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Social Services and Other Legislation Amendment (Pension Loans Scheme Enhancements) Bill 2021

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2019-2020-2021

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

 

SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (PENSION LOANS SCHEME ENHANCEMENTS) BILL 2021

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (Circulated by the authority of the

Minister for Families and Social Services, Senator the Hon Anne Ruston)



SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (PENSION LOANS SCHEME ENHANCEMENTS) BILL 2021

 

 

OUTLINE

 

This Bill amends the Social Security Act 1991 , the Social Security (Administration) Act 1999 and the Veterans’ Entitlements Act 1986 to implement part of the 2021-22 Budget measure ‘Increasing the Flexibility of the Pension Loans Scheme’. It introduces to the Pension Loans Scheme a no negative equity guarantee and enables participants under the Scheme to access capped lump sum advance payments.

 

Schedule 1 - Amendments

 

Part 1 - No negative equity guarantee

 

The amendments in Part 1 of Schedule 1 will introduce a no negative equity guarantee to the Pension Loans Scheme under the Social Security Act 1991 and the Veterans’ Entitlements Act 1986.

 

Part 2 - Pension loans scheme advance payments

 

The amendments in Part 2 of Schedule 1 will allow participants in the Pension Loans Scheme under the Social Security Act 1991 or the Veterans’ Entitlements Act 1986 to access an advance of their entitlement to regular Pension Loans Scheme payments. It also contains a consequential amendment to the Social Security (Administration) Act 1999 .

 

 

Financial impact statement

 

 

MEASURE

FINANCIAL IMPACT OVER THE FORWARD ESTIMATES

Schedule 1 - Amendments

$21.2 million

 

  • The measures in this Bill are part of a 2021-22 Budget measure ‘Increasing the Flexibility of the Pension Loans Scheme’ .

 

  • This financial impact includes impacts for the Department of Social Services, Services Australia and the Department of Veterans’ Affairs in relation to amendments included in the Bill. It also includes the cost of an awareness raising campaign, for which legislative changes are not required.

 

REGULATION IMPACT STATEMENT

 

The Office of Best Practice Regulation advised that a regulation impact statement is not required for the proposed measures in this Bill as they have been deemed to have no impact, or only a minor regulatory impact (ID Number: 43662).

 

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

The statement of compatibility with human rights appears at the end of this explanatory memorandum.

 

 

 



SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (PENSION LOANS SCHEME ENHANCEMENTS) BILL 2021

 

 

NOTES ON CLAUSES

 

Abbreviations used in this explanatory memorandum

 

·          Social Security Act means the Social Security Act 1991 ;

 

·          Administration Act means the Social Security (Administration) Act 1999 ;

 

·          Veterans’ Entitlements Act means the Veterans’ Entitlements Act 1986 ;

 

·          The Scheme means the Pension Loans Scheme; and

 

·          The Guarantee means the no negative equity guarantee.

 

 

Clause 1 sets out how the new Act is to be cited - that is, as the Social Services and Other Legislation Amendment (Pension Loans Scheme Enhancements) Act 2021.

 

Clause 2 provides a table setting out the commencement date of the various sections in, and Schedules to, the new Act. The whole of the Act will commence on 1 July 2022.

 

Clause 3 provides that each Act that is specified in a Schedule is amended or repealed as set out in that Schedule, and any other item in a Schedule to the Act has effect according to its terms.



 

 

Schedule 1 - Amendments

 

 

Summary

 

This Schedule amends the Social Security Act, the Administration Act and the Veterans’ Entitlements Act to introduce to the Pension Loans Scheme (the Scheme) a no negative equity guarantee, and to enable participants under the Scheme to access lump sum advance payments. This schedule also makes a number of definitional and consequential amendments to these Acts to better align with the administration of the Scheme.

 

Background

 

The Scheme is available to all senior Australians who are of age pension age (or who have a partner of age pension age), or veteran pension age (or who have a veteran partner of a veteran pension age), and own real assets in Australia (generally real estate such as the family home or an investment property). They must also meet the qualification criteria for the relevant social security or Department of Veterans’ Affairs pension payment (even if they are assessed as having a nil rate of payment under the income and/or assets tests for the relevant payment). A person must also have adequate insurance for the secured property, and not be bankrupt or subject to a personal insolvency agreement.

 

A Scheme participant can nominate to receive a fortnightly loan amount, on top of any current pension, to bring their total payment (Scheme loan payment plus pension payment) up to a maximum of 150 per cent of the maximum fortnightly rate of pension. For example, a full or part-rate age pensioner can use the Scheme to top up their fortnightly payment to 150 per cent of the maximum rate of pension. Those who meet the qualification or eligibility criteria for a pension payment and the Scheme, but are not in receipt of a pension payment due to the income and/or asset tests, are able to receive the full 150 per cent of the maximum fortnightly rate of pension as a loan under the Scheme. 

 

Amounts borrowed under the Scheme accrue as a debt to the Commonwealth, secured by a charge or caveat against the person’s nominated Australian real assets. The costs of registering and removing the charge or caveat are payable by the Scheme participant and can be added to the debt. An annual interest rate is charged, compounding fortnightly on the outstanding loan balance. The total debt is usually recovered when the securing property is sold or from the person's estate. Voluntary repayments, in part or in full, can be made at any time.

 

  Explanation of the changes

 

Part 1 - No negative equity guarantee

 

The introduction of a no negative equity guarantee (Guarantee) will mean no Scheme participant with an outstanding loan balance on or after 1 July 2022 will have to repay more than the equity they have in the property used to secure the loan. The Guarantee will extend to both existing and new Scheme participants. The introduction of the Guarantee brings the Scheme in line with a key requirement placed on private providers of reverse mortgage products since 2012.

