EXPLANATORY STATEMENT
Issued by the authority of the Secretary of the Department of Social Services
Social Security Act 1991
Social Security Amendment (Family Law Affected Income Streams) Principles 2019
Purpose
The Social Security Amendment (Family Law Affected Income Streams) Principles 2019 (the Instrument) amends the Social Security (Family Law Affected Income Streams) (FaHCSIA) Principles 2011 (the Principles) made under section 1099DD and subsection 1120A(5) of the Social Security Act 1991 (the Act).
Under section 1099DD and subsection 1120A(5) of the Act, the Secretary of the Department of Social Services has the power to make, by way of legislative instrument, principles to be complied with by the Secretary when determining the value of a family law affected income stream, for the purposes of the social security law income and assets tests.
From 1 July 2019, a new paragraph (e) will be inserted into subsection 1099DD(1) of the Act. New paragraph 1099DD(1)(e) will provide that the Secretary may make, by legislative instrument, principles to be complied with by the Secretary in making decisions under subsection 1099DCA(1) of the Act. Subsection 1099DCA(1) will also be inserted into the Act from 1 July 2019. This new subsection provides a power for the Secretary to determine the amount of ordinary income that a person is taken to receive each year from family law affected asset-tested income streams (lifetime).
Paragraph 1120A(5)(a) of the Act provides that the Secretary may make, by legislative instrument, principles to be complied with by the Secretary in making decisions under subsection 1120A(2) of the Act. Subsection 1120A(2) provides that the value of a family law affected income stream, for the purposes of the social security law assets test, is to be determined by the Secretary. Subsection 1120A(2) applies to determinations in respect of family law affected income streams that are not defined benefit income streams.
Background
The Family Law Act 1975 allows superannuation interests to be split pursuant to a family law property settlement. In 2011, the Principles were made to allow these split interests to be assessed consistently with other income and assets under the social security means test arrangements.
The Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Act 2019 (the Supporting Retirement Incomes Act), which commences on 1 July 2019, amends the Act to establish new means test rules to accommodate the development of new innovative income streams, resulting from recent changes to the Superannuation Industry (Supervision) Regulations 1994. The Supporting Retirement Incomes Act also amends the current rules for lifetime income streams, to create fairer, more equitable means test outcomes.
The amendments in the Supporting Retirement Incomes Act insert new section 9E into the Act from 1 July 2019. This new section contains a definition of an ‘asset‑tested income stream (lifetime)’. In broad terms, an income stream is an asset-tested income stream (lifetime) if:
(a) the contract, or governing rules, for the provision of the income stream ensure that, once payments of the income stream start, the income stream is to continue for the remainder of the life of one or more individuals;
(b) the contract, or governing rules, for the provision of the income stream ensure that the amounts of those payments are determined by having regard to the age, life expectancy or other factors relevant to the mortality of those individuals;
(c) the income stream is not an asset-test exempt income stream; and
(d) the income stream is not a defined benefit income stream.
From 1 July 2019, asset‑tested income streams (lifetime) will be subject to new rules contained in Schedule 1 to the Supporting Retirement Incomes Act. However, these new rules only apply to asset‑tested income streams (lifetime) to the extent that they are not ‘family law affected income streams’ within the meaning of section 9C of the Act. Family law affected income streams are essentially income streams that have been split between a person and their partner or former partner due to the operation of the Family Law Act 1975.
The Instrument amends the Principles to set out new principles the Secretary must have regard to when assessing the value of an asset‑tested income stream (lifetime) that is a family law affected income stream. The value of an asset‑tested income stream (lifetime) is relevant to assessing a person’s income and assets for the purposes of the social security income and assets tests.
Repeal of Department of Education, Employment and Workplace Relations instrument
The Instrument also repeals the Social Security (Family Law Affected Income Streams) (DEEWR) Principles 2011 (No. 1). This legislative instrument was made at a time when the responsibility for the means testing of social security payments was partly the responsibility of the former Department of Education, Employment and Workplace Relations (DEEWR). The instrument is therefore no longer required as the Department of Social Services is now solely responsible under the Administrative Arrangements Order for the means testing of social security payments.
