EXPLANATORY STATEMENT
Social Security Act 1991
Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 (No. 2)
Purpose
The Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination (No. 2) (the instrument) is made under subsection 1120AB(4) of the Social Security Act 1991 (the Act).
The instrument amends the Social Security (Value of Asset-tested Income Streams (Lifetime)) Determination 2019 (the Principal Instrument), previously made under subsection 1120AB(4) of the Act, to amend the definition of ‘Life Tables’ in section 4 of the Principal Instrument. This amendment will ensure that the latest Australian Life Tables published by the Australian Government Actuary are used when determining the surrender value and death benefit value of a person’s asset-tested income stream (lifetime) under the Principal Instrument.
This instrument also repeals the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019, which contains a drafting error. This instrument is in the same terms as the earlier amending instrument, with the drafting error corrected.
Background
Under subsection 1120AB(4) of the Act, the Secretary of the Department of Social Services (the Secretary) has the power to determine, by way of legislative instrument, alternative methods to calculate the value of an asset-tested income stream (lifetime) for persons to whom section 1120AB of the Act applies. The Secretary has delegated this power to Group Managers in the Department of Social Services, under subsection 234(1) of the Social Security (Administration) Act 1999.
The Principal Instrument provides methods for calculating the current or future surrender value and death benefit values for asset-tested income streams (lifetime) products. It ensures that the social security means test rules for income streams appropriately assess products with high surrender values or high death benefits, reflecting their greater value and potential to be used for self-support. The Principal Instrument uses a person’s ‘life expectancy period’ when determining the surrender and death benefit values for asset-tested income streams (lifetime) products. A person’s life expectancy is currently determined using the Australian Life Tables 2010‑12. From 1 January 2020, the Australian Life Tables 2015‑17 replace the Australian Life Tables 2010‑12 as the relevant Life Tables for the purposes of the Principal Instrument.
This instrument does not impact rules established by the Principal Instrument, or the methods for calculating the current or future surrender value and death benefit values provided by that instrument. This instrument also does not affect calculations undertaken prior to 1 January 2020.
In addition to the power to make this instrument under subsection 1120AB(4) of the Act, 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 January 2020.
Consultation
Services Australia was consulted during the preparation of this instrument, in relation to the update to the Life Tables and its impact on the Principal Instrument.
Public consultation was not undertaken due to the minor technical nature of the amendment.
Regulation Impact Statement
The instrument does not require a Regulatory Impact Statement. The instrument is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact (OBPR ID: 25875).
Explanation of the provisions
Section 1
This section provides that the title of the instrument is the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 (No. 2).
Section 2
This section provides that the instrument commences on 1 January 2020.
Section 3
This section provides that the instrument is made under subsection 1120AB(4) of the Social Security Act 1991.
Section 4
This section specifies that the Social Security (Value of Asset-tested Income Streams (Lifetime)) Determination 2019 is amended as set out in Schedule 1 and the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 is repealed as set out in Schedule 2.
Schedule 1 – Amendments
Item 1
This item repeals the definition of the Life Tables in section 4, and substitutes it with a new definition that the relevant Life Tables will be:
(a) the Australian Life Tables 2010-12 if a person’s assessment day is before 1 January 2020; or
(b) the Australian Life Tables 2015-17 if a person’s assessment day is on or after 1 January 2020.
As the surrender value and death benefit value of an asset-tested income stream (lifetime) is calculated on a person’s assessment day, the Australian Life Tables 2010‑12 will no longer apply to any calculations from 1 January 2020 onwards.
This will ensure that the Principal Instrument operates fairly, by applying the most recent, and therefore most accurate, information about projected life expectancy, in order to calculate the value of these income streams.
The Australian Life Tables 2015‑17 are published by the Australian Government Actuary and are available free of charge in the publications section of the Australian Government Actuary website, at the following address:
http://www.aga.gov.au/publications/life_table_2015-17
The Australian Life Tables 2010-12 are published by the Australian Government Actuary and are available free of charge in the publications section of the Australian Government Actuary website, at the following address:
http://www.aga.gov.au/publications/life_table_2010-12
Paragraph 14(1)(b) of the Legislation Act 2003 permits the incorporation of a document in a legislative instrument, by reference as the document is in force or existing at the time the legislative instrument commences. The Australian Life Tables 2015-17 and the Australian Life Tables 2010-12 are incorporated as in force on the day the instrument commences.
Schedule 2 - Repeals
Item 1
This item repeals the Social Security (Value of Asset-tested Income Streams (Lifetime) Amendment Determination 2019.
Emma Kate McGuirk, Acting Group Manager, Pensions Group, as delegate of the Secretary of the Department of Social Services
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 (No. 2)
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
This instrument amends the Social Security (Value of Asset-tested Income Streams (Lifetime)) Determination 2019 (Principal Instrument). The instrument repeals the definition of “Life Tables” in the Principal Instrument and substitutes a new definition that refers to the Australian Life Tables 2015-17 as the relevant Life Tables for calculating the value of an asset-tested income stream (lifetime) from 1 January 2020.
This instrument also repeals the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019, which contains a drafting error. This instrument is in the same terms as the earlier amending instrument, with the drafting error corrected.
Under subsection 1120AB(4) of the Social Security Act 1991 (the Act), the Secretary of the Department of Social Services has the power to determine, by way of legislative instrument, alternative methods to calculate the value of an asset-tested income stream (lifetime) for persons to whom section 1120AB of the Act applies.
The Principal Instrument provides methods for calculating the current or future surrender value and death benefit values for asset-tested income streams (lifetime) products. It ensures that the social security means test rules for income streams appropriately assess products with high surrender values or high death benefits, reflecting their greater value and potential to be used for self-support. The Principal Instrument uses a person’s ‘life expectancy period’ (see section 4 of the Principal Instrument) when determining the surrender and death benefit values for asset-tested income streams (lifetime) products. A person’s life expectancy is currently determined using the Australian Life Tables 2010 -12. This instrument specifies that the relevant Life Tables for calculations from 1 January 2020 onwards are the Australian Life Tables 2015 ‑17.
Human rights implications
As with the Principal Instrument, this 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 instrument supports fair and equitable means test outcomes for lifetime income stream products assessed as asset-tested income streams (lifetime). The amendment ensures that the value of an asset-tested income stream product (lifetime), as calculated using the methods in the Principal Instrument, is calculated using current reference values in the Life Tables most recently published by the Australian Government Actuary. This will ensure that the Principal Instrument operates fairly, by applying the most recent, and therefore most accurate, information about projected life expectancy, in order to calculate the value of these income streams.
If the Principal Instrument were not in place, products with high surrender values or high death benefits would not have these characteristics assessed under the social security assets test. Those who have access to greater capital for self-support through high surrender values or high death benefits would not have this recognised under the social security assets test. This would be unfair and inequitable when compared to the treatment of other lifetime income streams with restrictions on access to capital, and with the treatment of other assets held by social security recipients.
By making sure surrender values and death benefit values of asset-tested income stream products (lifetime) are 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.
For these reasons, the instrument is compatible with the right to social security.
Conclusion
The instrument is compatible with human rights.
Emma Kate McGuirk, Acting Group Manager, Pensions Group, as delegate of the Secretary of the Department of Social Services