 

This Schedule allows the Secretary or the Repatriation Commission (the Commission) to determine, by legislative instrument, one or more methods for calculating the market value of a property being used as security under the Scheme, adjusted for any charge or encumbrance such as a pre-existing mortgage. This calculated amount, called the ‘adjusted value’, is the amount to which the Guarantee applies. It may be calculated when the property either has or has not been sold. This will give certainty to all participants about how such valuations are conducted; protect the Commonwealth in instances where a Scheme participant deliberately reduces the value of the secured property or does not conduct the sale in good faith; and provides flexibility to ensure valuation methods remain current and appropriate.

 

This Schedule also allows the Secretary or the Commission to prescribe, by legislative instrument, guidelines to be complied with in making a decision under the relevant Act concerning situations in which the Guarantee will not apply. This is intended to protect the interests of the Commonwealth in instances where participants have increased the other encumbrances on the securing assets, after entering into the Scheme, in a way that interferes with the Commonwealth’s ability to recover the outstanding debt; or where the participant has committed fraud or made misrepresentations regarding their participation in the Scheme.

 

Example: accounting for encumbrances in the operation of the Guarantee

 

A person has a property valued at $500,000, with a mortgage of $100,000. This makes $400,000 in equity available to secure a loan under the Scheme. The person begins receiving Scheme payments.

 

On the person’s passing many years later, the property is valued at $600,000 at settlement. The outstanding loan balance under the Scheme is $320,000, and the outstanding mortgage is $90,000.

 

As the person has not extended their original encumbrance after entering into the Scheme, and has not engaged in fraud or made misrepresentations regarding their participation in the Scheme, the Guarantee applies. The adjusted value from which the Commonwealth can recover the outstanding Scheme debt is $510,000 ($600,000 - $90,000). The Commonwealth recovers the full $320,000, and the remaining $190,000 is retained by the participant’s estate.

 

 

Social Security Act

 

Item 1 amends the definition of real assets under subsection 1133AA(1) by substituting new wording that defines real assets as any property “that is specified under paragraph 1136(1A)(a)” in the participant’s request to participate. This is a consequential amendment resulting from the new wording of subparagraph 1136(1A)(a) (see Item 4).

 

Items 2 and 3 amend paragraphs 1133(3)(c) and 1133(3)(d) to include the word “specified” in relation to any real property for the Scheme charge. Subsection 1133(3) provides that, where a person (or their partner) is an attributable stakeholder of a company or trust and the company or trustee has given the Commonwealth a guarantee, the company or trustee will pay any debt arising from the Scheme. These amendments provide that this guarantee is secured by a charge against any specified real property of the company or trust and that the Secretary must be satisfied the value of any specified real property is sufficient to secure the payment. These are consequential amendments resulting from the new wording of paragraph 1136(1A)(a).

 

Item 4 repeals paragraph 1136(1A)(a) and substitutes the wording that a request to participate in the Scheme must “specify any real property that is to be included in working out the value of real assets for the purposes of sections 1133 and 1135A, or that is to be subject to a charge under section 1138”. This amendment seeks to clarify in the legislation the current operation of the Scheme. Previously, paragraph  1136(1A)(a) required a person to specify their real property that was not to be included in working out the value of their real assets for the purposes of the Scheme, and that was not to be subject to a charge. The intention of paragraph 1136(1A)(a) is to provide participants with the choice as to what property is taken into account for the purposes of the Scheme. This also makes clear that if a person acquires a new property after commencing participation in the Scheme (for example, if a property is inherited) then that property will not be taken into account for the Scheme and will not be subject to a charge.

 

Items 5 and 6 remove the requirement for requests to participate in the Scheme under section 1136 to “be lodged at an office of the Department”. This reflects how such requests are already made, such as electronically. The requirements that a request under section 1136 must be made in writing (including electronically) and in a form approved by the Secretary are retained.

 

Item 7 removes the requirement for various Scheme related requests to be lodged at an office of the Department, and inserts a requirement that such requests must be in a form approved by the Secretary (while retaining the requirement that such requests must be made in writing).

 

Item 8 inserts new section 1144AA that creates a no negative equity guarantee for the Scheme. The new section sets out the scope and operation of the Guarantee.

 

New subsection 1144AA(1) sets out the circumstances in which the Guarantee applies, and its effect. The circumstances are:

 

·          a person owes a debt to the Commonwealth due to participation in the Scheme;

·          the person’s participation in the Scheme does not involve a guarantee by a company or trust pursuant to subsection 1133(3); and

·          either:

o    a person (for example, the Scheme participant, or their estate) seeks to repay the outstanding amount of the debt; or

o    the Commonwealth seeks to recover the debt; and

·          at that time, the amount of the debt exceeds the adjusted value of the person’s real assets specified for the Scheme; and

·          new subsection 1144AA(3) does not apply;

 

then:

 

·          the Commonwealth is not entitled to recover an amount that exceeds the adjusted value of the person’s real assets specified as subject to the Scheme; and

·          the debt to the Commonwealth, and the charge securing the debt, is discharged to the extent of the excess amount.

 

If a person seeks to repay the debt, the Guarantee only applies at one point in time (at the time of the event specified in new paragraph 1144AA(1)(c)). That is, the Guarantee only applies if the person is seeking to pay the whole of the outstanding balance of the debt. The Guarantee will not apply when a person makes voluntary repayments of their loan that are not to repay the whole of the outstanding debt.

