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2013-2014-2015
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SOCIAL SERVICES LEGISLATION AMENDMENT
(DEFINED BENEFIT INCOME STREAMS) BILL 2015
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Social Services, the Hon Scott Morrison MP)
SOCIAL SERVICES LEGISLATION AMENDMENT
(DEFINED BENEFIT INCOME STREAMS) BILL 2015
OUTLINE
This Bill will introduce a further 2015 Budget measure improving the fairness and
sustainability of the pension system.
From 1 January 2016, the Bill will ensure that a fairer proportion of a superannuant's
actual defined benefit income is taken into account when applying the social security
income test by introducing a 10 per cent cap on the income that can be excluded
from the test. The measure will not apply to military superannuation schemes.
Financial impact statement
The measure will produce a saving of $465.5 million over the forward estimates.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
The statement of compatibility with human rights appears at the end of this
explanatory memorandum.
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SOCIAL SERVICES LEGISLATION AMENDMENT
(DEFINED BENEFIT INCOME STREAMS) BILL 2015
NOTES ON CLAUSES
Abbreviation used in this explanatory memorandum
Social Security Act means the Social Security Act 1991
Clause 1 sets out how the new Act is to be cited - that is, as the Social Services and
Other Legislation Amendment (Defined Benefit Income Streams) Act 2015.
Clause 2 provides a table setting out the commencement dates of the various
sections in, and the Schedule 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repealed as set out in that Schedule.
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Schedule 1 - Defined benefit income streams
Summary
This Schedule ensures that a fairer proportion of a superannuant's actual defined
benefit income is taken into account when applying the social security income test.
From 1 January 2016, the deductible amount (that is, the amount that can be
excluded from the income test) for a defined benefit income stream, excluding
military defined benefit schemes, will be capped at a maximum 10 per cent of the
gross amount payable to an individual for the year.
This will result in an increase to assessable income, for people with a deductible
amount currently greater than 10 per cent, for the purpose of determining the rate of
income support the person receives.
Background
A defined benefit income stream usually comes from an employer superannuation
fund or government employee superannuation scheme. It currently includes military
defined benefit income streams.
The payments received from a defined benefit income stream, less the
deductible amount, are taken into consideration as ordinary income when
determining whether an individual is eligible for income support payments and,
if eligible, the rate of payment.
The deductible amount for a defined benefit income stream is defined in section 9 of
the Social Security Act. Currently, the deductible amount is calculated by reference
to the tax-free component of the amount payable under the defined benefit income
stream, as determined in accordance with the Income Tax Assessment Act 1997 or
the Income Tax (Transitional Provisions) Act 1997.
Amendments to the Income Tax Assessment Act 1997 in 2007 resulted in an
increase to the tax-free component for some individuals. This had the effect of
increasing the deductible amount for the purpose of the Social Security Act, resulting
in individuals becoming entitled to income support payments, or higher rates of
income support.
This Schedule improves fairness and equity by introducing a 10 per cent cap on the
defined benefit income, as described above.
The amendments made by this Schedule commence on 1 January 2016.
Explanation of the changes
Amendments to the Social Security Act
Item 1 inserts into subsection 9(1) a definition of military defined benefit income
stream. This definition is particularly relevant to the exclusion of military defined
benefit income streams from the 10 per cent cap under new subsections 1099A(2)
and 1099D(2) - see items 5 and 7 below.
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Schedule 1 - Defined benefit income streams
Item 2 inserts new subsection 9(2) to allow the Secretary to specify, by legislative
instrument, a superannuation scheme as a military defined benefit income stream.
Schemes so specified would be additional to those already specified in the relevant
definition.
Item 3 amends subsection 23(1) to include a signpost to the definition of military
defined benefit scheme in subsection 9(1).
Items 5 and 7 amend sections 1099A and 1099D to cap the deductible amount for
defined benefit income streams, excluding military defined benefit income streams.
Where the deductible amount for payments made in accordance with a defined
benefit income stream for the year exceeds 10 per cent, the deductible amount is
taken to be equal to 10 per cent. Items 4 and 6 are consequential technical
amendments relating to this change.
Item 8 amends clause 136 (Transitional definition of deductible amount
(commencing 1 July 2007)) of Schedule 1A to the Social Security Act. This is to
ensure the cap, calculated in accordance with section 1099A or 1099D, as amended
by this Schedule, applies to all relevant individuals, including those to whom the
transitional provision applies.
Item 9 sets out the application of the amendments. The amendments apply in
working out a person's ordinary income for 1 January 2016 or any later day,
regardless of when the defined benefit income stream was first provided to the
person.
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STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
SOCIAL SERVICES LEGISLATION AMENDMENT
(DEFINED BENEFIT INCOME STREAMS) BILL 2015
Schedule 1 - Defined benefit income streams
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 implements a change to Australian Government payments, whereby, from
1 January 2016, the deductible amount for defined benefit income streams,
excluding military defined benefit schemes, is capped at a maximum 10 per cent of
the gross payments to an individual for the year.
Human rights implications
The Bill engages the following human rights:
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 Bill has no effect on the right to social security.
For people with a defined benefit income stream who have a deductible amount
greater than 10 per cent, the change increases the amount of assessable income
included in the social security income test for certain Australian Government
payments.
It gives a fairer assessment of an individual's personal contributions to a defined
benefit income streams.
It removes the unintended consequences from changes to the Income Tax
Assessment Act 1997 in 2007, which had the effect of increasing the deductible
amount for the purpose of the Social Security Act 1991 for some income support
recipients, resulting in some individuals becoming entitled to income support
payments, or higher rates of income support.
Military defined benefit income streams are excluded from the change in recognition
of the unique nature of military service.
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Statement of compatibility with human rights
Conclusion
The amendments in the bill are compatible with human rights because they do not
limit access to social security.
[Circulated by the authority of the Minister for Social Services,
the Hon Scott Morrison MP]
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