 9B(2), but which substantially did and where the product provider would have difficulty in altering the products terms and condition to fully comply with the Asset Test exemption. In the Tribunal's view such circumstances do not apply in Mr Rigney's case. Mr Rigney is able to commute his product and purchase another asset exempt product. Mr Rigney could purchase a similar product from Connolly Temple or another provider such as AMP, the example provided by the Respondent. In this regard, the Tribunal considers that Mr Rigney only explored one other possible alternate product, that provided by his original product provider. The Tribunal considers that in these circumstances, Mr Rigney had not fully tested other possibilities and believes that the AMP product would substantially, if not completely, answer the concerns he had about having to leave the original income stream product provided by Connolly Temple. While a change would include perhaps some slight disadvantage, such circumstances do not, in the Tribunal's view, allow for the exercise of subsection 9B(4) of the Act in the particular circumstances surrounding Mr Rigney's case.
The Tribunal also takes the view that the issue of severe disadvantage in a financial or any other sense should be considered under clause 110 in Schedule 1A to the Act. There is no dispute that Mr Rigney's Connolly Temple income stream product could be commuted. The issue is whether commuting the product would cause Mr Rigney any disadvantage. The Tribunal turned to consider whether the terms and conditions of the Connolly Temple product could be considered a binding arrangement. In this regard, while Mr Rigney could commute his income stream product, his submission is that this would cause him severe detriment within the definition of the product being a binding arrangement. The Tribunal does not agree with this proposition. Mr Rigney has the ability to purchase other products either with Connolly Temple or another provider. In the Tribunal's understanding of the facts and figures, it does not consider that the slight inconvenience and small financial impost contended by Mr Rigney could be considered severe detriment taking into account the ordinary dictionary definition of this term. When the Tribunal considered the terms of an alternate product, that provided through the AMP as referred to by the Respondent in the attachment to Exhibit R3, the Tribunal considers that this second product would substantially if not completely meet the stated needs of Mr Rigney and his wife. Mr Rigney has chosen not to explore other products and the Tribunal considers this is to his detriment.
Further, Mr Rigney noted that he was severely financially disadvantaged because he had to deplete his funds by $30,000.00 in order to bring he and his wife within the Asset Test limits to enable them to receive the full Age Pension. This was a matter of Mr Rigney's choice. His expenditure was legitimate and the Tribunal wonders whether or not he might have expended his funds similarly regardless of whether there was in his view the need to divest himself of his assets in order to obtain the full Age Pension. Mr Rigney chose to take this action, he could equally have decided to commute his product and obtain a product which was Asset Test exempt and which also provided for his needs for a lifetime income stream product which was able to revert to his wife. Mr Rigney chose not to do so.
The Tribunal accepts Ms Koller's arguments that the severe detriment need not necessarily be financial and accepts that the issue of Mr Rigney's peace of mind should be considered. In this regard, the Tribunal believes that had Mr Rigney further explored his options in relation to alternative income stream products, his peace of mind may have been enhanced. This is not to say that the legislative changes which occurred on 20 September 1998 were not distressing or disruptive to Mr Rigney's well laid future plans. That there are alternatives, however, which Mr Rigney chose not to take, must be considered in this matter.
The Tribunal is also of the view that there was no severe financial disadvantage to Mr Rigney commuting his product because there were no exit fees as the evidence has revealed. In relation to a tax liability, this would only occur if Mr Rigney sought a product not in the nature of superannuation.
On all the evidence, the Tribunal does not consider that the Connolly Temple income stream product is a binding arrangement as defined. While the Tribunal accepts the definition of severe or harsh or grave circumstances, and that there is not an exhaustive definition of binding arrangement, the Tribunal considers that while there was some disappointment and frustration of Mr Rigney's long term plans, he did have the possibility of commuting the product with little disadvantage and with the possibility of his needs being met.
The Tribunal further notes the Department's policy guidelines in terms of subclause 110(1)(b) that if subclause 110(1)(a) is met, the Minister may then provide a Ministerial exemption in situations where the person is significantly disadvantaged by the treatment of the person's income stream. The Guidelines to the Administration of the Act defines "significant disadvantage" in the financial sense being present as at 20 September 1998, if a couple's gross income from all sources is equal to or below $20,098.00 per annum being the maximum combined rate of pension, including pharmaceutical allowance plus the income free area permitted under the income test as at 19 September 1998. Centrelink's records indicate that Mr and Mrs Rigney's gross income from all sources as at 20 September 1998 was $23,568.00 per annum. On this basis, Mr Rigney's application, if he were successful in meeting subclause 110(1)(a) would not meet the test for significant disadvantage in relation to subclause 110(1)(b) of the Act.
In all the circumstances, the Tribunal finds that Mr Rigney does not satisfy clause 110 in Schedule 1A to the Act and accordingly Mr Rigney's income stream product provided by Connelly Temple Public Superannuation Fund CPI Pension cannot be exempt from the Assets Test.
In all the circumstances and for the reasons discussed above, the Tribunal decides under section 43 of the Administrative Appeals Tribunal Act 1975 that the decision under review is affirmed.
I certify that the 73 preceding paragraphs are a true copy of the reasons for the decision herein of
Ms S M Bullock, Member
Signed:         .....................................................................................
  Associate
Date/s of Hearing  27 January 2000
Date of Decision  2 August 2000
Solicitor for the Applicant             Ms S Koller, Welfare Rights Centre, Sydney
Advocate for the Respondent      Mr J Kenny, Departmental Advocate