 

New subsection 1144AA(2) sets out the circumstances in which the Guarantee applies, and its effect when there is a guarantee by a company or trust. The circumstances are:

 

·          a person owes a debt to the Commonwealth due to participation in the Scheme;

·          the person’s participation in the Scheme involves a guarantee by a company or trust pursuant to subsection 1133(3); and

·          either:

o    a person (for example, the Scheme participant, or their estate) seeks to repay the outstanding amount of the debt; or

o    the Commonwealth seeks to recover the debt; and

·          and, at that time, the amount of the debt exceeds the adjusted value of the real property specified as subject to the Scheme under paragraph 1133(3)(c); and

·          new subsection 1144AA(3) does not apply;

 

then

 

·          the Commonwealth is not entitled to recover an amount that exceeds the adjusted value of the  real property specified as subject to the Scheme; and

·          the debt to the Commonwealth, and the charge securing the debt, is discharged to the extent of the excess amount.

 

New subsection 1144AA(3) determines circumstances in which the excess amount may be recovered and the debt is not discharged. The circumstances are where the Secretary is satisfied that:

·          a charge or encumbrance over a person’s real assets or specified real property is extended or created after they start participating in the Scheme, which affects or will affect the Commonwealth’s ability to recover the debt owed under the Scheme; or

·          a person has engaged in fraud or made a misrepresentation in relation to their participation in the Scheme or in relation to their specified real assets or the specified real property.

 

This mechanism is intended to set out limited and specific circumstances in which the Guarantee does not apply and the Commonwealth may seek repayment of the full debt outstanding. The first instance is where a participant creates a new encumbrance, or extends an existing encumbrance, after taking out a loan under the Scheme, such that the new or extended encumbrance interferes with the ability of the Commonwealth to recover the debt owed under the Scheme. This mechanism protects the Commonwealth should a participant increase a private mortgage, or create a new charge or encumbrance, in such a way that leaves insufficient equity for the Commonwealth to recover the debt owed. Secondly, this mechanism will allow the Commonwealth to seek to recover the excess amount in instances where the participant has engaged in fraud, or made misrepresentations, relating to their participation in the Scheme. The new subsection provides the Secretary flexibility to address, in a prompt manner, new and innovative methods that may arise through which Scheme participants may engage in fraudulent behaviour, or make misrepresentations, as it relates to their participation in the Scheme.

 

New subsection 1144AA(4) provides that the Secretary may, by way of legislative instrument, make guidelines to be complied with when making a decision under new subsection 1144AA(3).

 

New subsection 1144AA(5) defines ‘adjusted value’. The adjusted value for real assets and real property means the market value worked out in accordance with a legislative instrument made by the Secretary under new subsection 1144AA(6) and the value of those assets or real property once adjusted in accordance with that instrument. By defining ‘adjusted value’ this new subsection allows the Guarantee to apply to the actual market value of a participant’s real assets or real property less any existing encumbrance or charge.

 

New subsection 1144AA(6) provides that the Secretary must, by way of legislative instrument, determine one or more methods of working out the market value of the real assets or real property, and make adjustments to that market value, at the time a person seeks to repay their debt or the Commonwealth seeks to recover that debt. The amount determined is the ‘adjusted value’ as defined in new subsection 1144AA(5)

 

This mechanism is intended to ensure that the true market value of real assets or real property is the value determined at the time of the event specified in new paragraph 1144AA(1)(d) and 1144AA(2)(d). For example, this instrument may provide for determining the market value of an asset as follows:

·          if the property has been sold, the market value is its sale price; or

·          if the property has not been sold, or has been sold and circumstances exist which have reduced its market value (as specified in the instrument, such as deliberately reducing the market value, or the sale was not undertaken in good faith), the market value must be determined by an accredited valuer.

 

New subsection 1144AA(7) provides that once the market value of the real asset or real property has been worked out under a determination made under new subsection 1144AA(6), the determination may allow adjustments to be made to the market value to account for any existing charge or encumbrance. The determination which is set out in a legislative instrument also provides for different methods to be used and adjustments to be made in different circumstances The resulting amount is the ‘adjusted value’ for the purposes of the Guarantee.

 

 

Veterans’ Entitlements Act 1986

 

Item 9 amends the definition of real assets under subsection 52ZAAA(1) by substituting new wording that defines real assets as any real property “that is specified under paragraph 52ZD(1A)(a)”. Subsection 52ZD(1)A requires the person who made a request to participate in the Scheme to specify particular details in that request. This is a consequential amendment resulting from the new wording of paragraph 52ZD(1A)(a) (see Item 12).

 

Items 10 and 11 amend paragraphs 52ZA(3)(c) and 52ZA(3)(d) to include the word “specified” in relation to any real property for the Scheme charge. Paragraph 52ZA(3)(b) provides that, where a person (or their partner) is an attributable stakeholder of a company or trust and the company or trustee has given the Commonwealth a guarantee, the company or trustee will pay any debt arising from the Scheme. These amendments provide that this guarantee is secured by a charge against any specified real property of the company or trust and that the Repatriation Commission (Commission) must be satisfied the value of any specified real property is sufficient to secure the payment. These are consequential amendments resulting from the new wording of paragraph 52ZD(1A)(a).

