EXPLANATORY STATEMENT
Issued by the authority of the Minister for Veterans’ Affairs
Veterans’ Entitlement Act 1986
Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2022
Summary
The Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2022 (the Specification) is made under subparagraph 206(1)(b)(ii) of the Veterans’ Entitlements Act 1986 (the Act).
Subparagraph 206(1)(b)(ii) provides that the Repatriation Commission may, on behalf of the Commonwealth, by determination in writing, waive or defer the right of the Commonwealth to recover debts under the Act included in a class of debts specified by the Minister [for Veterans’ Affairs] by notice in the Gazette (publication in Gazette is satisfied by publication on the Federal Register of Legislative Instruments (see: section 56 of the Legislation Act 2003)).
The purpose of the Specification is to specify a class of debts. The Repatriation Commission, on behalf of the Commonwealth, may waive or defer the right of the Commonwealth to recover a debt included in the class. It is envisaged the Repatriation Commission, in line with the approach taken by the Secretary of the Department of Social Services, will choose to waive a debt rather than defer the right of the Commonwealth to recover it.
Background
This Specification remakes the Veterans’ Entitlement (Class of Debts – Self Managed Superannuation Funds and Small APRA Funds) Specification 2012 which is due to sunset on 1 April 2022. As part of this Specification, income streams sourced from a self managed superannuation fund or a small APRA (Australian Prudential Regulation Authority) fund:
- before 20 September 2004 (or that were commuted and rolled over on or after 20 September 2004 from those income streams and retained their 100 percent exemption); or
- between 20 September 2004 and 19 September 2007 (or that were commuted and rolled over on or after 20 September 2007 from those income streams and retained their 50 percent asset-test exemption); and
which comply with the requirements of section 5JA or 5JB of the Act, are 100 per cent or 50 per cent asset-test exempt. If these income streams are commuted, the asset-test exemption may be retained provided the new income stream complies with the requirements of the following instruments:
- Veterans’ Entitlements (Guidelines for Determining whether Income Stream is Asset-test Exempt) Determination 2022; or
- The Veterans’ Entitlements (Retention of Exemption for Asset-test Exempt Income Streams) Principles 2022.
These requirements include commuting the income stream and purchasing a similar income stream product from a retail provider. This option is available at any time to the owner of the income stream under this Specification.
These income streams are required, among other things, to meet a ‘high probability’ actuarial test that the provider of the income stream will be able to pay the income stream as required, so as to comply with the requirements of section 5JA or 5JB of the Act. However, some self managed superannuation funds or small APRA funds may no longer be able to meet this requirement due to changes in the value of assets backing their income stream.
Where an income stream does not meet the high probability test, it may be restructured by purchasing a retail asset-test exempt product (which will comply with the requirements of the Act). In these circumstances, the income stream will continue to be assessed as asset-test exempt.
Alternatively, the income stream may be restructured into a market-linked income stream either from a retail provider or within the self managed superannuation fund. However, this new income stream will no longer meet the requirements of section 5JA or 5JB of the Act. The new market-linked income stream will also not meet the requirements of section 5JBA as the income stream’s commencement day would not meet the requirements of subparagraph 5JBA(1)(a)(i) of the Act. Accordingly, the market-linked income stream will be 100 percent asset tested.
Under the Act, a consequence of restructuring an income stream which was sourced from a self managed superannuation fund or small APRA fund to a market-linked income stream, will mean that the difference between the amount that has been paid by way of income support where the income stream was asset-test exempt and the amount that would have been payable had the income stream been asset-tested, is a debt due to the Commonwealth under section 52ZMA of the Act.
This Specification is a purely beneficial instrument that will allow for this class debts to be waived or the right to recover it deferred. This will enable the Repatriation Commission to waive or defer the Commonwealth’s right to recover debts arising under the Act incurred by persons whose income streams, sourced from a self managed superannuation fund or a small APRA fund before 20 September 2004 (or were commuted and rolled over on or after 20 September 2004 from those income streams and retained their 100 percent exemption) and which complied with the requirements of sections 5JA and 5JB of the Act, are commuted to a market-linked income stream. A waiver or deferral may apply irrespective of whether the asset-test exempt income stream does or does not meet the high probability test. In other words, a waiver or deferral is available at any time, provided the income stream is commuted to a 100 percent asset tested market-linked income stream.
Commencement
The Specification commences on the day after registration.
Consultation
The Department has consulted with the Department of Social Service during the drafting of the equivalent instrument.
Regulation Impact Statement (RIS)
The Department of Social Services advise that a Regulatory Impact Statement was not required for the equivalent Specification under the Social Security Act 1991 (OBPR Reference ID: 43680). The Office of Best Practice Regulation advised DVA that a RIS is not required.
Explanation of the provisions
Section 1 states the name of the Specification is the Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2022.
Section 2 provides a table setting out the commencement date for the whole of the Instrument. All parts of the Instrument commences on the day after it is registered.
Section 3 provides that the authority for making this instrument is subparagraph 206(1)(b)(ii) of the Act.
Section 4 contains definitions relevant to the Specification as follows:
Act is defined to mean the Veterans’ Entitlements Act 1986.
APRA is defined to mean the Australian Prudential Regulation Authority.
