EXPLANATORY STATEMENT

Veterans’ Entitlements (Actuarial Certificates – Lifetime Income Stream and Life Expectancy Income Stream Guidelines) Determination 2023

Empowering provisions

The Veterans’ Entitlements (Actuarial Certificates – Lifetime Income Stream and Life Expectancy Income Stream Guidelines) Determination 2023 (the Determination) is made under subsections 5JA(1B) and 5JB(1C) and paragraphs 5JA(1)(b) and 5JB(1A)(b) of the Veterans’ Entitlements Act 1986 (the Act).

Purpose

Sections 5JA and 5JB of the Act set out the meaning of an asset-test exempt income stream for lifetime income streams and life expectancy income streams respectively. The term asset-test exempt income stream is relevant in a number of contexts in the Act including in determining what assets are to be disregarded in calculating the value of a person’s assets for the purposes of the asset test under the Act.

Subsections 5JA(1) and 5JB(1A) of the Act provide that an income stream is an asset-test exempt income stream if certain requirements are met. The requirement in paragraphs 5JA(1)(a) and 5JB(1A)(b) must be met, subject to certain other provisions, if the income stream provider is in a class specified by the Repatriation Commission in a legislative instrument. The Determination specifies two classes of providers for this purpose.

For income streams provided by such providers, paragraphs 5JA(1)(a) and 5JB(1A)(b) require that there is in force a current actuarial certificate that states that the actuary is of the opinion that, for the financial year in which the certificate is given, there is a high probability that the provider will be able to pay the income stream as required under the contract or governing rules.

Subsections 5JA(1B) and 5JB(1C) of the Act allow the Commission to determine, by legislative instrument, guidelines to be complied with when determining whether an actuarial certificate is in force. The Determination sets out those guidelines.

The Determination repeals and replaces two instruments: the Veterans' Entitlements (Actuarial Certificate—Life Expectancy Income Stream Guidelines) Determination 2013 and the Veterans’ Entitlements (Actuarial Certificate─Lifetime Income Stream Guidelines) Determination 2013 (the 2013 instruments).

Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative character, 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.

The Determination consolidates the 2013 instruments into one new instrument. This is convenient as the specified classes and guidelines are the same for both lifetime and life expectancy income streams.

The Determination also updates a reference in the 2013 instruments to the Institute of Actuaries of Australia Guidance Note 465. Guidance Note 465 was replaced by the Actuaries Institute Australia Professional Standard 410 (Statements of Opinion Relating to Defined Benefit Pensions) on 1 January 2018. The Determination therefore refers to Professional Standard 410.

The Determination is a legislative instrument that commences on the day after it is registered.

Explanation of provisions

Section 1 states the name of the Determination.

Section 2 provides that the Determination commences on the day after it is registered on the Federal Register of Legislation.

Section 3 sets out the authority for making the Determination. It provides that the Determination is made under sections 5JA and 5JB of the Act.

Section 4 defines certain terms used in the Determination. It includes a note that terms used in the Determination have the meaning they have in the Act, such as the term “Commission”.  

Section 5 is a standard provision used in instruments that amend or repeal other instruments. It provides that Schedule 1 has the effect that the instruments specified in Schedule 1 are repealed as set out in Schedule 1.

Section 6 specifies two classes of income stream providers for the purposes of paragraphs 5JA(1)(b) and 5JB(1A)(b) of the Act: 

 (a) self managed superannuation fund income stream providers, other than providers of income streams from annuity backed self managed superannuation funds; and

 (b) small APRA fund income stream providers, other than providers of income streams from annuity backed small APRA funds.

The terms “self managed superannuation fund”, “annuity back self managed superannuation fund”, “small APRA fund” and “annuity backed small APRA fund” are defined in section 4 of the Determination.

Section 7 sets out guidelines to be complied with by the Commission when making a finding whether an actuarial certificate is in force for the purposes of paragraph 5JA(1)(b) or 5JB(1A)(b) of the Act. The guidelines apply to both lifetime income stream and life expectancy income streams, where the provider is in one of the classes of provider specified in section 6 of the Determination.

The purpose of the Guidelines is to ensure the Commission gives due regard to the currency of the actuarial certificate, the period it relates to, and whether it was prepared in accordance with appropriate professional standards. If the Commission, after taking account of these matters, finds that the certificate is not in force, the income stream will not meet the requirements to be an asset-test exempt income stream.

