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Social Security Reporter |
Income test: age pension; lump sum arrears of UK pension whether net or gross; exchange rate to be applied
(2010/641)
Decided: 26th August 2010 by K. Bean
Mr and Mrs Haywood were originally from the United Kingdom (UK) but resided in Australia. Mrs Haywood had been in receipt of an Australian age pension (AP) since 9 April 2003 and Mr Haywood since 26 May 2003. In December 2008, the UK Pension Service wrote to the Haywoods to advise each of them of changes to their respective entitlements to the UK State Pension. The Haywoods provided Centrelink with a copy of these letters and on 3 June 2009 Centrelink recalculated their retrospective entitlement to the AP, taking into account the changes to their UK State Pensions and raising two AP debts against each of them.
The Haywoods sought review of these decisions and on 7 July 2009, an Authorised Review Officer (ARO) varied the decisions and the debt amounts.
On 18 August 2009 the SSAT set aside the decisions under review and remitted the matter back to Centrelink for reconsideration in accordance with directions that in calculating the debts, regard should be had only to the net amounts of UK pension received by the Haywoods after deduction of their National Insurance contributions, rather than the gross amounts.
On 21 September 2009, the Secretary applied for review of the SSAT decision. The parties agreed that the review should be dealt with on the papers. The Tribunal noted that, by reason of s.179 of the Social Security (Administration) Act 1999 (the Administration Act), where the SSAT has set aside a decision and sent the matter back to the Secretary for reconsideration in accordance with any directions or recommendations, the Tribunal’s jurisdiction was limited to reviewing those directions or recommendations.
The agreed facts were that in December 2008 the UK pension service had informed Mrs Haywood:
• that she was entitled to a UK State Pension of £46.39 per week from 18 October 1999;
• the rate had increased to £53.63 per week from 14 February 2005;
• she was entitled to arrears of the UK State Pension and interest earned for the period from 18 October 1999 to 7 December 2008, amounting to £1163.23;
• the amount of £639.60 had been withheld by agreement with Mrs Haywood to pay for additional contributions to the UK National Insurance Scheme for the tax years 1997/98 and 1998/99; and
• that she was to receive the balance of £523.63.
The letter also advised her how her UK pension was calculated and that she had an ongoing entitlement to £53.63 per week made up of her basic pension of £39.95 which was based on National Insurance contributions and an additional amount of £13.67 based on her earnings from 1978 to 1997.
The letter received by Mr Haywood was in similar terms however the amounts differed.
The issues were:
• whether the gross or net amount of foreign pension lump sum arrears payments should be taken into account as income in assessing the rate of AP payable to the Haywoods;
• what was the correct exchange rate to be used to determine the value of the payments received in a foreign currency by the Haywoods;
• whether they received an amount of AP during the period, from 9 April 2003 to 7 December 2008, in excess of their entitlements;
• whether the overpayments were debts owing to the Commonwealth; and if so
• whether the debts should be recovered, written-off or waived.
In their written submissions the Hay-woods stated that they had to agree to the deductions made in order to receive any arrears of UK pension at all. They also stated that they spent the arrears on necessary repairs to the house before they knew that they had a debt.
On behalf of the Secretary it was submitted that the Social Security Act 1991 (the Act) required the Haywoods’ gross income to be taken into account in calculating their pension entitlements. The Secretary relied upon the income test definitions in ss.8 and 1072 of the Act, which relevantly provide:
8 Income test definitions
...
Earned, derived or received
(2)A reference in this Act to an income amount earned, derived or received is a reference to:
(a) an income amount earned, derived or received by any means; and
(b) an income amount earned, derived or received from any source (whether within or outside Australia).
...
1072 A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.’
In relation to the applicable exchange rate, the Secretary relied upon s.1100 of the Act which relevantly provided:
1100(1) If:
(a) the rate of a payment to be made to a person under this Act is being worked out for a calculation day; and
(b) an amount received by the person in a foreign currency needs to be taken into account in working out the rate;
the value in Australian currency of the amount received is to be determined in accordance with this section.
(2)
...
(4) In the case of a foreign currency or a payment in a foreign currency in respect of which the Secretary has determined
that it is not appropriate for subsection
(2) to apply, the value in Australian currency of the amount received is to be calculated using a rate of exchange that the Secretary determines to be appropriate.
