Wade and Repatriation Commission [1999] AATA 719 (27 September 1999)

Last Updated: 29 September 1999

DECISION AND REASONS FOR DECISION [1999] AATA 719

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V1999/156

VETERANS' APPEALS DIVISION )

Re IAN ROBERT HUGH WADE

Applicant

And REPATRIATION COMMISSION

Respondent

DECISION

Tribunal Commodore B.G. Gibbs, AM, RAN (Retd), Senior Member

Date 27 September 1999

Place Melbourne

Decision The Tribunal affirms the decision under review.

(Sgd.) B.G. GIBBS

Senior Member

CATCHWORDS

VETERANS' APPEALS - Service pension - reduction in rate - value of assets - wife's allocated pension - whether legislation correctly applied - decision affirmed.

Words and Phrases: "Assets Test Exempt"; Assets Test Long Term"; Assets Test Short Term"

Veterans' Entitlements Act 1986, ss. 5J(1), 5JA, 5JB, 52A, 57, 120

Social Security and Veterans' Affairs Legislation Amendment (Budget and Other Measures) Act 1998 and Explanatory Memorandum

Smith v Repatriation Commission (1987) 74 ALR 537

REASONS FOR DECISION

27 September 1999

Commodore B.G. Gibbs, AM, RAN (Retd), Senior Member

Introduction

1. This is an application by Mr Ian Robert Hugh Wade, for review of the decision of a delegate of the respondent dated 5 September 1998, affirmed by a senior delegate on 18 December 1998.

2. The decision of the delegate dated 5 September 1998 was that the rate of service pension being paid to Mr Wade and his wife be reduced from 24 September 1998, as a result of increased assets.

Representation

3. At the hearing Mr Wade was self-represented and Mr R. Douglass, Advocacy Section, Department of Veterans' Affairs ("the Department"), appeared for the respondent.

Material

4. The Tribunal had before it documents ("the T documents") lodged by the respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. Also before the Tribunal was the Veterans' Entitlements Act 1986 ("the Act"), and the Social Security and Veterans' Affairs Legislation Amendment (Budget and Other Measures) Act 1998 ("the Amendment Act") plus the Explanatory Memorandum in respect of the latter Act.

Witnesses

5. The only person to give evidence at the hearing was Mr Wade.

Standard of Proof

6. By virtue of the operation of section 120(4) of the Act, the Tribunal shall, in making any determination or decision in respect of a matter arising, decide that matter to its reasonable satisfaction. A standard of proof on the balance of probabilities is therefore applicable (Smith v Repatriation Commission (1987) 74 ALR 537).

Background

7. On 5 September 1998 a delegate of the respondent reduced the rate of service pension paid to Mr Wade with effect from 24 September 1998, following the Amendment Act which affected the value of Mr Wade's assets. In particular, the respondent asserted that the Amendment Act had the effect of attributing a value to the allocated pension of Mrs Wade, being a pension which previously had been treated as exempt for the purposes of assessment under the assets test.

8. As indicated above, the decision of the delegate was affirmed, and on 19 February 1999 Mr Wade lodged an application for review by this Tribunal.

Effective Date

9. Because all time limits have been complied with in respect of this matter, the effective date is 24 September 1998.

Issues

10. The issue before the Tribunal in this matter is whether, after a consideration of the whole of the material before it, the Tribunal is reasonably satisfied, that is to say on the balance of probabilities, that Mrs Wade's allocated pension has been correctly assessed by the respondent.

11. It was the contention of the respondent that the Amendment Act has fundamentally altered the method to be applied in valuing allocated pensions:

"It rationalises the treatment of various investment products which generate income streams by classifying them as 'asset-test exempt income stream', 'asset-tested income stream (long term)' and 'asset-tested income stream (short term)', products. All income streams other than 'asset-test exempt' income streams are now assessed under both the income and assets test. Allocated pensions do not meet the definition of 'asset-test exempt income stream' and are now to be treated as an 'asset-tested (long term) income stream' (see pages 3 and 16 of the Explanatory Memorandum)."

