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Social Services and Other Legislation Amendment (2014 Budget Measures No. 5) Bill 2014

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2013-2014

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

 

SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT

(2014 BUDGET MEASURES No. 5) BILL 2014

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Circulated by the authority of the

Minister for Social Services, the Hon Kevin Andrews MP)



 

 



SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT

(2014 BUDGET MEASURES No. 5) BILL 2014

 

 

OUTLINE

 

This Bill will reintroduce several 2014 Budget measures in Schedules to the Bill numbered as set out below.

  1. Implement the following changes to Australian Government payments:

·            from 1 July 2017 - maintaining for three years the current income test free areas for all pensions (other than parenting payment single) and the deeming thresholds for all income support payments;

·            from 20 September 2017 - ensure all pensions (other than parenting payment) are indexed to the Consumer Price Index only, by removing:

o   benchmarking to Male Total Average Weekly Earnings;

o   indexation to the Pensioner and Beneficiary Living Cost Index;

·            from 20 September 2017 - reset the social security and veterans’ entitlements income test deeming thresholds to $30,000 for single income support recipients, $50,000 combined for pensioner couples, and $25,000 for a member of a couple other than a pensioner couple.

2.     Increase the qualifying age for age pension, and the non-veteran pension age, to 70, increasing by six months every two years and starting on 1 July 2025.

 

Financial impact statement

MEASURE

FINANCIAL IMPACT OVER THE FORWARD ESTIMATES

Budget measures

 

1.       Changes to Australian Government payments:

CPI-only indexation for pensions from September 2017.

Maintaining current pension income test free areas and deeming thresholds from July 2017.

Reset the deeming rate thresholds .

 

Saving of $314.7 million

 

Saving of $40.9 million *

 

Saving of $32.7 million

2.       Pension age increased from 67 to 70

No impact on forward estimates

 

Note:

*indicative only - indicative financial impact refers to administered funding for affected social security payments only and is not net of implementation funding

 

STATEMENTS OF COMPATIBILITY WITH HUMAN RIGHTS

 

The statements of compatibility with human rights appear at the end of this explanatory memorandum.



 

SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT

(2014 BUDGET MEASURES No. 5) BILL 2014

 

 

NOTES ON CLAUSES

Abbreviations used in this explanatory memorandum

  • Social Security Act means the Social Security Act 1991
  • Social Security Administration Act means the Social Security (Administration) Act 1999
  • Veterans’ Entitlements Act means the Veterans’ Entitlements Act 1986

 

Clause 1 sets out how the new Act is to be cited, that is, as the Social Services and Other Legislation Amendment (2014 Budget Measures No. 5) Act 2014.

Clause 2 provides a table setting out the commencement dates of the various sections in, and Schedules to, the new Act.

Clause 3 provides that legislation that is specified in a Schedule is amended or repealed as set out in that Schedule.

 



Schedule 1 - Indexation and deeming thresholds

 

 

Summary

This Schedule implements the following changes to Australian Government payments:

·          from 20 September 2017 - ensure all pensions are indexed to the Consumer Price Index (CPI) only, by removing:

  • benchmarking to Male Total Average Weekly Earnings (MTAWE);
  • indexation to the Pensioner and Beneficiary Living Cost Index (PBLCI);

·          from 1 July 2017 - maintaining for three years the current income test free areas for all pensioners (other than parenting payment single) and the deeming thresholds for all income support payments;

·          from 20 September 2017 - reset the social security and veterans’ entitlements income test deeming thresholds to $30,000 for single income support recipients, $50,000 combined for pensioner couples, and $25,000 for a member of a couple other than a pensioner couple.

Background

Index social security pensions by the CPI

Pensions other than pension PP (single) are indexed currently by the greater of the change in the CPI and the change in the All Groups PBLCI (see Division 3 of Part 3.16).  The combined couple rate of maximum basic pension is then compared to 41.76 per cent of MTAWE and increased if the MTAWE benchmark would give a higher rate.  The maximum single basic pension is set at 66.33 per cent of the combined couple rate (around 27.7 per cent of MTAWE).  Alternative indexation by PBLCI and then benchmarking against MTAWE are to cease from 1 July 2017, such that future indexation of pensions other than pension PP (single) will only be by reference to the CPI as the result of Part 3 of this Schedule.

