Robert Hamblion Carol Hamblion and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2013] AATA 546
[2013] AATA 546
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/4325 and 2012/4329
Re
Robert Hamblion
Carol Hamblion
APPLICANTS
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Mr RP Handley, Deputy President
Mr N Gaudion, MemberDate 5 August 2013 Place Sydney The decision under review is affirmed.
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RP Handley
Deputy PresidentCATCHWORDS
SOCIAL SECURITY - age pension - reduced rate of pension payable to applicant - applicant's assets held in partially asset-test exempt income stream - assets rolled over into a different stream - funds could not be fully withdrawn as portion were in a frozen fund – whether the rolled over market linked income stream is asset-test exempt - whether rolled over income stream is a "successor fund" - whether all assets supporting the partially asset-test exempt income steam were rolled over - decision affirmed
LEGISLATION
Social Security Act 1991 ss 9, 9BA, 1064-A1, 1118, 1119, 1120B
Social Security (Retention of exemption for asset-test exempt income streams) (DEEWR) Principles 2011 (No 1) ss 3.3, 3.8
Superannuation Industry (Supervision) Regulations 1994 r 1.03SECONDARY MATERIALS
Explanatory Memorandum, Social Security (Retention of exemption for asset-test exempt income streams) (DEEWR) Principles 2011 (No 1)
REASONS FOR DECISION
Mr RP Handley, Deputy President
Mr N Gaudion, MemberDate 5 August 2013
Mr and Mrs Hamblion have applied for the review of a decision of the Social Security Appeals Tribunal (SSAT) that the market linked income stream held by Mr Hamblion since 28 December 2011 is not asset-test exempt. The effect of this has been to reduce the rate of age pension payable to Mr and Mrs Hamblion.
BACKGROUND
Mrs Hamblion has been receiving an age pension since 23 April 2005. Mr Hamblion received carer payment from 5 June 2007 but was transferred to an age pension from 20 September 2007.
On 29 August 2007, Mr Hamblion purchased a market-linked income stream: MLC Navigator Super Solutions (the MLC income stream). The purchase price was $400,000.64. The MLC income stream was assessed by Centrelink as partially asset-test exempt from 29 August 2007 with the result that only 50% of its value was included in Mr and Mrs Hamblion’s assets for the purpose of calculating the rate of age pension payable.
In December 2011, following a diminution in the value of the MLC income stream, Mr Hamblion sought to roll over all the available funds supporting the MLC income stream into a different income stream – the Avanteos First Wrap Plus Term Pension (the Avanteos income stream) - with lower fees and access to a broader range of investment options and listed securities which were not available for the MLC income stream. The sum of $335,202.61 was rolled over into the Avanteos income stream on 28 December 2011. However, as a result of some of the assets supporting the MLC income stream being invested in the Challenger Howard Mortgage Fund, which had been frozen since 21 October 2008, $14,153.99 could not be accessed and was retained in the MLC income stream.
On 10 February 2012, a Centrelink Financial Information Services officer decided that the commutation was not made for an allowable reason with the result that the Avanteos income stream did not retain the partial asset-test exemption and the MLC income stream was to be reassessed as asset-tested from its commencement on 29 August 2007. On 20 April 2012, Centrelink advised Mr Hamblion that his pension rate had been reduced, as the amount of $335,202.00 had been included in the calculation of his and his wife’s assets following the sub being rolled over into the Avanteos income stream. Mr Hamblion immediately sought a review by Centrelink of this decision and supplied further information from his financial adviser.
On about 10 May 2012, Centrelink raised age pension debts against Mr and Mrs Hamblion of $18,538.44 each. On 25 May 2012, an authorised review officer affirmed the decisions and Mr Hamblion subsequently sought a review of this decision by the SSAT.
On 21 August 2012, the SSAT set aside the decision of the authorised review officer (a delegate of the Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs) and substituted a new decision that:
(a)The market linked income stream held by Mr Hamblion since 28 December 2011 is not asset-test exempt; and
(b)Debts of age pension of $18,538.44 owed by both Mr and Mrs Hamblion for the period 20 September 2007 to 20 April 2012 are waived due to special circumstances.
On 21 September 2012, the SSAT’s decision to waive the debts in full was implemented. On 27 September 2012, Mr and Mrs Hamblion applied to the Tribunal for a review of the SSAT decision that his Avanteos income stream is not asset-test exempt.