 

Item 12 repeals paragraph 52ZD(1A)(a) and substitutes a new paragraph 52ZD(1)(a) to the effect that a request to participate in the Scheme must “specify any real property that is to be included in working out the value of real assets for the purposes of sections 52ZA and 52ZCA, or that is to be subject to a charge under section 52ZF”. This amendment seeks to clarify in the legislation the current operation of the Scheme. Previously, paragraph 52ZD(1A)(a) required a person to specify their real property that was not to be included in working out the value of their real assets for the purposes of the Scheme, and that was not to be subject to a charge.  The intention of paragraph 52ZD(1A)(a) is to provide participants with the choice and specify as to what property is taken into account for the purposes of the Scheme. This also makes it clear that if a person acquires a new property after commencing participation in the Scheme (for example, if a property is inherited) then that property will not be taken into account for the Scheme and will not be subject to a charge.

 

Item 13 inserts new section 52ZMAA that creates a no negative equity guarantee for the Scheme. The new section sets out the scope and operation of the Guarantee.

 

New subsection 52ZMAA(1) sets out the circumstances in which the Guarantee applies, and its effect. The circumstances are:

·          a person owes a debt to the Commonwealth due to participation in the Scheme;

·          the person’s participation in the Scheme does not involve a guarantee by a company or trust pursuant to subsection 52ZA(3); and

·          either:

o    a person (for example, the Scheme participant, or their estate) seeks to repay the outstanding amount of the debt; or

o    the Commonwealth seeks to recover the debt; and

·          at that time, the amount of the debt exceeds the adjusted value of the person’s real assets specified for the Scheme; and

·          new subsection 52ZMAA(3) does not apply;

 

then:

 

·          the Commonwealth is not entitled to recover an amount that exceeds the adjusted value of the person’s real assets specified by that person as subject to the Scheme; and

·          the debt to the Commonwealth, and the charge securing the debt, is discharged to the extent of the excess amount.

 

As a result of market fluctuations, it is possible that the adjusted value of a person’s real assets specified as subject to the Scheme may at various times be greater or less than the debt amount. However, the Guarantee will only apply at one point in time (at the time of the event specified in new paragraph 52ZMAA(1)(c)).

 

If a person seeks to repay the debt, the Guarantee only applies if the person is seeking to pay the whole of the outstanding balance of the debt. The Guarantee will not apply when a person makes voluntary repayments of their loan that are not to repay the whole of the outstanding debt. 

 

New subsection 52ZMAA(2) sets out the circumstances in which the Guarantee applies, and its effect when there is a guarantee by a company or trust provided to the Commonwealth that the company or trustee will pay any debt that may become payable by the person (refer to paragraph 52ZA(3)(b)). The circumstances are:

 

·          a person owes a debt to the Commonwealth due to participation in the Scheme;

·          the person’s participation in the Scheme involves a guarantee by a company or trust and the liability under the guarantee is secured by a charge against real property of the company or trust in Australia pursuant to subsection 52ZA(3); and

·          either:

o    a person (for example, the Scheme participant, or their estate) seeks to repay the outstanding amount of the debt; or

o    the Commonwealth seeks to recover the debt; and

·          at that time, the amount of the debt exceeds the market value of the real property specified as subject to the Scheme under paragraph 52ZA(3)(c); and

·          new subsection 52ZMAA(3) does not apply;

 

then

 

·          the Commonwealth is not entitled to recover an amount that exceeds the adjusted value of the real property specified as subject to the Scheme; and

·          the debt to the Commonwealth, and the charge securing the debt, is discharged to the extent of the excess amount.

 

New subsection 52ZMAA(3) specifies the circumstances in which the excess amount may be recovered and the debt is not discharged.  The circumstances are where the Commission is satisfied that:

·          a charge or encumbrance over a person’s real assets or specified real property is extended or created by, or with the express consent of the person after they start to participate in the Scheme, which affects or will affect the Commonwealth’s ability to recover the debt owed under the Scheme; or

·          a person has engaged in fraud or made a misrepresentation in relation to their participation in the Scheme or in relation to their specified real assets or the specified real property.

 

This mechanism is intended to set out limited and specific circumstances whereby the Guarantee does not apply and the Commonwealth may seek repayment of the full amount of debt that is outstanding.  The first instance is where a charge or encumbrance is created by the person, or the person to expressly consent to the creation of a new charge or encumbrance, or extension of an existing charge or encumbrance, after taking out a loan under the Scheme, such that the new or extended encumbrance interferes with the ability of the Commonwealth to recover the debt owed under the Scheme. This mechanism protects the Commonwealth should a participant or the guarantor (company or trustee) expressly consent to or increases that private mortgage, or create a new charge or encumbrance, in such a way that leaves insufficient equity for the Commonwealth to recover the debt owed. Secondly, this mechanism will allow the Commonwealth to seek to recover the excess amount in instances where the participant has engaged in fraud, or made misrepresentations relating to their participation in the Scheme. The new subsection provides the Commission flexibility to address, in a prompt manner, new and innovative methods that may arise through which Scheme participants may engage in fraudulent behaviour, or make misrepresentations, as it relates to their participation in the Scheme.

 

New subsection 52ZMAA(4) provides that the Commission may, by way of legislative instrument, make guidelines to be complied with when making a decision to recover the excess amount under new subsection 52ZMAA(3).

 

New subsection 52ZMAA(5) defines ‘adjusted value’ for real assets and real property. The adjusted value for real assets and real property means the market value worked out in accordance with a legislative instrument made by the Commission under new subsection 52ZMAA(6) and the value of those assets or real property once adjusted in accordance with that instrument. By defining ‘adjusted value’ this new subsection allows the Guarantee to apply to the actual market value of a participant’s real assets or real property less any existing encumbrance or charge.