Comparable changes will be made to payments made under the Veterans Entitlements’ Act.

This measure takes effect from 1 July 2017.

Indexation of the pension free areas

Indexation of the income test free areas for all pensioners (other than parenting payment single) will maintained at current rates for three years, starting from 1 July 2017.

 



Resetting deeming thresholds

Part 3 contains provisions amending the Social Security Act and the Veterans’ Entitlements Act that will have the effect of resetting (reducing) from 20 September 2017 the amounts of the thresholds for the deeming of income from financial assets used to determine the rate of payment for social security and veterans’ affairs payments.  The deeming rules in the Social Security Act and Veterans’ Entitlements Act assume financial assets are earning a certain amount of income, regardless of the income they actually earn.  Deeming is used to calculate income for pension, benefit and allowance payments.  The deeming thresholds are the amounts at which the lower deeming rate ceases to apply and is replaced by the higher rate.  Currently, the lower rate is 2 per cent and the higher rate is 3.5 per cent.  Deemed income is calculated by multiplying the total value of a customer’s financial assets by the deeming rates. 

In 1996, when extended deeming introduced the deeming thresholds, they were initially set at $30,000 for a person who is not a member of a couple and $50,000 for a pensioner couple.  Since then, the thresholds have been indexed to the CPI on 1 July each year.  From 1 July 2014:

·          if a person is single and getting either a pension or allowance, the first $48,000 of the person’s financial assets is deemed to earn income at 2 per cent per annum and any amount over is deemed to earn income at 3.5 per cent per annum;

  • if a person is a member of a couple:
    • if at least one of the couple is getting a pension - the first $79,600 of the person’s and his or her partner's financial assets is deemed to earn income at 2 per cent per annum and any amount over that is deemed to earn income at 3.5 per cent per annum; or

o    if neither of the couple is getting a pension - the first $39,800 for each of their share of jointly owned financial assets is deemed to earn income at 2 per cent per annum and any amount over that is deemed to earn income at 3.5 per cent per annum.

The deeming threshold amounts (currently $48,000 and $79,600) will be reset (reduced) to $30,000 and $50,000 respectively from 20 September 2017.

The deeming threshold for a member of a couple, other than a pensioner couple, is set at an amount equal to one-half of the amount of the deeming threshold for a pensioner couple.  The deeming threshold amount for a member of a couple other than a pensioner couple (currently $39,800) will be $25,000 from 20 September 2017.

This measure takes effect from 20 September 2017.

Pausing indexation of the deeming thresholds

Indexation of the deeming thresholds will be maintained at current rates for three years from 1 July 2017.  When indexation recommences on 1 July 2020, it will apply to the reset deeming threshold amounts, and there will be no ‘catch up’ in respect of indexation that would have otherwise occurred during the three-year period during which current rates will be maintained This measure takes effect on 1 July 2017.

Explanation of the changes

Part 1 - Amendments commencing on 1 July 2017

Amendments to the Social Security Act

Items 6 and 7 repeal section 1195, which currently benchmarks indexed rates against MTAWE, and Division 3 of Part 3.16, which alternatively indexes against PBLCI.

Items 2, 3, and 4 are consequential to the repeal of section 1195 and Division 3 of Part 3.16, and remove references to indexation by PBLCI and benchmarking against MTAWE.

Item 5 adds new subsection 1192(5AAAA). New subsection 1192(5AAAA) affects indexation provided for by item 14 in the CPI Indexation Table in subsection 1191(1).  Item 14 deals with the pension free area (which is an abbreviation for the ordinary income free area for social security pension (see item 20 of the table in subsection 1190(1)).  For pensions other than Pension PP (Single), the pension free area is not to be indexed on 1 July 2017, 1 July 2018 and 1 July 2019.