ISSUES AND LEGISLATION
The rate at which age pension is payable is calculated in accordance with the steps set out in s 1064-A1 of the Social Security Act 1991 (the Act), requiring the application of both an income and an assets test. The rate at which a pension is payable is the lower of the income-tested or asset-tested rate. In Mr and Mrs Hamblion’s case, it is the application of the assets test that is relevant and Module G of s 1064 requires the value of a person’s assets to be determined.
The term ‘income stream’ is defined in s 9 of the Act and includes “(a) an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993”. Section 9BA sets out the requirements for an income stream to be treated as an ‘asset-test exempt income stream—market-linked income stream’ and there is no dispute that Mr Hamblion’s MLC income stream met these requirements. The value of a market-linked income stream must generally be taken into account in calculating the value of a person’s assets.
Section 1119 provides relevantly:
(1) This section applies to a person's asset-tested income stream if it is not a defined benefit income stream and it is not a family law affected income stream.
(2) The value of the income stream is, for the purposes of the assets test, worked out:
(a) if the person receives payments from the income stream 2 or more times a year--in relation to each 6 month period of the income stream's term; and
(b) if the person receives a payment from the income stream only once a year--in relation to each 12 month period of the income stream's term.
(3) If the income stream has an account balance, the value of the income stream, for the purposes of the assets test, is the value of the account balance at the beginning of the 6 month or 12 month period (as the case requires) referred to in subsection (2).
Section 1118 provides for certain assets to be disregarded in calculating the value of a person’s assets. Section 1118(1)(da) provides relevantly:
(1) In calculating the value of a person's assets for the purposes of this Act (other than sections 198F to 198MA (inclusive), Division 1B of Part 3.10, Division 2 and sections 1133 and 1135A), disregard the following:
…
(da) half of the value of any partially asset-test exempt income stream of the person;
The term ‘partially asset-test exempt income stream’ is defined in s 1118(1A):
"partially asset-test exempt income stream" means:
(a) an asset-test exempt income stream that:
(i) is an income stream (other than a defined benefit income stream) covered by subsection 9A(1) or (1A), 9B(1) or 9BA(1); and
(ii) has a commencement day during the period from 20 September 2004 to 19 September 2007 (both dates inclusive); and
(iii) is not covered by principles (if any) determined for the purposes of this subparagraph, by legislative instrument, by the Secretary; or
(b) 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.
The relevant principles referred to in subparagraph (b)(ii) above are the Social Security (Retention of exemption for asset-test exempt income streams) (DEEWR) Principles 2011 (No 1) (the 2011 Principles) which took effect on 29 November 2011. Relevantly, s 3.3 and s 3.8 of Part 3 state:
3.3 Partially asset‑test exempt income stream resulting from transfer to successor fund
These Principles cover a partially asset‑test exempt income stream if:
(a) it results from the transfer, on or after 20 September 2007, of another income stream (the original income stream) to a successor fund; and
(b) at the time of transfer, the original income stream was:
(i) covered by section 9A, 9B or 9BA of the Act or would have been covered by those sections if paragraph 9A (1) (aa), subparagraph 9B (1) (a) (i) or subparagraph 9BA (1) (a) (i) of the Act did not apply; and
(ii) provided by a regulated superannuation fund; and
(c) 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.
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 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.
Section 1120B states:
Value of partially asset-test exempt income streams
(1) This section applies to income streams covered by paragraph 1118(1)(da).
(2) The value of such an income stream is, for the purposes of paragraph 1118(1)(da), worked out as follows:
(a) if the income stream is a family law affected income stream--under section 1120A;
(b) otherwise--under section 1119;
as if the income stream were an asset-tested income stream to which that section applied.
…
Until December 2011, half the value of Mr Hamblion’s MLC income stream was exempt from the assets test pursuant to s 1118(1)(da). At issue, is whether Mr Hamblion’s investment in the Avanteos income stream is a ‘partially asset-test exempt income stream’ as defined in s 1118(1A) of the Act so that s 1118(1)(da) applies and half its value is disregarded when calculating the total value of Mr and Mrs Hamblion’s assets for the purposes of the assets test. This in turn requires consideration of whether the Avanteos income stream satisfies the conditions set out in Part 3 of the 2011 Principles. In particular, the Respondent rejects the Applicant’s contention that Mr Hamblion’s Avanteos income stream satisfies either s 3.3 or s 3.8 of Part 3 of the 2011 Principles.
