Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025

EXPLANATORY STATEMENT

Issued by the authority of the Secretary of the Department of Social Services

Social Security Act 1991

Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025

Purpose

The Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025 (the Determination) prescribes guidelines the Secretary (or delegate) is to have regard to when determining that an income stream is an asset-test exempt income stream under subsections 9A(5), 9B(4) and 9BA(11) of the Social Security Act 1991 (the Act).

The Determination repeals the Asset-test Exempt Income Stream (Lifetime Income Stream Guidelines) (Social Security) Determination 2015 (2015 Determination) and the Social Security (Guidelines for Determining Whether Income Stream is Asset-test Exempt) Determination 2022 (2022 Determination), while preserving the effect of those regimes and consolidating each into a single instrument.

The Determination also prescribes new guidelines the Secretary is to have regard to when determining certain legacy lifetime, life expectancy and market-linked superannuation income stream products are asset-test exempt income streams for the purposes of the Act. These income streams include legacy retirement superannuation products affected by the commencement of the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 (Treasury Amendment Regulations).

Background

The means test regime prescribed in the Act operates to improve payment targeting in the provision of social security payments. This includes by ensuring social security payments are proportionate to the recipient’s means and circumstances. As part of the means test regime, rate calculators prescribed in Chapter 3 of the Act require the application of the ‘income test’ and the ‘assets test’ as a step in working out the recipient’s final rate of social security payment.

The Act provides that certain financial assets, which include superannuation products, are exempt from being considered in the assets test (see paragraph 1118(1)(d)). If a financial asset is exempt, the social security recipient will receive a higher rate of payment where the assets test applies. However, to maintain the exemption, the relevant income stream must remain compliant with classification requirements prescribed in the Act (see for example sections 9A, 9B and 9BA of the Act).

The legislative frameworks in sections 9A, 9B and 9BA of the Act, which relate to defining an income stream as being an ‘asset-test exempt income stream’, include powers for the Secretary to determine that an income stream is an asset-test exempt income stream for the purposes of the Act. For example, subsection 9A(5) of the Act prescribes the Secretary may determine that a lifetime income stream, which does not meet the classification requirements set out in section 9A, may otherwise be treated as an asset-test exempt income stream for the purposes of the Act. Similarly, subsections 9B(4) and 9BA(11) of the Act enable the Secretary to respectively determine that an income stream is a life expectancy or market-linked asset-test exempt income stream for the purposes of the Act.

When exercising the power to determine an income stream as being asset-test exempt, the Secretary (or delegate) is also required under subsections 9A(5), 9B(4) and 9BA(11) of the Act to have regard to any guidelines made by the Secretary (or delegate) under subsections 9A(6), 9B(5) and 9BA(12) respectively. The Determination is made for this purpose, and accordingly prescribes the guidelines the Secretary must have regard to when determining income streams are asset-test exempt income streams for the purposes of the Act.

When determining an income stream as being an asset-test exempt income stream for the purposes of the Act, the Secretary may have regard to any applicable guideline on an individual basis. For example, if a particular income stream could be identified by reference to the criteria in section 17 and section 21 of the Determination, however the income stream only fully satisfies the guidelines under section 21, then despite not meeting the requirements of section 17, it would still be open for the Secretary to determine that income stream as being asset-test exempt by having regard to section 21.

Guidelines for determining legacy retirement product income streams are asset-test exempt income streams

In addition to remaking and consolidating the guidelines previously prescribed in the 2015 Determination and 2022 Determination, the Determination also introduces new guidelines the Secretary must have regard to when determining certain legacy superannuation retirement products are asset-test exempt income streams for the purposes of the Act. This is to ensure the Secretary may determine certain legacy retirement products are asset-test exempt income streams where the commencement of the Treasury Amendment Regulations caused those income streams to inadvertently lose their asset-test exemption from 7 December 2024.

The Treasury Amendment Regulations made amendments to the Retirement Savings Accounts Regulations 1997 (RSA Regulations) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) to ease commutation restrictions for a range of legacy retirement products for a set period between 7 December 2024 and 6 December 2029. The measure applies to legacy lifetime, life expectancy, and market-linked superannuation income stream products that commenced prior to 20 September 2007, or were commenced as a result of a conversion of an earlier legacy product that commenced prior to that date.