The respondent further contends:

"That the allocated pension considered in this case is an 'income stream' as defined in subsection 5J(1) of the Act, but does not meet the definition of an 'asset-test exempt income stream', as defined in sections 5JA and 5JB of the Act. Accordingly, the respondent submits that the appropriate method of valuation of the allocated pension is to be based on the account balance, as per section 52A of the Act. This method of valuing the allocated pension has been correctly adopted in this case."

12. It was Mr Wade's contention that even if the provisions of the Amendment Act have been correctly applied, the resultant reduction to the rate of service pension paid to him is "unfair", "unjust" and "contrary to the intention to encourage retirees taking pensions as opposed to lump sums". (T1/2)

Evidence

13. In the written reasons for his decision dated 18 December 1998, the senior delegate of the respondent stated in part as follows:

"The file shows that the variation in service pension was done as a result of the new legislative changes, which govern the assessment of income streams such as allocated pensions and annuities. Veterans' Affairs and Social Security legislation was amended to alter the assessment rules, and those new rules became operative from 24 September 1998. This means that the old way of assessing the asset value of allocated pensions has changed.

The new assessment rules now categorise products such as allocated pensions according to their particular characteristics, and the three new categories that products are classified into are: Asset Test Exempt; Asset Test Long Term; and Assets Test Short Term.

In order to come into the first category, the allocated pension must be paid for life, or life expectancy, and also have certain other characteristics set out in the legislation. Those characteristics are stipulated in subsection 5JB(2) of the VEA, and it is mandatory that a product be able to meet all of those requirements before if (sic) can be considered for assets test exemption. The characteristics specified are:

* pay income at least annually;

* have fixed pension payments (at not less than previous year's allowing increases for indexation only);

* have capped indexation (not more than 5% or CPI + 1%);

* have no residual capital value;

* have limited commutability (only within 6 months of starting);

* cannot be borrowed against or transferred;

* have limited reversionary benefits (not more than 100% of payments to revert).

Mrs. Wade's allocated pension has been tested against the requirements stipulated in the VEA and it has been found that it does not meet all the requirements to qualify as an Assets Test Exempt income stream.

Therefore as the investment does not meet all of the requirements of subsection 5JB it cannot be accepted as an Assets Test Exempt income stream. Instead, it's characteristics mean that it comes into the category of Assets Test Long Term and, as a result, it is mandatory that the Macquarie allocated pension does have an asset value for the purposes of assessing the rate of service pension to be paid.

In this case, the current asset value to be held in the pension assessment is the value of the account balance. A check has been made with Macquarie and they advised that the current account balance is $54662. Therefore, that is the correct asset value to maintain in the assessment of the rate of service pension to be paid.

Therefore, as the assessment of the Macquarie allocated pension has been done in accordance with the requirements of the VEA, I must determine that I affirm the decision of the Delegate of the Repatriation Commission made on 5 September 1998."

14. During the hearing Mr Douglass invited the Tribunal's attention to the Explanatory Memorandum issued in respect of the Amendment Act.

15. The Explanatory Memorandum states at pages 3 and 4 as follows:

"The Veterans' Affairs means tests have had difficulty assessing income streams for two major reasons.

The first has been the proliferation of different types of income stream products on the market. This growth has occurred to meet the needs of the growing numbers of retirees who have significant amounts of savings. The trend in product design has meant that the traditional model of a retirement income stream - a lifelong pension with no accessible capital - is no longer the norm. Instead, many retirees are opting for products that entitle them to retain full access to their capital over the term of the income stream, often with a substantial "residual capital value" (or lump sum) available to them at the end of the term.

The second reason flows from this trend in product sales, and lies in the increasing difficulty in determining whether, for veterans' affairs purposes, an income stream should primarily be treated as income, or whether it should primarily be treated as an asset that is being gradually depleted over a number of years.

Some of the new products on the market have been specifically designed to take advantage of loopholes in the current Veterans' Affairs treatment, which was originally structured around the traditional model of a retirement income stream."

