EXPLANATORY STATEMENT
Veterans’ Entitlements Amendment (Family Law Affected Income Streams) Principles 2019
(Instrument 2019 No. R33)
PURPOSE
The Veterans’ Entitlements Amendment (Family Law Affected Income Streams) Principles 2019 (the Instrument) amends the Veterans’ Entitlements (Family law affected income stream) Principles 2011 (the Principles) made under section 46ZC and subsection 52BA(5) of the Veterans’ Entitlements Act 1986 (the VEA).
Under section 46ZC and subsection 52BA(5) of the VEA, the Repatriation Commission (the Commission) has the power to make, by way of legislative instrument, principles to be complied with by the Commission when determining the value of a family law affected income stream, for the purposes of the VEA income and assets tests.
From 1 July 2019, a new paragraph (e) will be inserted into section 46ZC of the VEA. New paragraph 46ZC(e) will provide that the Commission may make, by legislative instrument, principles to be complied with by the Commission in making decisions under subsection 46ZBA(1) of the VEA. Subsection 46ZBA(1) will also be inserted into the VEA from 1 July 2019. This new subsection provides a power for the Commission to determine the amount of ordinary income that a person is taken to receive each year from family law affected asset-tested income streams (lifetime).
Subsection 52BA(5) of the VEA provides that the Commission may make, by legislative instrument, principles to be complied with by the Commission in making decisions under subsection 52BA(2) or (3). Subsection 52BA(2) provides that the value of a family law affected income stream that is not a defined benefit income stream, for the purposes of the assets test, is to be determined by the Commission. Subsection 52BA(3) provides that the value of the asset-tested family law income stream that is a defined benefit income stream is, for the purposes of the assets test, to be determined by the Commission.
The new principles made by the amendments are intended to apply when working out the annual rate of ordinary income from a family law asset-tested income stream (lifetime) and the value of such a stream. Without the new principles, a family law asset-tested income stream (lifetime) would not be subject to the new more equitable means test rules that will apply generally to asset-tested income streams (lifetime) from 1 July 2019 for all Commonwealth pension recipients who hold such products.
BACKGROUND
The Family Law Act 1975 allows superannuation interests to be split pursuant to a family law property settlement. In 2011, the Principles were made to allow these split interests to be assessed consistently with other income and assets under the VEA means test arrangements.
The Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Act 2019 (the Supporting Retirement Incomes Act) amends the VEA to establish new means test rules to accommodate the development of new innovative income streams, resulting from recent changes to the Superannuation Industry (Supervision) Regulations 1994. The Supporting Retirement Incomes Act also amends the current rules for lifetime income streams, to create fairer, more equitable means test outcomes.
The amendments in the Supporting Retirement Incomes Act inserts a new section 5JE into the VEA from 1 July 2019. This new section contains a definition of an ‘asset-tested income stream (lifetime)’. In broad terms, an income stream is an asset-tested income stream (lifetime) if:
(a) the contract, or governing rules, for the provision of the income stream ensure that, once payments of the income stream start, the income stream is to continue for the remainder of the life of one or more individuals; and
(b) the contract, or governing rules, for the provision of the income stream ensure that the amounts of those payments are determined by having regard to the age, life expectancy or other factors relevant to the mortality of those individuals; and
(c) the income stream is not an asset-test exempt income stream; and
(d) the income stream is not a defined benefit income stream.
From 1 July 2019, asset-tested income streams (lifetime) will be subject to new rules contained in Schedule 1 to the Supporting Retirement Incomes Act. However, these new rules only apply to asset-tested income streams (lifetime) to the extent that they are not ‘family law affected income streams’ within the meaning of section 52BA of the VEA. Family law affected income streams are essentially income streams that have been split between a person and their partner or former partner due to the operation of the Family Law Act 1975.
This Instrument amends the Principles to set out new principles the Commission must have regard to when assessing the value of an asset-tested income stream (lifetime) that is a family law affected income stream. The value of an asset-tested income stream (lifetime) is relevant to assessing a person’s income and assets for the purposes of the VEA income and assets tests.
ACTS INTERPRETATION ACT PROVISIONS
Commencement: for clarity, section 4 of the Acts Interpretation Act 1901 applies to this Instrument. This is because the Instrument is made after the Supporting Retirement Incomes Act received Royal Assent and before the commencement of that Act.
Implied power to amend, vary or revoke an instrument: 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
This Instrument commences on 1 July 2019 immediately after the commencement of Schedule 1 of the Supporting Retirement Incomes Act.
CONSULTATION
The Department of Social Services and Services Australia were consulted in relation to the Instrument.
REGULATORY IMPACT STATEMENT
The Office of Best Practice Regulation has advised that the new means test rules for lifetime income streams are non-regulatory/machinery in nature and have a zero regulatory cost (OBPR reference 23186). The Instrument is a part of the implementation of the new means test rules for lifetime income streams.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Human rights implications
The 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 not to take any backward steps in relation to the right to social security. The Instrument does not unreasonably restrict a person’s eligibility to receive a social security benefit under the VEA or reduce the benefits under the VEA to which a person may be entitled.