Acts Interpretation Act provisions
Section 4 of the Acts Interpretation Act 1901 applies to the Instrument. This is because the Instrument is made before the commencement of the Supporting Retirement Incomes Act but after that Act received Royal Assent.
Subsection 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend or vary any such instrument.
Commencement
The Instrument commences on 1 July 2019.
Consultation
The Department of Human Services and the Department of Veterans’ Affairs were consulted in relation to the Instrument.
Regulation Impact Statement (RIS)
The Office of Best Practice Regulation has advised that the new means test rules for lifetime income streams are non-regulatory/machinery in nature and have a zero regulatory cost (OBPR reference 23186). The Instrument is a part of the implementation of the new means test rules for lifetime income streams.
Explanation of the provisions
Section 1 provides that the name of the Instrument is the Social Security Amendment (Family Law Affected Income Streams) Principles 2019.
Section 2 provides that the Instrument commences on 1 July 2019.
Section 3 provides that the authority for making the Instrument is section 1099DD and subsection 1120A(5) of the Social Security Act 1991.
Section 4 provides that each instrument that is specified in a Schedule to the Instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and that any other item in a Schedule to the Instrument has effect according to its terms.
Schedule 1, item 1 amends subsection 1.3(1) of the Principles to insert new definitions of assessment day, purchase amount and threshold day. These new definitions adopt formula and calculation methods in sections 1120AA and 1120AB of the Act for the purpose of defining terms as they are used in the Principles. Sections 1120AA and 1120AB of the Act do not apply to family law affected income streams so it has been necessary to adapt these concepts for the purposes of the Instrument.
Schedule 1, item 2 amends subsection 1.3(1) of the Principles to repeal the note and replace this with two new notes. Note 1 explains the new definitions inserted by item 1. The new Note 2 replicates the existing note and also references the new defined term ‘asset-tested income stream (lifetime)’.
Schedule 1, item 3 amends subsection 1.3(2) of the Principles to make a technical correction to the note in that subsection. Item 3 omits a reference to section 90MD of the Family Law Act 1975 and substitutes a reference to section 90XD. The definition section of the Family Law Act 1975 that is relevant to superannuation interests was renumbered from section 90MD to section 90XD in 2018.
Schedule 1, item 4 amends section 1.4 to insert new paragraph 1.4(da). This is a minor technical amendment to the purpose section that clarifies that the Principles apply to set out decision-making principles that the Secretary must comply with when making decisions under new subsection 1099DCA(1) (inserted by the Supporting Retirement Incomes Act 2019 that will commence on 1 July 2019).
Schedule 1, item 5 amends the heading to Part 4 of the Principles to make clear that Part 4 of the Principles no longer contains the rules for determining the asset value for all asset-tested income streams and does not apply to an asset‑tested income stream (lifetime).
Schedule 1, item 6 inserts new Parts 5 and 6 into the Principles.
Part 5 - Income from of asset-tested income streams (lifetime)
New section 5.1 is an application provision that provides that new Part 5 of the Principles applies to a ‘family law affected income stream’ (as defined at section 9C of the Act) that is an ‘asset-tested income stream (lifetime)’ (as defined in section 9E of the Act).
New section 5.2 prescribes the matters the Secretary must have regard to in making a decision under paragraph 1099DCA(1)(a) of the Act in relation to an asset-tested income stream (lifetime) (i.e. a decision regarding the annual rate of ordinary income that an income support recipient is taken to have received from the asset-tested income stream (lifetime) in a year). In making such a decision, the Secretary must take into account the matters listed in items 1 to 4 and 14 to 23 of Schedule 1 to the Principles as well as any other matter that the Secretary considers relevant. Where the income support recipient is receiving income from the income stream as a result of more than one payment split, the Secretary must have regard to those same matters in regard to each payment split.
Part 6 - Asset value of asset-tested income streams (lifetime)
New section 6.1 is an application provisions that provides that new Part 6 of the Principles applies to a family law affected income stream (as defined at section 9C of the Act) that is an asset-tested income stream (lifetime) (as defined in section 9E of the Act).