Section 7 provides that the Commission must take into account the matters specified in paragraphs (a), (b) and (c) of section 7 when making a finding whether an actuarial certificate is in force.

The first matter to be taken into account is whether the certificate states that it was prepared in accordance with Actuaries Institute Australia Professional Standard 410 (Statements of Opinion Relating to Defined Benefit Pensions) as in force on the date the Determination commences.

Professional standard 410 came into effect on 1 January 2018. It includes guidance for actuaries on when it would be appropriate to form the opinion that there is a high degree of probability that a fund will be able to pay a pension as required under the fund’s governing rules. This is relevant to the requirement in paragraphs 5JA(1)(b) and 5JB(1A)(b) of the Act that the certificate states the actuary is of the opinion that, for the financial year in which the certificate is given, there is a high probability that the provider of the income stream will be able to pay the income stream as required under the contract or governing rules.

The Standard provides that actuaries are to interpret “high degree of probability” as follows:

• Where the actuary determines the probability to be 70% or more, he or she is able to give a positive opinion that there is a “high degree of probability” without further investigation.

• Where the actuary determines the probability to be at least 50% but less than 70%, he or she would not normally be able to give a positive opinion that there is a “high degree of probability”. However, in a case where the actuary believes that there are special circumstances, it may be possible for the actuary, in his or her professional judgement, to form a positive opinion that there is a “high degree of probability”.

• Where the actuary forms the opinion that the probability is less than 50%, the actuary must not give a positive opinion that there is a “high degree of probability”.

Preparing the certificate in accordance with Professional Standard 410 ensures appropriate professional standards are applied in the preparation of actuarial certificates that will be used in assessing whether an income stream is an exempt income stream for the purposes of the Act. It is therefore an appropriate matter for the guidelines in section 7 of the instrument to require the Commission to take into account.

Professional Standard 410 is incorporated into the Determination as in existence at the date the Determination commences, in accordance with paragraph 14(1)(b) of the Legislation Act 2003. The Professional Standard is freely available on the Actuaries Institute Australia website: Home | Actuaries Institute.

The second matter to be taken into account when making a finding whether the actuarial certificate is in force relates to the currency of the certificate in relation to the period being certified. In particular, the Commission must take into account whether the certificate was certified no later than 26 weeks after the start of the financial year to which it relates, and provided to the Commission no later than 3 weeks after the end of that 26 week period. 

The third matter to be taken into account is whether the certificate states a period during which certificate is in force. The certificate should be stated to be in force for the full financial year (1 July to 30 June) in the financial year in which certification occurs.

Schedule 1

Item 1 This item repeals the Veterans’ Entitlements (Actuarial Certificate─Lifetime Income Stream Guidelines) Determination 2013.

Item 2 This item repeals the Veterans’ Entitlements (Actuarial Certificate─Life Expectancy Income Stream Guidelines) Determination 2013.

Consultation

Consultation in respect of the Determination was undertaken with the Department of Social Services to ensure alignment across the equivalent Social Security Instrument and this Instrument. The Department of Social Services consulted with the Australian Government Actuary and the Institute of Actuaries of Australia when the equivalent Social Security Instrument was remade in 2019.

Document Incorporated by Reference

The Determination incorporates Actuaries Institute Australia Professional Standard 410 (Statements of Opinion Relating to Defined Benefit Pensions) as in force as at the date of commencement of the Determination. The Professional Standard is freely available on the Actuaries Institute Australia website: Home | Actuaries Institute

Regulatory Impact Analysis

The Determination does not require a Regulatory Impact Statement. The Determination will have no more than a minor regulatory impact on business, community organisations or individuals and will have no, or minimal, compliance costs or competition impact.
Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights

(Parliamentary Scrutiny) Act 2011

Veterans’ Entitlements (Actuarial Certificates – Lifetime Income Stream and Life Expectancy Income Stream Guidelines) Determination 2023

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

The legislative instrument sets out guidelines to be complied with by the Repatriation Commission when making a finding under the Veterans’ Entitlements Act 1986 (the Act) whether an actuarial certificate issued in relation to certain classes of lifetime and life expectancy income streams is in force. It also specifies the relevant classes of income stream providers. If the Commission finds that the certificate is in force, and certain other legislative requirements are met, the Act provides that the income stream will be an asset-test exempt income stream, and generally exempt from the asset testing requirements of the Act.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Repatriation Commission

Rule-Maker