The new principles set out in this Instrument have been created to ensure fair and equitable means test outcomes for family law affected asset-tested income streams (lifetime). If the Instrument were not in place, decision makers would not have adequate guidance when determining the asset value or income assessed from asset‑tested income streams (lifetime) affected by family law decisions. This could result in asset‑tested income streams (lifetime) affected by family law decisions not being accurately or fairly assessed under the VEA means test.
By making sure asset‑tested income streams (lifetime) affected by family law decisions are accurately or 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 the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Repatriation Commission
Rule-Maker
FURTHER EXPLANATION OF PROVISIONS
See Attachment A.
Attachment A
FURTHER EXPLANATION OF PROVISIONS
Section 1
This section provides that the name of this Instrument is the Veterans’ Entitlements Amendment (Family Law Affected Income Streams) Principles 2019.
Section 2
This Instrument commences on 1 July 2019 immediately after the commencement of Schedule 1 of the Supporting Retirement Incomes Act.
Subsection 4(3) of the Acts Interpretation Act 1901 provides that anything may be done before the start time (of the Act) for the purpose of enabling the exercise of the power, or of bringing the appointment or instrument into effect, as if the commencement had occurred. This provision enables the instrument to be lawfully made after the Act has received Royal Assent and prior to the commencement of the Act.
Section 3
This section provides that the authority for making this Instrument is section 46ZC and subsection 52BA of the Veterans’ Entitlements Act 1986.
Section 4
This section provides that each instrument specified in the Schedule to the Instrument is amended or repealed as set out in the applicable items in the Schedule, and that any other item in the Schedule to the Instrument has effect according to its terms.
Schedule - Amendments of the Veterans’ Entitlements (Family law affected income stream) Principles 2011
Item 1 amends subsection 1.3(1) of the Principles to insert new definitions of assessment day, purchase amount and threshold day. These new definitions adopt formula and calculation methods in section 52BAB of the Veterans’ Entitlements Act 1986 (the Act) for the purpose of defining terms as they are used in the Principles. Section 52BAB of the Act does not apply to family law affected income streams so it has been necessary to adapt these concepts for the purposes of the Instrument.
The Supporting Retirement Incomes Act inserts new section 52BAB in the VEA.
Item 2 amends subsection 1.3(1) of the Principles to repeal the note and replace this with two new notes. Note 1 explains the new definitions inserted by item 1. The new Note 2 replicates the existing note and also references the new defined term ‘asset-tested income stream (lifetime)’.
Item 3 amends subsection 1.3(2) of the Principles to make a technical correction to the note in that subsection. Item 3 omits a reference to section 90MD of the Family Law Act 1975 and substitutes a reference to section 90XD. The definition section of the Family Law Act 1975 that is relevant to superannuation interests was renumbered from section 90MD to section 90XD in 2018.
Item 4 amends the heading to Part 4 of the Principles to make clear that Part 4 of the Principles no longer contains the rules for determining the asset value for all asset-tested income streams and does not apply to an asset-tested income stream (lifetime).
Item 5 inserts new Parts 5 and 6 into the Principles.
Part 5 - Income from asset-tested income streams (lifetime)
New section 5.1
This section is an application provision that provides that new Part 5 of the Principles applies to a ‘family law affected income stream’ (as defined at 52BA of the Act) that is an ‘asset-tested income stream (lifetime)’ (as defined in section 5JE of the Act).
New section 5.2
This section prescribes the matters the Commission must have regard to in making a decision under section 46ZC of the Act in relation to an asset-tested income stream (lifetime) (i.e. a decision regarding the annual rate of ordinary income that an income support recipient is taken to have received from the asset-tested income stream (lifetime) in a year). In making such a decision, the Commission must take into account the matters listed in items 1 to 4 and 14 to 23 of Schedule 1 to the Principles as well as any other matter that the Commission considers relevant. Where the income support recipient is receiving income from the income stream as a result of more than one payment split, the Commission must have regard to those same matters in regard to each payment split.
The Supporting Retirement Incomes Act inserts new paragraph 46ZC(e) in the VEA.
Part 6 - Asset value of asset-tested income streams (lifetime)
New section 6.1
This section is an application provision that provides that new Part 6 of the Principles applies to a family law affected income stream (as defined at section 52BA of the Act) that is an asset-tested income stream (lifetime) (as defined in section 5JE of the Act).
New section 6.2
This section prescribes the matters the Commission must have regard to in making a decision under subsection 52BA(2) or (3) of the Act in relation to an asset-tested income stream (lifetime) (i.e. a decision regarding the value of an asset-tested income stream (lifetime) for asset-testing purposes in relation to the income support recipient). In making such a decision, the Commission must take into account the matters listed in items 1 to 4 and 14 to 25 of Schedule 1 to the Principles as well as any other matter that the Commission considers relevant. Where the income support recipient is receiving income from the income stream as a result of more than one payment split, the Commission must have regard to those same matters in regard to each payment split.
Item 6 makes a consequential amendment to the heading of Schedule 1 to the Principles.
Item 7 inserts two new items, items 24 and 25, after item 23. These new items are only relevant to an assessment of a person’s asset-tested income stream (lifetime) under the assets test and are referenced in new section 6.2 of the Principles (inserted by Schedule, item 6 of this Instrument).