Market-linked income stream is defined to mean an income stream that meets the requirements of section 5JBA of the Act, other than subparagraph 5JBA(1)(a)(i) which requires the income stream’s commencement day to happen during the period from 20 September 2004 to 19 September 2007 (both dates inclusive). This definition is intended to cover the income streams that are restructured into a market-linked income stream as they do not meet the high probability test.
Self managed superannuation fund is defined to have the same meaning as in section 17A of the Superannuation Industry (Supervision) Act 1993.
Small APRA fund is defined to have the same meaning as in subsection 1017BB(6) of the Corporations Act 2001.
The note to this section provides that the following terms are defined in the Act:
- asset-test exempt income stream; and
asset-tested income stream (long term)
Section 5 provides that Schedule 1 repeals the Veterans’ Entitlement (Class of Debts – Self Managed Superannuation Funds and Small APRA Funds) Specification 2012.
Section 6 specifies the class of debt that may be waived or deferred. A debt is in a specified class if a person owes a debt to the Commonwealth under section 52ZMA of the Act which did not arise because the person knowingly made a false or misleading statement, or knowingly provided false information to the Repatriation Commission or the Commonwealth (paragraphs 6(a) and (b)).
The specified class of debts must also meet the requirements of subparagraphs 6(c)(i)(A) and (B). That is, immediately before the commencement of the Specification, the income stream that is relevant for the purposes of section 52ZMA:
- was an asset-test exempt income stream that met the requirements of either section 5JA or 5JB of the Act; or
- an asset-tested income stream (long term) that was previously an asset-test exempt income stream but due to changes in the value of the assets backing the income stream, failed to meet the high probability actuarial test. As these income streams are no longer able to meet the requirements of either paragraph 5JA(1)(b) or 5JB(1A)(b) of the Act, they are unable to retain their asset-test exemption. In these circumstances, these income streams would be assessed as asset‑tested income streams and this change of status would normally trigger the operation of section 52ZMA of the Act.
Further, paragraph 6(c) provides that a debt is in a specified class if, before the commencement of the Specification, the income stream, being one that meets the requirements of subparagraphs 6(c)(i)(A) or (B) of the Specification, was also sourced from a self managed superannuation fund or a small APRA fund (subparagraphs 6(c)(ii)(A) and (B)).
Paragraph 6(d) provides that the debt is in the specified class if the relevant income stream for the purposes of subparagraph 206(1)(b)(ii) is commuted and rolled over into a 100 percent asset tested market-linked income stream on or after the commencement of this Specification (paragraph 6(d)).
Schedule 1 – Repeals
Item 1 repeals Veterans’ Entitlements (Class of Debts – Self Managed Superannuation Funds and Small APRA Funds) Specification 2012.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011.
Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2022
Summary
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
The Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2022 (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 instrument is made by the Minister for Veterans’ Affairs under subparagraph 206(1)(b)(ii) of the Veterans’ Entitlement Act 1986 (the Act). It replaces the previous Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2012, is due to sunset on 1 April 2022.
Subparagraph 206(1)(b)(ii) of the Act provides that the Repatriation Commission may decide to waive or defer the Commonwealth’s right to recover debts arising under the Act that are included as a class of debts specified by the Minister by legislative instrument.
The effect of this instrument is to specify a class of debt that may be waived or deferred for the purposes of subparagraph 206(1)(b)(ii) of the Act.
The class of debt is in respect of certain debts incurred by pensioners under the Act. The debts relate to pension overpayments brought about because certain superannuation income streams (assets) should have been taken into account (assets test) when assessing the level of pension for the pensioners in question. The more assessable assets a person has, the less their pension will be. If assessable assets are not taken into account for the purposes of determining the level of pension for a person, as in the current case, then an overpayment occurs which is a debt to the Commonwealth.
In the current case, the assets that became assessable were previously not assessable and pension was not overpaid in respect of them. The assets became assessable because, due to poor financial conditions generally, they could no longer meet the requirements that would make them non-assessable (i.e. exempt from the assets test).
In particular the assets did not satisfy the “high probability test” i.e. that an independent actuary is satisfied that there is a high probability that the superannuation fund that governs the asset (income stream) will be able to make payments to the owner of the income stream as required under the contract that established the income stream. In short, poor financial conditions meant the income streams underperformed and could not generate the necessary payments and it was the capacity to meet the required level of payment that made the income stream asset test exempt.
In these circumstances the Minister for Veterans’ Affairs decided to give the Repatriation Commission the option of waiving or deferring the debts arising from pension overpayments due to the income streams in question no longer being asset-test exempt, meaning the pension should have been reduced accordingly.
Essentially this has the effect of enabling the previously asset-test exempt income streams to continue as asset-test exempt income streams which would have been the case but for the poor financial conditions that resulted in the underperformance of superannuation funds.
Human rights implications
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, and does not restrict a person’s eligibility to receive a social security benefit or reduce the benefits to which a person may be entitled.
This instrument is entirely beneficial, as it specifies a class of debts that may be waived by the Repatriation Commission.
Conclusion
The instrument is compatible with human rights as it’s effects are wholly administrative in nature, and do not raise any human rights issues.
Andrew Gee
Minister for Veterans’ Affairs
Rule Maker