Item 6 repeal subsection 1192(7) and substitutes new subsection 1192(7), which affects indexation provided for by items 35 (deeming threshold individual) and 36 (deeming threshold pensioner couple) of the CPI Indexation Table in subsection 1191(1). The amounts under these items are not to be indexed on 1 July 2017, 1 July 2018 and 1 July 2019.

Amendments to the Veterans’ Entitlements Act

Item 13 repeals sections 59EAA to 59EA which currently benchmarks indexed rates against MTAWE or PBLCI. 

Items 9, 10 and 11 are consequential to the repeal of sections 59EAA to 59EA and remove references to indexation by PBLCI and benchmarking against MTAWE by repealing paragraph 59(aa) and amending subsection 59C(2).

Item 13 repeals the redundant definition of ‘fortnightly MTAWE figure’ in subsection 198(1).

Item 12 inserts subsection 59C(5) at the end of existing section 59C, which affects indexation provided for by item 4 (ordinary/adjusted income free area for service pension and income support supplement), items 11 (deeming threshold individual) and 12 (deeming threshold couple) of the CPI Indexation Table in subsection 59B(1). The amounts under these items are not to be indexed on 1 July 2017, 1 July 2018 and 1 July 2019.

Amendments to the Income Tax Assessment Act 1997

Item 1 makes a consequential amendment to the note to subsection 54-40(2).  This is to correct references to the Social Security Act provisions, reflecting the repeal of section 1195.

Resetting deeming thresholds

Part 2 - Amendments commencing on 20 September 2017

Item 15 repeals subsections 1081(1) and (2), and substitutes new provisions indicating that the deeming threshold for a person who is not a member of a couple is $30,000 and that the deeming threshold for a pensioner couple is $50,000.  While these are the same amounts currently specified in subsections 1081(1) and (2), item 18 is an application provision making it clear that the stated amounts are to be used when working out the rate of social security payments on or after 20 September 2017, rather than any higher amounts that have resulted from prior indexation.

Item 16 repeals and substitutes the note to subsection 1081(3), which currently indicates that the amounts fixed by subsections 1081(1) and (2) are indexed every 1 July and makes reference to indexation provisions of sections 1190 to 1192.  The new note removes reference to the amounts being indexed every 1 July, and instead refers only to sections 1190 to 1192 for indexation of the deeming thresholds in subsections 1081(1) and (2).  This takes account of the fact that, under item 1 of Part 1 of this Schedule, amendments are being made under new subsection 1192(5AE) that will have the effect that indexation of the deeming thresholds will not occur on 1 July 2017, 1 July 2018 and 1 July 2019.

Item 17 inserts new subsections 1192(7A) and (7B), which relate to the calculation of deeming thresholds on 1 July 2020, the first indexation date after the non-occurrences of indexation of deeming thresholds referred to in new subsection 1192(5AE) under item 1 in Part 1 of this Schedule.  Under new subsection 1192(7A), the current figure for the deeming threshold for an individual immediately before 1 July 2020 is taken to be $30,000 and, under new subsection 1192(7B), the current figure for the deeming threshold for a pensioner couple immediately before 1 July 2020 is taken to be $50,000.

Amendments to the Veterans’ Entitlements Act

Item 19 repeals section 46H, and substitutes a new section indicating at subsection (1) that the deeming threshold for a person who is not a member of a couple is $30,000 and, at subsection (2), that the deeming threshold for a couple is $50,000.  While these are the same amounts currently specified in subsections 46H(1) and (2), item 21 is an application provision making it clear that the stated amounts are to be used when working out the rate of service pension or income support supplement on or after 20 September 2017, rather than any higher amounts that have resulted from prior indexation.

Item 20 inserts new subsections 59C(4) and (5), which relate to the calculation of deeming thresholds on 1 July 2020, the first indexation date after the non-occurrences of indexation referred to in Part 1 of this Schedule.  Under new subsection 59C(4), the current figure for the deeming threshold for an individual immediately before 1 July 2020 is taken to be $30,000 and, under new subsection 59C(5), the current figure for the deeming threshold for a couple immediately before 1 July 2020 is taken to be $50,000.