EVIDENCE
Mr George Kalil is an authorised representative of Axis Financial Advisers Pty Ltd (Axis) who has provided financial advice to Mr Hamblion in relation to his superannuation investments. Mr Kalil accompanied Mr Hamblion to the hearing and made submissions on his behalf.
Mr Hamblion said he acted on advice from Mr Kalil in changing from the MLC income stream to the Avanteos income stream because the MLC income stream was performing poorly. Mr Hamblion said he was not aware at the time he withdrew his funds from the MLC income stream that some of the funds supporting that income stream were frozen because of the Global Financial Crisis. He acted in good faith believing the Avanteos income stream would attract the same partial exemption from the asset test as the MLC income stream.
Mr Kalil said that a new provider for term allocated pensions – Colonial First State - entered the market in about 2011 with fees of 30 to 40% less than the MLC income stream and access to a broader range of investment options. Axis moved about 70% of its clients’ pensions into this new product. Mr Kalil said he would ask a client in to meet with him to discuss their pension and invite them to consider moving to the newer, more beneficial product. Following the meeting, he would prepare a Statement of Advice for the client and it would then be a matter for the client to decide whether to act on that advice.
Mr Kalil said that while he was aware that a rollover of Mr Hamblion’s MLC income stream would be subject to the retention of frozen funds, he was not then aware of the effect that the frozen funds being retained in the MLC income stream would have on the status of the Avanteos income stream for the purposes of the asset test. Mr Hamblion’s was about the 15th such rollover he had arranged and he had not encountered any problems with the other rollovers. Mr Kalil said that Colonial First State advised him verbally that provided no money was taken out of or added to the funds supporting the income stream, the Avanteos income stream would continue to attract the same partially exempt status for the asset test. He claimed this was stated in the Product Disclosure Statement for the Avanteos income stream.
It appears that Mr Kalil also spoke with a representative of Colonial First State promoting the product, who assured him that as long as no funds were added or withdrawn, there would be not be a problem with rolling over a member’s interest into the Colonial First State product. Mr Kalil said he did not himself look at the 2011 Principles, but he spoke to a technical officer at Colonial First State, Deborah Wixted, who was aware of the Principles. Those discussions were of a general nature and not specifically in relation to Mr Hamblion's circumstances and the effect of the frozen funds in the MLC income stream. He also hoped that rolling over all the non-frozen funds would force the release of the frozen assets. In this he was proved correct because the trustees of the funds supporting the MLC income stream were obliged to maintain monthly income payments to Mr Hamblion. A letter dated 6 June 2013 from MLC to Ms Schuster, who represented the Respondent in these proceedings, confirms that four payments of $2.117.76 were subsequently made to Mr Hamblion, on 24 February, March, April and May 2012.
Mr Kalil said the $14,153.99 remaining in the MLC income stream after the rollover, which was frozen in the Challenger Howard Mortgage Fund, was paid out in instalments to Mr Hamblion over the course of the next six months until the Fund was exhausted. The letter to Ms Schuster from MLC dated 6 June 2013 states that the Fund paid distributions from time to time and had redemption windows, both of which added to the cash assets held by MLC enabling the trustees to pay some benefits to relevant members. The trustees, for this purpose, either drew on these limited distributions and/or withdrawals received from Challenger Howard Mortgage Fund or on other funds available to them with a view to recouping such payments from the frozen fund when they were able to do so.
Mr Kalil was asked about the ‘Withdrawal instructions form’ for the MLC income stream that he completed for Mr Hamblion and Mr Hamblion signed in December 2011. The withdrawal amount sought is stated to be a ‘partial withdrawal’. Mr Kalil said he had to tick ‘partial withdrawal’ in order to rollover 100% of the available funds. If he had ticked ‘full withdrawal’ MLC would not have been complied with the request because of the frozen funds.
Following the hearing, Mr Kalil supplied the Tribunal with a copy of the “Centrelink/DVA payment schedule” produced by Colonial First State for the Avanteos income stream dated 4 January 2012. This states that the Avanteos income stream is eligible to retain the asset test exempt status. The schedule shows an account balance on that date of $334,851.17. Mr Kalil also supplied a copy of the Product Disclosure Statement (PDS) for the Avanteos income stream dated 28 March 2011 which appears to make no mention of the partial asset-test exemption. A copy of the current PDS dated 27 May 2013 does make reference to Colonial First State only accepting “transfers of existing term allocated pensions that are 50% asset test exempt”. However, this later PDS was not, of course, available at the time of the events in question.