 

New subsection 52ZMAA(6) provides that the Commission must, by way of legislative instrument, determine one or more methods of working out the market value, and adjustments to that market value, of the real assets or real property at the time a person seeks to repay their debt or the Commonwealth seeks to recover that debt.  The amount determined is the ‘adjusted value’ as defined in new subsection 52ZMAA(5).

 

This mechanism is intended to ensure that the true market value of real assets or real property is the value determined at the time of the event specified in new paragraph 52ZMAA(1)(d) and 52ZMAA(2)(d). For example, this instrument may provide for determining the market value of an asset or real property as follows:

·          if the property has been sold, the market value is its sale price; or

·          if the property has not been sold, or has been sold and circumstances exist which have reduced its market value (as specified in the instrument, such as deliberately reducing the market value, or the sale was not undertaken in good faith), the market value must be determined by an accredited valuer.

 

New subsection 52ZMAA(7) in effect provides that once the market value of the real asset or real property has been worked out under a determination made under new subsection 52ZMAA(6), the determination may also allow adjustments to be made to the market value to account for any existing charge or encumbrance. The determination which is set out in a legislative instrument also provides for different methods to be used and adjustments to be made in different circumstances The resulting amount is the ‘adjusted amount’ for the purposes of the Guarantee.

 

Item 14 provides that all amendments made by items 1 to 7 and 9 to 12 made under Part 1 of this Schedule, apply in relation to requests to participate in the Scheme made after the commencement of this item. Amendments made by items 8 and 13 apply in relation to debts owed to the Commonwealth after the commencement of this item, regardless of whether the debt was incurred before or after that commencement.



This clarifies that the Guarantee should apply to all current and former participants in the Scheme where a debt amount is still owing as at the date of commencement of the Schedule.

 

Part 2 - Pension Loans Scheme advance payments

 

Lump sum advance payments under the Scheme will increase flexibility and utility for participants by providing a new way to use the Scheme to meet their living expenses. Scheme participants will have the option of accessing a portion of their Scheme payments, normally received over the course of a year, as a modest up-front lump sum advance.

 

The maximum advance will be capped at 50 per cent of the maximum annual (26 fortnights) rate of pension. This rate includes pension supplement, energy supplement and rent assistance, where applicable.

 

For example, where the maximum fortnightly rate of pension for a single person (including supplements, excluding rent assistance) is $967.50, the maximum advance available to a single Scheme recipient will be:

 

 $967.50 x 50% x 26 (fortnights) = $12,577.50

 

Recipients will be able to access up to two advances in any 26 fortnight period, however the amount available as a second advance will be reduced by the value of the first advance. This ensures no more than the capped 50 per cent amount can be taken as advance payments.

 

Existing age-based loan-to-value ratios will continue to apply when determining the maximum advance amount available to a participant. This means the actual advance a participant is eligible to receive may be less than the maximum allowable advance described above, if the participant is approaching their maximum loan amount.

 

Any advances taken will reduce the maximum fortnightly Scheme payment a recipient can receive over the next 26 fortnights.

 

These restrictions also mean participants choosing to receive advance payments under the Scheme generally will not be able to receive more overall than if they had chosen to receive only fortnightly loan amounts.

 

Social Security Act

 

Items 15 and 16 insert a second note to the definition of ‘home equity conversion agreement’ under subsection 8(1). The note clarifies that a Scheme advance payment is an example of a home equity conversion agreement as defined in the Act. This is a consequential amendment resulting from the creation of Scheme advance payments under new section 1134A (see Item 20). It confirms that a Scheme advance payment is part of a home equity conversion agreement for the purposes of the Social Security Act, which allows the conversion of home equity into a lump sum and/or income stream. The inclusion of the new note will also ensure Scheme advance payments secured against a participant’s principal place of residence are treated, for the purposes of the assets test, in the same manner as other reverse mortgage lump sum payments secured against a participant’s principal place of residence. 

 

Item 17 repeals paragraph 23(11)(b) to remove from the definition of when a person is participating in the Scheme, the requirement that “the rate of pension payable to the person is the rate covered by paragraph 1134(1)(e)”. The effect is that a person is participating in the Scheme if they make a request to participate in the scheme, and a debt is owed to the Commonwealth under the Scheme. This is a consequential amendment resulting from the replacement of subsection 1134(1) (see item 19), and the creation of Scheme advance payments under new section 1134A (see item 20), and removes any need to update paragraph 23(11)(b) to include reference to new section 1134A.

 

Item 18 inserts new definitions into subsection 1133AA(1):

 

·          pension loans scheme advance payment has the meaning given under new section 1134A; and

·          pension loans scheme advance payment period , for a person, means the period of 26 fortnights starting on the day in relation to which the person’s pension loans scheme advance payment was calculated.

 

Item 19 repeals subsection 1134(1) and substitutes it with new subsections 1134(1) and (1A). New subsection 1134(1) sets out the rate of pension payable to a Scheme participant by operation of the Scheme.

 

Subsection 1134(1) retains the previous wording of paragraphs 1134(1)(a), (b) and (d), and provides that this section applies to determine the rate of a person’s pension if they are a participant in the Scheme, i.e. where:

·          a person is qualified to participate in the scheme; and

·          a relevant request to participate has been made; and

·          the Secretary is satisfied the amount of any debt payable by the person to the Commonwealth is readily recoverable.

 

New subsection 1134(1A) provides the rate of the pension payable by operation of the Scheme.

