EXPLANATORY STATEMENT

Veterans' Entitlements (Income stream) Determination 2007

Summary

The Veterans' Entitlements (Income stream) Determination 2007

(the Determination) is made under paragraph 5J(1E)(ba), subparagraphs 46YA(1)(b)(i) and (ii) and subsection 46YA(3) of the Veterans’ Entitlements Act 1986 (the Act).

This Determination is for the following purposes:

• To specify certain standards that a pre-1998 income stream must satisfy to meet the definition of a “defined benefit income stream” for veterans’ entitlements purposes;
• To specify, in part, the types of account-based income stream products that section 46YA of the Act will apply to; and
• to define the “minimum amount” in subsection 46YA(3) of the Act.  This amount is part of the formula used to calculate the amount of income that a client is taken to receive from an income stream product, at a minimum, where that product is subject to section 46YA of the Act. 

Background

The provisions in this Determination flow from amendments in the Families, Community Services and Indigenous Affairs Legislation Amendment (Child Support Reform Consolidation and Other Measures) Act 2007.  This Act received Royal Assent on 21 June 2007. 

Its provisions:

1. allow the veterans’ entitlements means test and the social security means test to be applied to income streams that can access the new withdrawal limits that apply to account-based income streams from 1 July 2007.  Under the new SimplerSuper provisions, there is no upper limit on withdrawal and new lower limits giving retirees more flexibility in arranging their finances in retirement.
2. amend the definition of a “defined benefit income stream”, to ensure that defined benefit income streams sourced from defined benefit superannuation funds established before 20 September 1998 continue to qualify for the 100% exemption from the assets test.

Explanation of the Provisions

Section 1 of the Determination states the name of the Determination namely the Veterans’ Entitlements (Income stream) Determination 2007.

Section 2 states that the Determination is taken to have commenced on

1 July 2007.

Section 3 provides definitions of terms used in the Determination.

To satisfy the definition of a “defined benefit income stream”, a pre-1998 lifetime income stream sourced from a defined benefit superannuation fund established before 20 September 1998 must satisfy, among other things, paragraph 5J(1E)(ba) of the Act, which states that the income stream must satisfy rules that meet such standards as determined by the Minister for Veterans’ Affairs.  Section 4 determines the relevant standards as being those included within paragraphs 1.06(2)(a) to (d) and (f) to (h) of the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations); i.e. lifetime income streams sourced from defined benefit superannuation funds established before 20 September 1998 must satisfy the requirements of paragraphs 1.06(2)(a) to (d) and (f) to (h) of the SIS Regulations to be able to be a “defined benefit income stream” for the purposes of the Act.

Section 46YA of the Act provides for a certain amount of income to be taken to be income of a client, derived from an income stream, for the purposes of the Act, where, among other things, the income stream is one of a type mentioned in either subparagraph 46YA(1)(b)(i) or (ii). Subparagraph 46YA(1)(b)(i) provides that an allocated pension, as defined in the SIS Regulations, and any other type of pension that the Minister for Veterans’ Affairs may determine, will be subject to section 46YA.  Section 5 determines that an account based pension, within the meaning of the SIS Regulations, will fall within subparagraph 46YA(1)(b)(i).

Subparagraph 46YA(1)(b)(ii) includes income streams that are an “annuity” within the meaning of the SIS Regulations, where that annuity is provided under a contract that meets the relevant standards determined by the Minister for Veterans’ Affairs.  Section 6 provides that the standards, that the contract must meet, are those in subregulation 1.05(4) and paragraph 1.05(11A)(a) of the SIS Regulations.

Section 7 sets out the method of calculating the “minimum amount”, which is used in the formula in subsection 46YA(3). The “minimum amount” is to be calculated in accordance with the method in subSection 1(1) of Schedule 7 of the SIS Regulations; i.e. account balance x percentage factor, with both of those terms defined in Schedule 7.

Consultation

Consultation regarding this Determination was undertaken with the Department of Families, Community Services and Indigenous Affairs (FaCSIA) as that Department administers legislation which incorporates similar rules relating to the treatment of income streams as that provided by the Act.  FaCSIA consulted the Department of Employment and Workplace Relations and the Department of Education, Science and Training so as to ensure a co-ordinated approach in respect of payments under the Social Security Act 1991 for which they now have responsibility.  Consultation was also undertaken by FaCSIA with the Department of the Treasury.

The Rule-Maker (Minister for Veterans’ Affairs) was satisfied that this consultation was the only consultation necessary for the Determination.

Retrospectivity

This instrument applies retrospectively on and from 1 July 2007.  For the purposes of subsection 12(2) of the Legislative Instruments Act 2003 (legislative instruments that commence before registration on the Federal Register of Legislative Instruments must not negatively affect people) the Determination does not affect the rights of any person or impose a liability on any person (other than the Commonwealth).