SUBMISSIONS
Mr Kalil said the decision in Mr Hamblion’s case has implications for many other clients who, whether because of frozen funds or funds retained in error, have been unable to rollover all the assets supporting a partially asset-test exempt income stream into another income stream. In his written submissions, Mr Kalil noted that, as is apparent from the Explanatory Memorandum accompanying the 2011 Principles, the 2011 Principles were made to facilitate the transfer of funds in cases such as Mr Hamblion’s. The Explanatory Statements says:
The purpose of this provision is to ensure that income streams purchased on or after 20 September 2007 which derive from 50% asset-test exempt income streams retain the 50% asset-test exempt status if they are covered by principles made under subparagraph 1118(1A)(b)(ii).
Mr Kalil said that the Principles are, however, silent on the issue of frozen funds and Mr Kalil requested that the Tribunal take into account that Mr Hamblion acted in good faith and attempted to comply with the spirit and principles of the legislation.
Mr Kalil asked the Tribunal to consider the application of s 3.3 and 3.8 of the 2011 Principles. He suggested that s 3.3 appeared to apply in Mr Hamblion’s case and s 3.8 applied because all the assets supporting the MLC income stream were commuted and rolled over in the Avanteos income stream. With regard to the $14,153.99 frozen funds in the Challenger Howard Mortgage Fund, Mr Kalil contended that these funds did not support the continuing pension payments made to Mr Hamblion in 2012. The trustees drew on their own funds to make these payments.
Ms Schuster said the Avanteos income stream would only be regarded as a partially asset-test exempt income stream if it were covered by the 2011 Principles. The Principles are very specific and extend the exemptions to a narrow class of products. All new investments of this kind are now asset-tested. Ms Schuster said that due to the circumstances of the commutation of Mr Hamblion’s MLC income stream in December 2011 and his personal circumstances, the Avanteos income stream is not covered by any of the principles set out in Part 3 of the 2011 Principles. Section 3.3 does not apply in his case because the Avanteos income stream is not a ‘successor fund’ as defined by s 1.4 of the 2011 Principles and Regulation 1.03 of the Superannuation Industry (Supervision) Regulations 1994. Section 3.8 does not apply because the Avanteos income stream did not result from the commutation and rollover of all the assets supporting the partially asset-test exempt MLC income stream, with the result that s 3.8(b) is not satisfied.
Ms Schuster said it is clear from the terms of the Withdrawal instructions form that a partial withdrawal was sought and this is reflected in the correspondence from MLC, including in the MLC letter addressed to her, dated 6 June 2013, which refers to Mr Hamblion having “requested a part commutation of his MLC pension”. Of the funds supporting the MLC income stream prior to the commutation and rollover, it was understood by Mr Hamblion that some funds would remain, notwithstanding that these funds were frozen, and that these funds would support Mr Hamblion’s ongoing pension payments. Ms Schuster said the criteria in s 3.8 do not contain any words of discretion that would allow the Secretary to take into account the reasons for the rollover in Mr Hamblion’s case being a partial one. Moreover, there is no suggestion in the Explanatory Statement accompanying the 2011 Principles that each category should be given the widest possible meaning or that there is any discretion to extend the exemptions beyond those set out in the Principles.
DISCUSSION
The Tribunal accepts that Mr Hamblion at all times acted in good faith, relying on Mr Kalil’s advice that the MLC income stream rolled over into the Avanteos income stream would be partially asset-test exempt. Mr Kalil was aware that a full withdrawal from the MLC income stream could not be made because of the funds frozen in the Challenger Howard Mortgage Fund. However, the Tribunal accepts that Mr Kalil believed that the Avanteos income stream, into which the available MLC income stream funds were rolled over, would retain the 50% asset-test exemption provided no new monies were added to, and no withdrawals were made from, the MLC income stream funds rolled over. It appears that Mr Kalil formed this belief after receiving a verbal assurance from a representative of Colonial First State who was promoting the Avanteos income stream product.