 

New paragraph 1134(1A)(a) provides the rate of pension payable to a person if they have not received a Scheme advance payment in respect of a period commencing in the previous 26 fortnights. The maximum rate of pension payable for a PLS participant where an advance has not been taken is 150 per cent of the maximum rate of pension for which the person qualifies. A person can always nominate to receive less than this amount. More specifically, the rate of payment is:

 

·          1.5 multiplied by the maximum payment rate; or

·          a lower rate nominated by the person

 

New paragraph 1134(1A)(b) provides the rate of the pension payable by operation of the Scheme to a person during a Scheme advance payment period (i.e. where an advance has been received for a period commencing in the previous 26 fortnights). The rate is:

 

·          the greater of the maximum payment rate, and 1.5 multiplied by the maximum payment rate less any amounts of Scheme advance payment received by the person in relation to the period; or

·          a lower rate nominated by the person.

 

This item also inserts a note at the end of the new subsection that refers to the meaning of maximum payment rate under this new section as being taken to mean maximum payment rate as defined in subsection 1133AA(1) of the Act.

 

An effect of the operation of new subsection 1134 (1A ) is that:

·          for those who have not received an advance, the rate of pension payable under the Scheme will not exceed the maximum rate of payment for which a Scheme participant is qualified, multiplied by 1.5.

·          for participants who elect to receive an advance, the total payable under the Scheme will generally not exceed the amount they could have received as pension under the Scheme for the advance payment period. However, where a person’s maximum rate of pension payable reduces after they receive a Scheme advance payment, the total paid under the Scheme may exceed the amount they could have received as pension under the Scheme if only fortnightly payments had been received, for the period covering the advance payment period. This may occur where a pensioner becomes ineligible for certain supplements (and so their maximum payment rate reduces), or a single pensioner becomes a member of a pensioner couple, with a resultant reduction in their maximum rate of payment.

 

Item 20 inserts new section 1134A that allows Scheme participants to access an advance payment under the Scheme. The new section sets out the scope and operation of advance payments under the Scheme.

 

New subsection 1134A(1) provides new section 1134A will apply if a pension is payable to a person at a rate as determined under this Division is payable to them.

 

New subsection 1134A(2) sets out the circumstances in which a person qualifies for a Scheme advance payment. The circumstances are:

·          the person has made a request under section 1137AA for the advance payment; and

·          the person has not received more than one Scheme advance payment in relation to a Scheme advance payment period commencing during the previous 26 fortnights.

 

New subsection 1134A(3) sets out the amount of Scheme advance payment a person is to receive. The amount is the lesser of the following amounts:

 

·          if the person has not received another Scheme advance payment in relation to a Scheme advance payment period commencing during the previous 26 fortnights, then:

o    0.5 multiplied by the maximum payment rate payable to the person on the day in relation to which the person’s rate of pension is calculated;

 

·          if the person has received another Scheme advance payment in relation to a Scheme advance payment period commencing during the previous 26 fortnights, then:

o    0.5 multiplied by the maximum payment rate payable to the person on the day in relation to which the person’s rate of pension is calculated, less the previous Scheme advance amount;

 

·          the maximum loan amount available to the person under the Scheme, less the amount of debt owed by the person under section 1135;

 

·          the amount requested by the person.

 

This means that:

·          a Scheme advance payment is capped at 50 per cent of the rate of pension for which a person qualifies, over 26 fortnights;

·          if a second advance payment is entered into within a pension loans scheme advance payment period, the amount available as a second advance is reduced by the value of the first advance;

·          if a person is approaching their maximum loan amount, then the amount that can be taken as an advance will be such that the outstanding debt balance plus the advance payment does not result in a person exceeding their maximum loan amount at that point in time;

·          a person may choose to receive a lower amount of advance.

 

New subsection 1134A(4) sets out when a Scheme advance payment is to be paid, that is, as soon as practicable after a relevant request has been made.

 

New subsection 1134A(5) provides that new section 1134A applies despite section 1061A of the Act. This makes clear that section 1134A comprehensively sets out the qualification requirements for a Scheme advance payment, and the qualification requirements for an advance payment of a social security entitlement under section 1061A do not apply for the purposes of qualification for the Scheme advance payment. This new subsection also adds a note that clarifies that section 1061A of the Act sets out other circumstances in which a person is qualified for an advance payment of a social security entitlement.

 

Scheme advance payments, as created by new section 1134A, fall within the definition of a home equity conversion agreement as defined under subsection 8(1) of the Social Security Act. This is clarified by items 15 and 16 of this Schedule.

 

 

Items 21 and 22 amend the method statement in subsection 1135(3) that sets out how to work out the amount of a debt owed to the Commonwealth through participation in the Scheme. The amendments modify the method statement to provide any amount of Scheme advance payment received is added to a person’s Scheme primary loan amount, resulting in the ‘advance payment adjusted amount’. These amendments mean that a Scheme advance payment forms part of a person’s total debt owed under the Scheme.

 

Item 23 amends paragraphs 1136(1A)(c) and 1137(1)(b) of the Act. The amendments omit references to subparagraph 1134(1)(e)(ii) and substitutes references to new subparagraphs 1134(1A)(a)(ii) and 1134(1A)(b)(ii). The new references mean any request to participate under the Scheme or to nominate or change a nominated amount or rate of pension, is made with regard to a person’s nominated lower rate of pension (if applicable). This is a consequential amendment resulting from new paragraphs under new section 1134A (see Item 20).

 

Item 24 inserts new section 1137AA that set outs the requirements for making a request for a Scheme advance payment. The requirements are that a person must make a request for a Scheme advance payment, and that request must:

 

·          be made in accordance with new section 1137AA;

·          specify the amount of Scheme advance payment requested;

·          be signed by the person, or in the case of a couple, by both members of the couple; and

·          be in writing and in a form approved by the Secretary.

