EXPLANATORY STATEMENT
Issued by the authority of the Secretary of the Department of Social Services
Social Security Act 1991
Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2025
Purpose
The Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2025 (the Determination) amends the Social Security (Value of Asset-tested Income Streams (Lifetime)) Determination 2019 (the Principal Determination), made under subsection 1120AB(4) of the Social Security Act 1991 (the Act), to amend the definition of ‘Life Tables’ in section 4. This amendment will ensure that the latest Australian Life Tables published by the Australian Government Actuary are used from 1 January 2025, when determining the surrender value and death benefit value of a person’s asset-tested income stream (lifetime) under the Principal Determination.
Background
Section 1120AB of the Act applies to determine the value of a person’s asset-tested income stream (lifetime), that is not a managed investment, in relation to a day that is on or after their ‘assessment day’ for that income stream.
Subject to section 1120AB, subsection 1120AB(3) provides for concessional asset test treatment of relevant income streams, by specifying values at either 30 or 60 percent of the purchase amount, depending on the timing and the person’s ‘assessment day’ and ‘threshold day’.
Subsection 1120AB(4) of the Act prescribes that the Secretary of the Department of Social Services (the Secretary) may 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 relevant Branch Managers in the Social Security Stream of the Department of Social Services, pursuant to subsection 234(1) of the Social Security (Administration) Act 1999. The Principal Determination was made under subsection 1120AB(4).
Subsection 1120AB(5) provides that if the amount worked out under the Principal Determination is higher than the amount under subsection 1120AB(3), then the value of the relevant income stream is the highest of those amounts, for the purposes of the assets test.
The Principal Determination provides methods for calculating the current or future surrender value and death benefit values for asset-tested income stream (lifetime) products. Surrender value is defined in section 4 of the Principal Determination to mean, for a particular day for an asset‑tested income stream (lifetime), the maximum commutation amount that would be payable for the income stream, as determined by the contract or governing rules for the provision of the income stream, if the person, or persons, eligible to receive the income stream did not die on that day. The death benefit value refers to the value of the person’s death benefit, which is defined in section 4 of the Principal Determination to mean the maximum commutation amount that would be payable for the income stream, as determined by the contract or governing rules for the provision of the income stream, if the person, or persons, eligible to receive the income stream died on that day.
The Principal Determination 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 Determination uses a person’s ‘life expectancy period’ (defined in section 4) when determining the surrender and death benefit values for asset-tested income stream (lifetime) products.
In accordance with the Principal Determination, a person’s life expectancy period has most recently been determined using the Australian Life Tables 2015‑17. From 1 January 2025, the new Australian Life Tables 2020‑22 will replace the Australian Life Tables 2015‑17 as the relevant Life Tables for the purposes of the Principal Determination. The amendments made by the Determination ensure that the latest Australian Life Tables, published by the Australian Government Actuary, are used from 1 January 2025 when determining the surrender value and death benefit value of a person’s asset-tested income stream (lifetime) under the Principal Determination.
The Determination does not impact the methods for calculating the current or future surrender value and death benefit values provided by the Principal Determination. The Determination does not affect any calculations undertaken prior to 1 January 2025.
There is more information about the assets test treatment of asset-tested income streams (lifetime) available in part 4.9.3.35 of the Social Security Guide, on the Department of Social Services’ website at the following address:
https://guides.dss.gov.au/social-security-guide/4/9/3/35.
Commencement
The Determination commences on 1 January 2025.
Retrospective commencement is required to ensure that from 1 January 2025, the surrender value and death benefit value of a person’s asset-tested income stream (lifetime) are calculated with reference to the latest Australian Life Tables. The Determination is made as soon as practicable after the new Australian Life Tables 2020-22 were published by the Australian Government Actuary on 12 December 2024.
The amendments made by the Determination benefit affected recipients in the short term, however, any disadvantage arising from the changes would not occur for five years from their relevant assessment day under section 1120AB of the Act (that is, from at least 2030 onwards).
From commencement, the amendments benefit more recipients by expanding the scope of the concessional assets test treatment available under subsection 1120AB(3) of the Act. The longer life expectancies contained in the new Life Tables 2020-22 extend the period over which the relevant surrender values and death benefit limits are decreased, allowing larger commutations and/or providing more generous death benefit conditions, while still enabling recipients to be eligible for concessional assets test treatment in respect of their asset-tested income stream (lifetime) product.
After five years from the recipient’s assessment day, the amendments will have the effect that recipients will have to wait longer until their threshold day, which is when they may be eligible to receive a further assets test concession, from 60 percent to 30 percent, under subsection 1120AB(3) of the Act. However, this is consistent with the longer life expectancies provided in the new Life Tables 2020-22.