16. The treatment of allocated pensions under the previous system is briefly summarised at page 6 of the Explanatory Memorandum:

"Veterans' Affairs treats allocated pensions purchased before 20 August 1996 as superannuation pensions. That is, allocated pensions purchased prior to 20 August 1996 are exempt from the assets test.

For allocated pensions purchased after 20 August 1996, paragraph 52(1)(d) states that the value of allocated pensions must be included when calculating the value of a person's assets.

In practice, because allocated pensions are paid out of an individual account rather than a pool of funds, the asset value can be readily determined from the account balance."

This is the situation in respect of this matter, with an account balance being provided by Macquarie Investments. The proposal for amendments is summarised at page 9 of the Explanatory Memorandum:

"The Veterans' Affairs means test for income streams are clearly inconsistent, in that they treat like products in different ways. For example, allocated annuities and allocated pensions, which are virtually identical investments, are subject to different income test treatments. Fixed term superannuation pensions are often similar to fixed term annuities (or, it has been said, to allocated investments) but the former are asset test exempt and the latter are not."

17. As was stated by Mr Douglass, clearly the system was complex, unpredictable and to some extent artificial, with artificial exemptions and different methods of treatment for assessing prima facie similar investments. The rationale for the reforms is provided at page 13 of the Explanatory Memorandum:

"The changes in this Bill are designed to make the means test treatment of income streams simple, consistent, and fair. The aim will also be to align taxation and social security treatment, so that those income streams which qualify for the higher Reasonable Benefit Limit for taxation purposes will be exempt from the Veterans' Affairs assets test."

18. As stated by Mr Douglass, the broad outline of the revised system is summarised in the first two pages of the Explanatory Memorandum. Mr Douglass further stated:

"Fundamentally it scraps the distinction of the five or six classes of investment products that existed previously and divides them into assets test exempt income streams, assets test income stream long term and assets test income streams short term and different rules applied. The investment product in issue in this case we say is described at page 6 and 7 of the T documents. It is an allocated pension."

Finding

19. From the whole of the material before me, I find that Mrs Wade's allocated pension, when tested against the requirements specified in the Act (which have been referred to by the senior delegate), does not meet all the requirements to qualify as an "Assets Test Exempt" income stream. I further find that the allocated pension characteristics are such that it comes into the category of "Assets Test Long Term". That being so, the allocated pension has an asset value for the purposes of assessing the rate of service pension to be paid.

20. In addressing the issue of fairness raised by Mr Wade, Mr Douglass acknowledged that as a result of the legislative changes the reduction in fortnightly service pension payable to Mr Wade is significant. However, he went on to state as follows:

"However, on the other hand, the applicant has had the benefit of - effectively in this Mrs Wade's roll over moneys due to the way they were invested have never been assessed in the assets test, whereas if they had been invested in another financial product, a number of financial products, the asset tests would have been applied a lot soon (sic) to the roll over funds.

The legislation is simply removing that anomaly which admittedly has had a great benefit to the veterans in this case and to that extent it is understandable they are concerned. But on the other hand the Commission would say it is simply bringing the treatment of allocated pensions in line with that of all other retirement investments and other financial investments."

21. It is noted that there is no retrospectivity in the action taken by the respondent to reduce the level of pension payable. The decision of the delegate made on 5 September 1998 was effective on 24 September 1998 (see paragraph 9 above).

22. I find that in this matter the respondent has correctly applied and complied with the relevant provisions of the Act. While I acknowledge that Mr Wade considers that the new assessment rules operate unfairly against him, the legislation does not empower the Tribunal to exercise a discretion to determine such an issue, even were such action thought by the Tribunal to be merited.

Decision

23. The decision of the Tribunal will be that the decision under review is affirmed.

I certify that the 23 preceding paragraphs are a true copy of the reasons for the decision herein of:

Commodore B.G. Gibbs, AM, RAN (Retd), Senior Member

Signed: .....................................................................................

Personal Assistant

Date/s of Hearing 24/8/99

Date of Decision 27/9/99

Counsel for the Applicant -

Solicitor for Applicant Self-represented

Counsel for the Respondent Mr R. Douglass

Solicitor for the Respondent Department of Veterans' Affairs