 

This item means requests to receive a Scheme advance are appropriate and consistent with the manner of a request to participate in the scheme under sections 1136 and 1137 of the Act

 

Social Security (Administration) Act 1999

 

Item 25 inserts a reference to new section 1134A to the definition of lump sum benefit under paragraph 47(1)(a) of the Administration Act. The effect of this reference is that a Scheme advance payment is to be paid to a person under section 47 of the Administration Act, and therefore, must be paid in a manner set out in section 55 of the Administration Act. Generally, this means that a Scheme advance payment must be paid to a bank account nominated by a person. This is a consequential amendment resulting from Scheme advance payments under new section 1134A (see item 20).

 

 

Veterans’ Entitlements Act 1986

 

Items 26 and 27 in effect insert a second note to the definition of ‘home equity conversion agreement’ under subsection 5H(1). The note clarifies that a Scheme advance payment is an example of a home equity conversion agreement as defined in the Act. This is a consequential amendment resulting from the creation of Scheme advance payments under new section 52ZBA (see Item 32). It confirms that a Scheme advance payment is part of a home equity conversion agreement for the purposes of the Act, which allows the conversion of home equity into a lump sum and/or income stream. The inclusion of the new note will also ensure Scheme advance payments secured against a participant’s principal place of residence are treated, for the purposes of the assets test, in the same manner as other reverse mortgage lump sum payments secured against a participant’s principal place of residence.

 

Item 28 inserts new subsection 5H(8)(ab) to include in the list pension loan scheme advance payment (within the meaning of section 52ZBA). Inclusion of the advance payment has the effect that it is not considered income in relation to a person for the purposes of the Act.

 

 

Item 29 inserts new definitions into subsection 52ZAAA(1):

 

·          pension loans scheme advance payment has the meaning given under new section 52ZBA; and

·          pension loans scheme advance payment period , for a person, means the period of 26 fortnights starting on the day in relation to which the person’s pension loans scheme advance payment was calculated.

 

Item 30 repeals paragraph 52ZAAA(3)(b) to remove from the definition of when a person is participating in the Scheme, the requirement that “the rate of the pension payable to the person is the rate covered by paragraph 52ZB(1)(e)”. This is a consequential amendment resulting from the replacement of subsection 52ZB(1) (see Item 31), and the creation of Scheme advance payments under new section 52ZBA (see Item 32)

 

Item 31 repeals subsection 52ZB(1) and substitutes it with new subsections 52ZB(1) and (1A).  These amendments are required to allow for the circumstances where a participant receives a Scheme advance payment in respect of a period. New subsection 52ZB(1A) sets out the rate of pension payable to a Scheme participant by operation of the Scheme.

 

Subsection 52ZB(1) retains the previous wording of paragraphs 52ZB(1)(a), (b) and (c), and provides that this section applies to determine the rate of a person’s pension if they are a participant in the Scheme, i.e. where:

·          a person is eligible to participate in the scheme; and

·          a relevant request to participate has been made; and

·          the Commission is satisfied the amount of any debt payable by the person to the Commonwealth is readily recoverable.

 

New paragraph 52ZB(1A) provides the rate of the pension payable by operation of the Scheme.

 

New paragraph 52ZB(1A)(a) provides the rate of pension payable to a person if they have not received a Scheme advance payment in respect of a period commencing in the previous 26 fortnights. The maximum rate of pension payable in instances where an advance has not been taken is 150 per cent of the maximum rate of pension for which the person eligible. A person can always nominate to receive less than this amount. More specifically, the rate of payment is:

 

·          1.5 multiplied by the maximum payment rate; or

·          a lower rate nominated by the person.

 

New paragraph 52ZB(1A)(b) provides the rate of the pension payable by operation of the Scheme to a person during a Scheme advance payment period (i.e. where an advance has been received for a period commencing in the previous 26 fortnights). The rate is:

 

·          the greater of the maximum payment rate, and 1.5 multiplied by the maximum payment rate less any amounts of Scheme advance payment received by the person in relation to the period; or

·          a lower rate nominated by the person.

 

This item also inserts a note at the end of the new subsection that refers to the meaning of maximum payment rate under this new section as being taken to mean maximum payment rate as defined in subsection 52ZAAA(1) of the Act.

 

An effect of the operation of new subsection 52ZB(1A) is that:

·          for those who have not received an advance, the rate of pension payable under the Scheme will not exceed the maximum rate of payment for which a Scheme participant is eligible, multiplied by 1.5.

·          for participants who elect to receive an advance, the total payable under the Scheme will generally not exceed the amount they could have received as pension under the Scheme for the advance payment period. However, where a person’s maximum rate of pension payable reduces after they receive a Scheme advance payment, the total paid under the Scheme may exceed the amount they could have received as pension under the Scheme if only fortnightly payments had been received, for the period covering the advance payment period. This may occur where a pensioner becomes ineligible for certain supplements (and so their maximum payment rate reduces), or a single pensioner becomes a member of a pensioner couple, with a resultant reduction in their maximum rate of payment.

 

Item 32 inserts new section 52ZBA that allows Scheme participants to access an advance payment under the Scheme. The new section sets out the scope and operation of advance payments under the Scheme.

 

New subsection 52ZBA(1) provides new section 52ZBA will apply if a pension is payable to a person at a rate as worked out under Subdivision E of Division 11 of Part IIIB of the Act.