Mr Kalil was clearly aware of the significant benefit to investors provided by the 50% asset-test exemption and that this would be an important consideration for a person contemplating a rollover. However, it appears Mr Kalil did not make any further enquiries about the effect the then unavailable frozen funds would have on retaining the exemption, nor did he obtain any written advice, prior to making the request for the rollover, about whether the rolled over funds would retain their 50% asset-test exemption. The PDS current at the time made no specific reference to the 50% asset-test exemption.
The issue for the Tribunal to determine is whether the Avanteos income stream satisfies either s 3.3 or s 3.8 of the 2011 Principles. If it does, then, as explained above, the Avanteos income stream will satisfy the definition of ‘partially asset-test exempt income stream’ in s 1118(1A) of the Act and, pursuant to s 1118(1)(da), half the value of that income stream will be disregarded for the purpose of calculating the value of Mr and Mrs Hamblion’s assets.
First, with regard to s 3.3 of the 2011 Principles, the Tribunal finds that the Avanteos income stream is not a ‘successor fund’ as defined in s 1.4 of the Principles. Section 1.4 states:
successor fund has the meaning given by subregulation 1.03(1) of the Superannuation Industry (Supervision) Regulations 1994.
Subregulation 1.03(1) of the Superannuation Industry (Supervision) Regulations 1994 states relevantly:
successor fund , in relation to a transfer of benefits of a member from a fund (called the original fund" ), means a fund which satisfies the following conditions:
(a) the fund confers on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits;
(b) before the transfer, the trustee of the fund has agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.
In this instance, there is no evidence that the trustees of the respective funds came to the agreement required by paragraph (b).
Second, with regard to s 3.8 of the 2011 Principles, the Tribunal finds that the Avanteos income stream does not satisfy the requirement in s 3.8(b) that “all the assets supporting a partially asset-test exempt income stream” (our emphasis) must be rolled over. We acknowledge that Mr Hamblion rolled over all the available funds supporting the MLC income stream and would have rolled over the frozen Challenger Howard Mortgage Fund funds had he been able to do so. However, the plain meaning of the words in s 3.8(b) is clear – that all the supporting assets must be rolled over - and there is no discretion in the Principles to disregard a situation such as that in Mr Hamblion’s case where part of the supporting assets are frozen and unavailable at the time of the rollover.
We also do not accept Mr Kalil’s contention that the remaining funds did not ‘support’ (see s 3.8(b)) Mr Hamblion’s MLC income stream payments made after the commutation and rollover to the Aventeos income stream. If the trustees drew on other funds available to them to continue making income payments to Mr Hamblion while the Challenger Howard Mortgage Fund was frozen, they would have recouped such income payments from the Mortgage Fund once this was unfrozen. In our view, such assets therefore supported the income payments made. In the alternative, if the trustees drew on any limited distributions and/or withdrawals being received from the Challenger Howard Mortgage Fund to make the pension payments, then in our view such distributions and withdrawals supported the income payments made.
We surmise that Mr Hamblion’s situation may not have been anticipated by those drafting the Principles, but this does not justify our reading into the Principles words that do not appear in order to fix what we might consider to be an injustice done to Mr Hamblion. In our view, this is a matter that could be addressed by amending the Principles, noting that the Principles are made by the Secretary of the Department exercising delegated power. We have considered the Explanatory Statement that accompanied the 2011 Principles, but while the Statement refers to the operation of Part 3 of the Principles and, specifically to s 3.8, it does not, in our view, support Mr Kalil’s submission that the Tribunal should take an expansive view of the interpretation of s 3.8(b) and take into account that Mr Hamblion acted in good faith and attempted to comply with the spirit and principles of the legislation.
In conclusion, while we acknowledge that Mr Hamblion acted in good faith throughout, we find that by reason of a situation which was not of his making, the Avanteos income stream is not a partially asset-test exempt income stream for the purpose of calculating the value of his and his wife’s assets in determining the rate of age pension payable.
DECISION
The decision under review is affirmed.
I certify that the preceding 39 (thirty -nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President RP Handley and Mr N Gaudion, Member. ...................................[SGD]..........................
Associate
Dated 5 August 2013
Date(s) of hearing 17 July 2013 Date final submissions received 18 July 2013 Advocate for the Applicant G Kalil, Financial Adviser Advocate for the Respondent H Schuster Solicitors for the Respondent Legal Services Division, Department of Human Services
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