EXPLANATORY STATEMENT

Social Security (Income Stream) (DEWR) Determination 2007

Summary

The Social Security (Income Stream) (DEWR) Determination 2007 (the Determination) is made under subsection 1099DAA(3), paragraph 9(1F)(ba) and subparagraphs 1099DAA(1)(b)(i) and (ii) of the Social Security Act 1991 (the Act).

This Determination is for the following purposes:

• to specify certain standards that a pre-1998 income stream must satisfy to meet the definition of a “defined benefit income stream” for social security purposes;
• to specify, in part, the types of account-based income stream products that section 1099DAA of the Act will apply to; and
• to define the “minimum amount” in subsection 1099DAA(3) of the Act. This amount is part of the formula used to calculate the amount of income that a person is taken to receive from an income stream product, at a minimum, where that product is subject to section 1099DAA of the Act. 

Background

The provisions in this Determination flow from amendments in the Tax Laws Amendment (Simplified Superannuation) Act 2007.  This Act received Royal Assent on 15 March 2007. 

Its provisions:

1. allow the social security means test to be applied to income streams that can access the new withdrawal limits that apply to account-based income streams from 1 July 2007.  Under the new Simpler Super provisions, there is no upper limit on withdrawal and new lower limits giving retirees more flexibility in arranging their finances in retirement.
2. amend the definition of a “defined benefit income stream”, to ensure that defined benefit income streams sourced from defined benefit superannuation funds established before 20 September 1998 continue to qualify for the 100 per cent exemption from the assets test.

Explanation of the Provisions

Section 1 of the Determination states the name of the Determination and section 2 sets out that the Determination is taken to have commenced on 1 July 2007.

Section 3 provides definitions of terms used in the Determination.

To satisfy the definition of a “defined benefit income stream” a pre-1998 lifetime income stream sourced from a defined benefit superannuation fund established before 20 September 1998 must satisfy, among other things, paragraph 9(1F)(ba) of the Act, which states that the income stream must satisfy rules that meet such standards as determined by the Minister. Section 4 determines the relevant standards as being those included within paragraphs 1.06(2)(a) to (d) and (f) to (h) of the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations); that is, lifetime income streams sourced from defined benefit superannuation funds established before 20 September 1998 must satisfy the requirements of paragraphs 1.06(2)(a) to (d) and (f) to (h) of the SIS Regulations to be able to be a “defined benefit income stream” for the purposes of the Act.

Section 1099DAA of the Act provides for a certain amount of income to be taken to be income of a person, derived from an income stream, for the purposes of the Act, where, among other things, the income stream is one of a type mentioned in either subparagraph 1099DAA(1)(b)(i) or (ii). Subparagraph 1099DAA(1)(b)(i) provides that an allocated pension, as defined in the SIS Regulations, and any other type of pension that the Minister may determine will be subject to section 1099DAA. Section 5 determines that an account based pension, within the meaning of the SIS Regulations, will fall within subparagraph 1099DAA(1)(b)(i).

Subparagraph 1099DAA(1)(b)(ii) includes income streams that are an “annuity” within the meaning of the SIS Regulations, where that annuity is provided under a contract that meets the relevant standards determined by the Minister. Section 6 provides that the standards, that the contract must meet, are those in subregulation 1.05(4) and paragraph 1.05(11A)(a) of the SIS Regulations.

Section 7 sets out the method of calculating the “minimum amount”, which is used in the formula in subsection 1099DAA(3). The “minimum amount” is to be calculated in accordance with the method in subclause 1(1) of Schedule 7 of the SIS Regulations; that is, account balance x percentage factor, with both of those terms defined in Schedule 7.

Consultation

Consultation regarding this Determination was undertaken with the Department of Veterans’ Affairs as that Department administers legislation which incorporates similar rules relating to the treatment of income streams as that provided by the Act.  The Department of Families, Community Services and Indigenous Affairs and the Department of Education, Science and Training were also consulted to ensure a co-ordinated approach in respect of payments under the Act for which they now have responsibility. Consultation was also undertaken with the Department of the Treasury.

Retrospectivity

This instrument applies retrospectively from 1 July 2007 and is beneficial to recipients.

Business Cost Calculator

This determination does not require a Regulatory Impact Statement (RIS) and/or a Business Cost Calculator Figure.  This determination is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact.  It is not expected that any compliance costs will be incurred by business against the nine categories listed as a result of this determination.