New section 6.2 prescribes the matters the Secretary must have regard to in making a decision under subsection 1120A(2) of the Act in relation to an asset-tested income stream (lifetime) (i.e. a decision regarding the value of an asset-tested income stream (lifetime) for asset-testing purposes in relation to the income support recipient). In making such a decision, the Secretary must take into account the matters listed in items 1 to 4 and 14 to 25 of Schedule 1 to the Principles as well as any other matter that the Secretary considers relevant. Where the income support recipient is receiving income from the income stream as a result of more than one payment split, the Secretary must have regard to those same matters in regard to each payment split.
Schedule 1, item 7 makes a consequential amendment to the heading of Schedule 1 to the Principles.
Schedule 1, item 8 inserts two new principles after item 23, that is items 24 and 25. These new items are only relevant to an assessment of a person’s asset-tested income stream (lifetime) under the assets test and are referenced in new section 6.2 of the Principles (inserted by Schedule 1, item 6 of the Instrument).
Schedule 2, item 1 repeals the Social Security (Family Law Affected Income Streams) (DEEWR) Principles 2011 (No. 1).
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Social Security Amendment (Family Law Affected Income Streams) Principles 2019
The Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the legislative instrument
Under section 1099DD and subsection 1120A(5) of the Social Security Act 1991, the Secretary of the Department of Social Services has the power to make, by way of legislative instrument, principles to be complied with by the Secretary when determining the value of a family law affected income stream, for the purposes of the social security law income and assets tests.
The Instrument amends the Principles set out in the Social Security (Family Law Affected Income Streams) (FaHCSIA) Principles 2011 made under section 1099DD and subsection 1120A(5) of the Social Security Act 1991 and sets out new principles the Secretary must have regard to when assessing the value of an asset‑tested income stream (lifetime) that is a family law affected income stream. Family law affected income streams are income streams that have been split between a person and their partner or former partner due to the operation of the Family Law Act 1975. The value of an asset‑tested income stream (lifetime) is relevant to assessing a person’s income and assets for the purposes of the social security income and assets tests.
The amendments set out the principles the Secretary must have regard to when determining the amount of ordinary income that a person is taken to receive each year from family law affected asset-tested income streams (lifetime). The amendments also set out the principles the Secretary must have regard to when determining the asset value of a family law affected asset-tested income stream (lifetime) for social security means testing purposes.
The Instrument also repeals the Social Security (Family Law Affected Income Streams) (DEEWR) Principles 2011 (No. 1) as the Department of Social Services is now solely responsible under the Administrative Arrangements Order for the means testing of social security payments.
Human rights implications
The Instrument engages the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights. The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education.
The Instrument is compatible with Australia’s obligations in relation to the right to social security. The Instrument does not unreasonably restrict a person’s eligibility to receive a social security benefit or reduce the benefits to which a person may be entitled.
The new principles set out in the Instrument have been created to ensure fair and equitable means test outcomes for family law affected asset-tested income streams (lifetime).
If the Instrument were not in place, decision makers would not have adequate guidance when determining the asset value or income assessed from asset‑tested income streams (lifetime) affected by family law decisions. This could result in asset‑tested income streams (lifetime) affected by family law decisions not being accurately or fairly assessed under the social security means test.
By making sure asset‑tested income streams (lifetime) affected by family law decisions are accurately or fairly assessed under the social security means test, the social security system appropriately recognises individuals’ capacity for self‑support when determining their rate of income support, and remains sustainable for future generations.
The Instrument also repeals the Social Security (Family Law Affected Income Streams) (DEEWR) Principles 2011 (No. 1). This instrument is no longer required as the Department of Social Services is now solely responsible under the Administrative Arrangements Order for the means testing of social security payments. The repeal of this instrument does not effect a person’s social security benefits or their eligibility to receive social security benefits.
For these reasons, the Instrument is compatible with the right to social security.
Conclusion
The Instrument is compatible with human rights.
Kathryn Campbell AO CSC
Secretary of the Department of Social Services