EXPLANATORY NOTE FOR TABLING
INSTRUMENT No. 9 of 1998
VETERANS’ ENTITLEMENTS ACT 1986
SECTION 52B
VALUE OF ASSET-TESTED INCOME STREAMS THAT ARE DEFINED BENEFIT INCOME STREAMS
The Minister for Veterans’ Affairs has determined, in accordance with section 52B(3) of the Veterans’ Entitlements Act 1986 (‘the Act’), the attached determination, No 9 of 1998, that determines the pension valuation factor that applies to a person for the purposes of section 52B of the Act.
Many defined benefit superannuation schemes will qualify for asset test exemption. For those which do not qualify for asset test exemption, it is necessary to derive an asset value. In the absence of an identifiable purchase price or account balance, Pension Valuation Factors have been drawn up by the Australian Government Actuary to provide a notional value for these income streams.
To calculate the capital value of the pension, three items of information are required. They are:
a) the annual amount of pension received;
b) the pensioner’s age next birthday; and
c) the rate of indexation applying to the pension.
The factors take account of current interest rates and mortality rates from the Australian Life Tables 1990-92. The factors have been grouped into 5-year age bands based on age next birthday. They are further divided according to the interest rate regimes applicable to the income stream. For example, pension indexation may be fixed, or it may be based on salary movements (Australian Weekly Earnings), Consumer Price Index, trustee discretion or other considerations.
The Pension Valuation Factors have been incorporated in a legislative instrument, rather than in the Act, because they may need to be revised quickly in order to take account of changes in the interest rate environment.