The Department of Social Services has identified that the option of commutation for the legacy products, made available by the Treasury Amendment Regulations, is contrary to the fund rules which applied to the income streams when they commenced. This means that, as at the time the Treasury Amendment Regulations commenced, the Secretary could no longer be satisfied that the legacy product income streams continued to meet ongoing requirements for asset-test exemption, which is a requirement for asset-test exemption in itself under paragraphs 9A(1)(c) and 9B(1A)(c) and subparagraph 9BA(1)(a)(v) of the Act (see also paragraphs 9A(2)(h), 9B(2)(h) and 9BA(2)(f)).

This means that, where a relevant social security recipient has elected not to commute their legacy product in accordance with the Treasury Amendment Regulations, or has not yet done so, the income stream product would still cease to be asset-test exempt from the time the relevant commutation was made available on 7 December 2024.

The loss of asset-test exemption in this instance is an unintended consequence of the Treasury Amendment Regulations on the social security system. It is an inappropriate policy outcome for the affected social security recipients, who choose not to commute their legacy product, to lose asset-test exemption for the product. The Minister for Social Services accordingly specified any resulting debts from this loss of asset-test exemption may be waived pursuant to the Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025.

Commencement

The Determination commences on the day after it is registered on the Federal Register of Legislation.

Authority

The Determination is made under subsections 9A(6), 9B(5) and 9BA(12) of the Act. Each of these provisions prescribes that the Determination is a legislative instrument.               

Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make any instrument of a legislative or administrative character, the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to revoke such instrument. In repealing the 2015 Determination and the 2022 Determination, the Secretary is relying on this provision in conjunction with the instrument-making powers above.

The Determination is a legislative instrument for the purposes of the Legislation Act 2003 and is subject to disallowance.

Consultation

The Department of Social Services consulted with Services Australia and the Department of Veterans’ Affairs on the intention to make the Determination. The Department of Social Services also consulted with the Department of the Treasury on the text of the Determination. These agencies supported the Determination.

The Department of Social Services did not consult with social security recipients likely to be affected by the Determination, given it is beneficial in nature. 

Availability of review

Decisions made under the social security law in relation to determining income streams as being asset-test exempt income streams are subject to internal and external merits review under Parts 4 and 4A of the Social Security (Administration) Act 1999.  Such decisions will include those made by the Secretary (or delegate), with regard to the Determination, under subsections 9A(5), 9B(4) and 9BA(11) of the Act.

Explanation of the provisions

Details of the Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025

Part 1—Preliminary

Section 1 – Name

Section 1 states how the instrument is to be cited, that is, as the Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025 (the Determination).

Section 2 – Commencement

Section 2 sets out a table providing for the commencement of the Determination on the day after it is registered on the Federal Register of Legislation.

Section 3 – Authority

Section 3 provides that the Determination is made under subsections 9A(6), 9B(5) and 9BA(12) of the Social Security Act 1991.

Section 4 – Definitions

Section 4 prescribes a list of definitions used in the Determination. A legislative note to section 4 confirms that a number of expressions used in the Determination are defined in the Social Security Act 1991.

Section 5 – Schedules

Section 5 provides that each instrument that is specified in a Schedule to the Determination is amended as set out in the applicable items in that Schedule, and any other item in a Schedule to the Determination has effect according to its terms.

Schedule 1 to the Determination repeals the Asset-test Exempt Income Stream (Lifetime Income Stream Guidelines) (Social Security) Determination 2015 and the Social Security (Guidelines for Determining Whether Income Stream is Asset-test Exempt) Determination 2022.

Part 2—Guidelines

Section 6 prescribes the guidelines the Secretary must have regard to when determining a lifetime income stream provided under a public sector fund (as defined in section 4) or public sector superannuation scheme is an asset-test exempt income stream for the purposes of the Act.

Section 7 provides the guidelines the Secretary must have regard to when determining a lifetime income stream provided under a private sector fund (as defined in section 4) is an asset-test exempt income stream for the purposes of the Act.

Section 8 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, resulting from commutation or rollover pursuant to regulation 6.21 of the SIS Regulations, as being an asset-test exempt income stream for the purposes of the Act.