(5) The Secretary may make written determinations for the purposes of this section.
(6) In this section:
...
calculation day means the first business
day for each month.
...
The Secretary submitted that, in the case of the UK pound an applicable determination had been made pursuant to s.1100(5). The Secretary then submitted that as the arrears should be deemed to have been received by the Haywoods on 29 December 2008 (this date was arrived at by applying a standard procedure adopted by Centrelink of adding 10 days to the date of an overseas letter to arrive at the deemed date of receipt) then the applicable determination was the Social Security Foreign Currency Exchange Rate Determination 2008 (the 2008 Determination). Part 3 of that Determination at 3.2(2) sets out the appropriate market exchange rate for currencies which includes ‘United Kingdom (Pound)’. It states:
It is appropriate to use the on-demand airmail buying rate for the currency available at the Commonwealth Bank of Australia at the start of business in Sydney on the 5th day before the calculation day.
Pursuant to s.1100(6), the calculation day is the first business day of each month, and as the arrears were received in December 2008, the relevant calculation day was the first business day of that month.
On behalf of the Secretary it was submitted that s.1228A of the Act applied with a result that the overpayments of AP paid to the Haywoods were debts due to the Commonwealth. Write-off pursuant to
s.1236(1A) of the Act was inappropriate as the Haywoods had the capacity to repay the debts, and were doing so from withholdings from their AP and neither waiver provision was applicable as the debts did not arise solely due to an administrative error made by Centrelink and the Haywoods’ circumstances were not ‘special’ within the meaning of s.1237AAD.
The Tribunal considered the decision of Deputy President Forgie in Durant and Secretary, Department of Family and Community Services [1999] AATA 382. The issue was whether the gross amount of Canadian pension before deduction of taxation should be taken into account in assessing the applicant’s Social Security entitlements. She concluded that it was the clear intention of the Act that if money can be said to have been earned, derived or received for a person’s use or benefit (which included compulsory deductions to meet taxation obligations) then it was to be taken into account as income. The Tribunal also noted that in Makowski and Secretary, Department of Families, Community Services and Indigenous Affairs [2007] AATA 21 the same conclusion was reached; in that case the person had only received half of a lump sum of arrears for his German pension because he agreed to pay an organisation that assisted him to claim the German pension 50 percent of the lump sum payment.
The Tribunal was satisfied that the total lump sum amount should be brought to account in calculating the Haywoods’ AP entitlements even though the payment of National Insurance contributions was a pre-condition to receipt of the arrears. The Tribunal considered that the entire lump sum amounts were received for their own use or benefit and were employed by them for their benefit, namely to qualify for payment of UK State Pension.
In relation to the applicable exchange rate the Tribunal was satisfied the 2008 Determination was applicable and so the correct exchange rate to be used was the Commonwealth Bank of Australia’s on-demand airmail buying rate, current on the 5th working day before the calculation day, being the first business day in the month in which the arrears were received, which was 1 December 2008.
The Tribunal was satisfied that the Haywoods had each received overpayments and that those amounts were debts due to the Commonwealth. The Tribunal accepted the submission on behalf of the Secretary that it was not appropriate to write-off the debts. It also considered waiver but concluded that the debts did not arise as a result of an administrative error by the Commonwealth. While accepting that the Haywoods or another person had not knowingly made a false statement or representation, or failed to comply with the Act, there was no evidence of ‘special circumstances’.
The Tribunal varied the directions made by the SSAT to provide:
· For Mrs Haywood the amount she was deemed to have received periodically over the relevant period was £1163.23;
· For Mr Haywood the amount he was deemed to have received periodically over the relevant period was £3274.60;
· For each in determining the amount of income they were deemed to have received in Australian currency, regard was to be had to the exchange rate specified in the Social Security Foreign Currency Exchange Rate Determination 2008, being the on-demand airmail buying rate for the currency available at the Commonwealth Bank of Australia at the start of business in Sydney on the 5th business day before the calculation day, being 1 December 2008;
· Centrelink was to recalculate the debt amounts and recover the resulting debts.
[C.E.]
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2010/51.html