The retrospective commencement supports the fair and accurate assessment of these products for social security purposes and is consistent with existing calculation arrangements following previous updates to the Australian Life Tables.
Retrospective commencement is also necessary to address any circumstances where income stream providers have structured their relevant income stream products in anticipation of the new Life Tables applying from 1 January 2025, and ensures appropriate and consistent treatment for affected recipients who have purchased such a product since that date. If the Determination were not retrospective to 1 January 2025, such recipients may be disadvantaged as they may not be eligible for concessional assets test treatment for the relevant income stream based on the previous Life Tables and higher surrender value and death benefit limits.
Authority
The Determination is made under subsection 1120AB(4) of the Act, which provides that the Secretary may make a legislative instrument.
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. These agencies did not raise any concerns.
The Department did not consult with social security recipients on the intention to make the Determination due to the minor and technical nature of the amendments.
Impact Analysis
The Determination does not require an Impact Analysis (OIA25-08829). The Determination is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact.
Explanation of the provisions
Section 1 states that the name of the Determination is the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2025.
Section 2 provides that the Determination commences on 1 January 2025.
Section 3 prescribes that the Determination is made under subsection 1120AB(4) of the Act.
Section 4 specifies that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.
Schedule 1 – Amendments
Item 1 repeals and substitutes a new definition of Life Tables into section 4 of the Principal Determination. This reflects the Australian Government Actuary’s publishing of the new Australian Life Tables 2020-22, and ensures that from 1 January 2025, the Principal Determination applies the most recent, and therefore most accurate, information about projected life expectancy, when calculating the surrender value and death benefit value of a person’s asset-tested income stream (lifetime) under the Principal Determination.
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 2015‑17 will no longer apply to any calculations from 1 January 2025 onwards. However, the new definition provides that the Australian Life Tables 2015-17 will be used if a person’s assessment day is between 1 January 2020 and 31 December 2024 (inclusive). Similarly, the Australian Life Tables 2010-12 will continue to be used if the person’s assessment day is before 1 January 2020 (that is, on 31 December 2019 or any earlier date). This is because they contained the most accurate and up to date information about projected life expectancy during those time periods.
The Australian Life Tables 2020‑22 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:
https://aga.gov.au/publications/life-tables/australian-life-tables-2020-22
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:
https://aga.gov.au/publications/life-tables/australian-life-tables-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:
https://aga.gov.au/publications/life-tables/australian-life-tables-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 2020-22, the Australian Life Tables 2015-17 and the Australian Life Tables 2010-12 are incorporated as in force on the day the Determination commences.
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 (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2025
The Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment 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 amends the Social Security (Value of Asset-tested Income Streams (Lifetime)) Determination 2019 (Principal Determination). The Determination repeals the definition of ‘Life Tables’ in the Principal Determination and substitutes a new definition that refers to the Australian Life Tables 2020-22 as the relevant Life Tables for calculating the value of an asset-tested income stream (lifetime) from 1 January 2025.
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 Determination provides methods for calculating the current or future surrender value and death benefit values for asset-tested income stream (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 Determination uses a person’s ‘life expectancy period’ (section 4 of the Principal Determination) when determining the surrender and death benefit values for asset-tested income stream (lifetime) products. A person’s life expectancy has most recently been determined using the Australian Life Tables 2015 -17. The Determination specifies that the relevant Life Tables for calculations from 1 January 2025 onwards are the new Australian Life Tables 2020‑22.
Human rights implications
The Determination engages the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). The right to social security requires that a system be established under domestic law, and that public authorities 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.
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 Determination is compatible with Australia’s obligations in relation to the right to social security. The Determination does not unreasonably restrict a person’s eligibility to receive a social security payment or reduce the benefits to which a person may be entitled.
The Determination supports fair and equitable means test outcomes for lifetime income stream products assessed as asset-tested income streams (lifetime). The Determination ensures that the value of an asset-tested income stream product (lifetime), as calculated using the methods in the Principal Determination, is calculated using current reference values in the Life Tables most recently published by the Australian Government Actuary. This will ensure that the Principal Determination 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 Determination 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 ensuring 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.
Conclusion
The Determination is compatible with human rights as it promotes and supports the right to social security. To the extent this right is engaged or limited, the impact is for a legitimate objective and is reasonable, necessary and proportionate.
Gillian Beer, Branch Manager, Payment Structures and Seniors Branch
Delegate of the Secretary of the Department of Social Services