Schedule 2 - Pension age

 

 

Summary

This Schedule increases the age pension qualifying age, and the non-veteran pension age, for both men and women from 67 to 70 years by six months every two years, commencing on 1 July 2025.

Background

The Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Act 2009 increased the pension age from 65 to 67 years at a rate of six months every two years, commencing on 1 July 2017.  Under this enacted legislation, pension age will reach 67 by 2023.

This Schedule provides for a further increase in the pension age from 67 to 70 years by six months every two years, commencing on 1 July 2025.  This Schedule does not affect people born before 1 July 1958.

This Schedule amends the Social Security Act and the Veterans’ Entitlements Act.  Under the Veterans’ Entitlements Act, pension age for people other than veterans is the same as pension age under the Social Security Act.  Amendments to increase the non-veteran pension age for men and women from 67 to 70 years by six months every two years, starting on 1 July 2025, have also been included in this Schedule.

The amendments made by this Schedule commence on the day on which they receive Royal Assent.

Explanation of the changes

Amendments to the Social Security Act

Item 1 repeals table item 5 in subsection 23(5A), and substitutes new table items 5 to 11.  Subsection 23(5A) defines the pension age for men.  The amendments increase the pension age for men born on or after 1 July 1958.  This means that:

A man born during the period:

will turn age pension age at:

1 July 1958 to 31 December 1959

67 years and 6 months

1 January 1960 to 30 June 1961

68 years

1 July 1961 to 31 December 1962

68 years and 6 months

1 January 1963 to 30 June 1964

69 years

1 July 1964 to 31 December 1965

69 years and 6 months

On or after 1 January 1966

70 years

 



Item 2 repeals table item 5 in subsection 23(5D), and substitutes new table items 5 to 11.  Subsection 23(5D) defines the pension age for women.  The amendments increase the pension age for women born on or after 1 July 1958.  This means that:

A woman born during the period:

will turn age pension age at:

1 July 1958 to 31 December 1959

67 years and 6 months

1 January 1960 to 30 June 1961

68 years

1 July 1961 to 31 December 1962

68 years and 6 months

1 January 1963 to 30 June 1964

69 years

1 July 1964 to 31 December 1965

69 years and 6 months

On or after 1 January 1966

70 years

 

People born before 1 July 1958 are not affected.

The changes to the definition of pension age will flow through to a number of social security entitlements under the Social Security Act.  For example, paragraph 593(1)(g) of the Social Security Act provides that pension age is the upper age qualification limit for newstart allowance.  The upper age qualification limits for newstart allowance and sickness allowance will increase in line with the increase in pension age, as will the age qualification for the Commonwealth Seniors Health Card and the upper age limit for disability support pension.

Amendments to the Veterans’ Entitlements Act

Item 3 repeals table item 5 in subsection 5QB(2), and substitutes new table items 5 to 11.  Subsection 5QB(2) defines the (non-veteran) pension age for men.  The amendments increase the pension age for men born on or after 1 July 1958.  This means that:

A man born during the period:

will turn age pension age at:

1 July 1958 to 31 December 1959

67 years and 6 months

1 January 1960 to 30 June 1961

68 years

1 July 1961 to 31 December 1962

68 years and 6 months

1 January 1963 to 30 June 1964

69 years

1 July 1964 to 31 December 1965

69 years and 6 months

On or after 1 January 1966

70 years

 



Item 4 repeals table item 5 in subsection 5QB(5), and substitutes new table items 5 to 11.  Subsection 5QB(5) defines the (non-veteran) pension age for women.  The amendments increase the pension age for women born on or after 1 July 1958.  This means that:

A woman born during the period:

will turn pension age at:

1 July 1958 to 31 December 1959

67 years and 6 months

1 January 1960 to 30 June 1961

68 years

1 July 1961 to 31 December 1962

68 years and 6 months

1 January 1963 to 30 June 1964

69 years

1 July 1964 to 31 December 1965

69 years and 6 months

On or after 1 January 1966

70 years

 

People born before 1 July 1958 are not affected.

The changes to the definition of pension age will flow through to other entitlements under the Veterans’ Entitlements Act, such as the age qualification for the partner of a veteran for a Commonwealth Seniors Health Card.