 

New subsection 52ZBA(2) sets out the circumstances in which a person is eligible for a Scheme advance payment. The circumstances are:

·          the person has made a request under section 52ZEAA for the advance payment; and

·          the person has not received more than one Scheme advance payment in relation to a Scheme advance payment period commencing during the previous 26 fortnights.

 

New subsection 52ZBA(3) sets out the amount of Scheme advance payment a person is to receive. The amount is the lesser of the following amounts:

 

·          if the person has not received another Scheme advance payment in relation to a Scheme advance payment period commencing during the previous 26 fortnights, then:

o    0.5 multiplied by the maximum payment rate payable to the person on the day in relation to which the person’s rate of pension is calculated;

 

·          if the person has received another Scheme advance payment in relation to a Scheme advance payment period commencing during the previous 26 fortnights, then:

o    0.5 multiplied by the maximum payment rate payable to the person on the day in relation to which the person’s rate of pension is calculated, less the previous Scheme advance amount;

 

·          the maximum loan amount available to the person under the Scheme, less the amount of debt owed by the person under section 52ZC;

 

·          the amount requested by the person.

 

This means that:

 

·          a Scheme advance payment is capped at 50 per cent of the rate of pension for which a person is eligible, over 26 fortnights;

·          if a second advance payment is entered into within a pension loans scheme advance payment period, the amount available as a second advance is reduced by the value of the first advance;

·          if a person is approaching their maximum loan amount, then the amount that can be taken as an advance will be such that the outstanding debt balance plus the advance payment does not result in a person exceeding their maximum loan amount at that point in time;

·          a person may choose to receive a lower amount of advance.

 

New subsection 52ZBA(4) sets out when a Scheme advance payment is to be paid, that is, as soon as practicable after a relevant request has been made.

 

New subsection 52ZBA(5) provides that new section 52ZBA applies despite section 79B of the Act. This makes clear that section 52ZBA comprehensively sets out the eligibility requirements for a Scheme advance payment, and the eligibility requirements for an advance payment of an amount of pension under section 79B do not apply for the purposes of eligibility for the Scheme advance payment. This new subsection also adds a note that clarifies that section 79B of the Act sets out other circumstances in which a person is eligible for an advance payment of an amount of pension, different from the Scheme advance payment.

 

Scheme advance payments, as created by new section 52ZBA, fall within the definition of a home equity conversion agreement as defined under subsection 5H(1) of the Act. This is clarified by items 26 and 27 of this Schedule.

 

Items 33 and 34 amend the method statement in subsection 52ZC(3) that sets out how to work out the amount of a debt owed to the Commonwealth through participation in the Scheme. The amendments modify the method statement to provide any amount of Scheme advance payment received is added to a person’s Scheme primary loan amount, resulting in the ‘advance payment adjusted amount’. These amendments mean that a Scheme advance payment that is received forms part of a person’s total debt owed under the Scheme.

 

Item 35 amends paragraphs 52ZD(1A)(c) and 52ZE(1)(b) of the Act. The amendments omit references to subparagraph 52ZB(1)(e)(ii) and substitutes them with references to new subparagraphs 52ZB(1A)(a)(ii) or 52ZB(1A)(b)(ii). The new references mean any request to participate under the Scheme or to nominate or change a nominated amount or rate of pension, is made with regard to a person’s nominated lower rate of pension (if applicable). This is a consequential amendment resulting from new paragraphs under new section 52ZB (see Item 31).

 

Item 36 inserts a new section 52ZEAA that set outs the requirements for a request for a Scheme advance payment. The requirements are that a person must make a request for a Scheme advance payment, and that request to satisfy the requirements under this section must:

 

·          specify the amount of Scheme advance payment requested;

·          be signed by the person, or in the case of a couple, by both members of the couple;

·          be in writing and in a form approved by the Commission; and

·          be lodged at an office of the Department in Australia in accordance with section 5T.

 

This item means requests to receive a Scheme advance are appropriate and consistent with the manner of a request to participate in the scheme under sections 52ZD and 52ZE of the Act.

 

Item 37 inserts a new subsection 58(3) providing that a pension includes a pension loans scheme advance payment (other than section 58A) within the meaning of that term under section 52ZBA.

 

Item 38 sets out that all amendments made by Part 2 of this Schedule, apply in relation to requests for a Scheme advance payment received after the commencement of this item, regardless of whether the person became qualified to participate in the Scheme before or after that commencement.



STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

Prepared in accordance with Part 3 of the

Human Rights (Parliamentary Scrutiny) Act 2011

SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (PENSION LOANS SCHEME ENCHANCEMENTS) BILL 2021

 

This Bill 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 Bill

This Bill enhances the Pension Loans Scheme (PLS) by incorporating a No Negative Equity Guarantee for all PLS recipients and allowing for capped lump sum advance payments.

 

Human rights implications

The amendments support the right to social security by increasing the flexibility of an existing social security benefit. Schedule 1 of the Bill engages the right of everyone to social security in Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR).

 

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 measure will operate beneficially by providing more flexible options for receiving PLS amounts and granting additional protections to recipients through a guarantee that the Commonwealth cannot recover more than the value of the equity in the property used to secure the loan.

 

In total, this Bill will give senior Australians greater choice and flexibility when it comes to supporting their standard of living in retirement. It will enable home-owning senior Australians to receive PLS payments in a more flexible way through the introduction of advances and provides an assurance that no recipient will incur a debt greater than the value of their equity in the property used to secure the loan.



Conclusion

The amendments in the Schedule are compatible with human rights because they improve a person’s access to social security.

 

[Circulated by the authority of the Minister for Families and Social Services, the Senator Hon Anne Ruston]