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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 Saving of $314.7 million
September 2017.
Maintaining current pension income test free areas Saving of $40.9 million *
and deeming thresholds from July 2017.
Reset the deeming rate thresholds. 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.
1
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:
o benchmarking to Male Total Average Weekly Earnings (MTAWE);
o 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.
2
Schedule 1 - Indexation and deeming thresholds
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:
o 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.
3
Schedule 1 - Indexation and deeming thresholds
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).
4
Schedule 1 - Indexation and deeming thresholds
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.
5
Schedule 1 - Indexation and deeming thresholds
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.
6
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
7
Schedule 2 - Pension age
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
8
Schedule 2 - Pension age
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.
9
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.
1
Statements of compatibility with human rights
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 maintenance 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.
2
Statements of compatibility with human rights
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
3