Section 9 provides guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from an original asset-test exempt income stream purchased by the recipient before 20 September 2004, from funds arising from the commutation of another asset-test exempt income stream, is an asset-test exempt income stream for the purposes of the Act.

Section 10 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from the commutation of an asset-test exempt income stream that was purchased by the recipient on or after 20 September 2004 but before 20 September 2007, as being an asset-test exempt income stream for the purposes of the Act.

Income streams covered by sections 11 to 17 of the Determination must be covered by subsection 9A(1) or 9B(1) (other than paragraph 9A(1)(aa) or subparagraph 9B(1)(a)(i)) of the Act), have been purchased on or after 20 September 2007 and must be purchased from the proceeds of the commutation of an asset-test exempt income stream (the ‘original income stream’), in order for the Secretary to determine those income streams as being asset-test exempt. The original income stream must have been:

• purchased before 20 September 2004; or
• resulted from the proceeds of the commutation of an asset-test exempt income stream, or a succession of asset-test exempt income streams where the first income stream in the succession of income streams was purchased before 20 September 2004. 

A commutation is a ‘cash out’ of the assets backing the income stream. A commutation may be used to pay a debt or other financial obligation or be used to purchase another income stream product. Alternatively, the owner of the original asset-test exempt income stream may rollover the commuted amount to purchase another asset-test exempt income stream.  Commutations are separate from any regular income payments that are paid from the income stream.

The fundamental difference between sections 9 and 10 of the Determination and sections 11 to 17, is that the ‘original income stream’ can be commuted and rolled over only once for the purposes of sections 9 and 10 (that is, the ‘original income stream’ will not have been sourced from a previous income stream). By contrast, under sections 11 to 17, the ‘original income stream’ may be one of a succession of intermediate income streams that itself has been sourced from the commutation and rollover of a previous ‘original income stream’ under the Social Security (Partially Asset-test Exempt Income Stream – Exemption) (FACS) Principles 2005, the Social Security (Guidelines for Determining whether Income Stream is Asset-test Exempt) (FaCSIA) Determination 2007 (No. 1), the 2011 Determination, the 2022 Determination, or this Determination, as specified in those sections.

Where an income stream meets the requirements of one of sections 11 to 17, then the original income stream’s full (100%) exemption from the assets test would carry through to the new income stream. A further requirement of these sections is that the capital used to source the intermediate income stream and the new income stream must have originated only from the previous commuted income stream, that is, it would not be permissible to increase this capital with assets from elsewhere, thus increasing the purchase price of the new income stream.

In addition to the common requirements listed above, sections 11 to 17 provide rules relating to certain different circumstances in which an original income stream may have been commuted and rolled over into a new income stream for the purposes of the Secretary determining whether the new income stream retains the original income stream’s asset-test exempt status.

Section 11 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from transferring another income stream to a successor fund (as defined in section 4), as being an asset-test exempt income stream for the purposes of the Act.

Section 12 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which is purchased or acquired by the beneficiary (or the beneficiary’s partner or former partner) on or after 20 September 2007; and results from another asset-test exempt income stream being commuted to give effect to an entitlement of the partner or former partner under a payment split under Part VIIIB or Part VIIIC of the Family Law Act 1975, as being an asset-test exempt income stream for the purposes of the Act.

Section 13 provides guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which is purchased or acquired by the beneficiary (or the beneficiary’s partner or former partner) on or after 20 September 2007; and results from another asset-test exempt income stream being commuted to give effect to a Family Court order or injunction under the Family Law Act 1975, as being an asset-test exempt income stream for the purposes of the Act.

Section 14 provides guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from another asset-test exempt income stream being commuted to pay a superannuation contributions surcharge debt, as being an asset-test exempt income stream for the purposes of the Act.

Section 15 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from another asset-test exempt income stream being commuted to pay an amount to give effect to a release authority issued under former section 292-415 of the Income Tax Assessment Act 1997 or section 292-80C of the Income Tax (Transitional Provisions) Act 1997 regarding contributions tax, as being an asset-test exempt income stream for the purposes of the Act.