 



STATEMENTS 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

(2014 BUDGET MEASURES No. 5) BILL 2014

 

Schedule 1 - Indexation and deeming thresholds

 

This Schedule 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 Schedule

The Schedule will have the effect of:

 

·          Amending indexation provisions for recipients of pensions from 20 September 2017, with the effect that payments will be indexed to movements in the Consumer Price Index only.

·          Pausing indexation for three years of the income test free areas for all pensioners (other than parenting payment single).

·          Resetting the deeming thresholds from 20 September 2017 for single pensioners and allowees to $30,000 and $50,000 combined for pensioner couples.  The deeming threshold for a member of a couple, other than a pensioner couple, is set at an amount equal to one-half of the amount of the deeming threshold for a pensioner couple and will be $25,000.

·          Pausing the deeming thresholds for three years from 1 July 2017. When indexation of the deeming threshold amounts recommences on 1 July 2020, it will apply to the reset deeming threshold amounts, and there will be no ‘catch up’ in respect of indexation that would have otherwise occurred during the three-year period in which current rates will remain unchanged.

 

Human rights implications

The Schedule engages the following human right:

Right to social security

Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) recognises the right of everyone to social security.

The Schedule has no effect on the right to social security.

The amendments to the indexation provisions for recipients of pensions ensures consistency of indexation arrangements across the social security system, by indexing all social security payments to movements in the Consumer Price Index.



Pension payments will continue to be indexed to movement in the Consumer Price Index twice a year, and their purchasing power will be maintained.

The maint enance of current rates of the income test free areas thresholds for pensions (other than Parenting Payment Single) and the deeming thresholds will assist in targeting payments according to need. Payments will not be reduced unless customers’ circumstances change, such as their income or assets increasing in value.

The amendments resetting the deeming thresholds change the value of the thresholds used to assess income from financial investments held by payment recipients.  The upper deeming rate applies to the value of financial investments above the relevant threshold.

Most recipients hold levels of financial assets below the reset thresholds.  As deeming is a proxy for actual returns received, resetting the deeming thresholds ensures appropriate assessment when calculating rates of social security payment.

 

Conclusion

The amendments in the Schedule are compatible with human rights because they do not limit access to social security.

 



 

Schedule 2 - Pension age

 

This Schedule 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 Schedule

This Schedule increases the age pension qualifying age, and the non-veteran pension age, for both men and women from 67 to 70 years by six months every two years, commencing on 1 July 2025.  The measure to increase pension age from 67 to 70 will not affect anyone born before 1 July 1958.

This change will apply to future claimants of the age pension.  In the period before qualifying for the age pension, a proportion of people affected will remain in work longer.  Those who cannot work will be able to claim an income support payment, such as newstart allowance or disability support pension, subject to their circumstances and eligibility.

The current pension qualifying age for both men and women is 65 years, rising to 67 years between 1 July 2017 and 1 July 2023. 

This Schedule also amends the Veterans’ Entitlements Act 1986 to increase the non-veteran pension age.  Under the Veterans’ Entitlements Act, pension age for people other than veterans is the same as pension age under the Social Security Act 1991 for the age pension

Human rights implications

This change is being introduced gradually over the next 21 years to allow people to plan for their retirement income arrangements.  The change is underpinned by increasing life expectancy in Australia.  A person aged 65 today, on average, could expect to live for around another 20 years.

The age pension qualifying age is not an official retirement age.  Many people already work beyond the qualifying age for the age pension .  There are both economic and social benefits to participating in the workforce.

People unable to support themselves fully financially are supported by Australia’s social security safety net, if they meet the relevant eligibility criteria. 

Conclusion

This Schedule changes the qualification arrangements for the age pension.  However, other social security income support payments will remain available for claimants in the affected age groups who cannot fully support themselves before qualifying for the age pension.  The Schedule is compatible with human rights because it does not limit or preclude people from gaining or maintaining access to social security.  There are no human rights implications.

Minister for Social Services, the Hon Kevin Andrews MP