Section 16 provides guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from another asset-test exempt income stream being commuted to pay a hardship amount (as defined in subsection 9A(7) of the Act), as being an asset-test exempt income stream for the purposes of the Act.

Section 17 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from another asset-test exempt income stream being commuted due to the closure of a self managed superannuation fund, as being an asset-test exempt income stream for the purposes of the Act.              
 

Section 18 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from a family law affected income stream, is an asset-test exempt income stream for the purposes of the Act.

Section 19 provides guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which is a defined benefit income stream, is an asset-test exempt income stream for the purposes of the Act. The guidelines prescribed in section 19 relevantly include that:

• the income stream has been a defined benefit income stream from the day the income stream began being paid; and
• if the income stream is also an original family law affected income stream, any amount of the original family law affected income stream that is rolled over, transferred, commuted or paid as a lump sum is not more than the amount required to satisfy the non-member partner’s entitlement under a payment split under Part VIIIB of the Family Law Act 1975. That is, unless the Act so provides, the owner of an income stream cannot take the opportunity, where there is a payment split in relation to their income stream, to withdraw from their income stream an extra amount, that is, an amount that is more than the amount of funds that they are required to pay to their former partner, and still retain an asset-test exempt status in relation to the income stream.

Section 20 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream or life expectancy income stream, which results from the closure of a regulated superannuation fund or sub-fund (as defined in section 4), is an asset-test exempt income stream for the purposes of the Act.

Section 21 prescribes guidelines the Secretary must have regard to when determining a lifetime income stream, life expectancy income stream or market-linked income stream, which is a legacy retirement superannuation product, and was an asset-test exempt income stream immediately prior to the commencement of the Treasury Amendment Regulations, is an asset-test exempt income stream for the purposes of the Act.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Social Security Act 1991

Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025

The Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025 (the Determination) 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

The Determination prescribes guidelines the Secretary (or delegate) is to have regard to when determining that an income stream is an asset-test exempt income stream under subsections 9A(5), 9B(4) and 9BA(11) of the Social Security Act 1991 (the Act).

The Determination repeals the Asset-test Exempt Income Stream (Lifetime Income Stream Guidelines) (Social Security) Determination 2015 and the Social Security (Guidelines for Determining Whether Income Stream is Asset-test Exempt) Determination 2022, while preserving the effect of those regimes and consolidating each into a single instrument.

The Determination also prescribes new guidelines the Secretary is to have regard to when determining certain legacy lifetime, life expectancy and market-linked superannuation income stream products are asset-test exempt income streams for the purposes of the Act. These income streams include legacy retirement superannuation products affected by the commencement of the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024.

Human rights implications

The Determination engages the right to social security and right to an adequate standard of living in Article 9 and Article 11 of the International Covenant on Economic, Social and Cultural Rights (ICESCR).

Right to social security and right to an adequate standard of living

The Determination engages the right to social security contained in Article 9 of the ICESCR.  Article 9 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 system must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs.

Article 11 of the ICESCR recognises the right of everyone to an adequate standard of living including adequate food, water and housing, and to the continuous improvement of living conditions.

Article 4 of the ICESCR provides that countries may limit the right to social security in a way determined by law only in so far as this may be compatible with the nature of the rights contained within the ICESCR and solely for the purpose of promoting the general welfare in a democratic society.  Such a limitation must be proportionate to the objective to be achieved.

The means test regime prescribed in the Act operates to improve payment targeting in the provision of social security payments. This includes by ensuring social security payments are proportionate to the recipient’s means and circumstances, while simultaneously maintaining the financial viability of the social security system.

The Determination enables beneficial treatment under the means test regime, by ensuring the Secretary may appropriately determine certain financial assets as being exempt from the asset test. This includes in instances where it would otherwise be unfair or inequitable to means test the particular asset in a way that reduces a social security recipient’s welfare payment.

Conclusion

The Determination is compatible with human rights as it promotes and supports the right the right to social security and the right to an adequate standard of living.  To the extent a human rights obligation is engaged or limited, the impact is for a legitimate objective and is reasonable, necessary and proportionate.

Xia Du,

Acting Branch Manager of the Payment Structures and Seniors Branch,

Delegate of the Secretary of the Department of Social Services