Editors --- "Age pension: assessment of a rolled over market linked income stream" [2013] SocSecRpr 20; (2013) 15(3) Social Security Reporter, Article 5

• HAMBLION and SECRETARY to the DFHCSIA
• Background
• The legal framework and issues
• Discussion
• Formal decision

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Age pension: assessment of a rolled over market linked income stream

HAMBLION and SECRETARY to the DFHCSIA

(2013/546)

Decided: 5th August 2013 by R.P Handley and N. Gaudion

Background

Mr & Mrs Hamblion were receiving an age pension (AP). In August 2007 Mr Hamblion purchased a market-linked income stream, MLC Navigator Super Solutions (the MLC income stream) which was assessed by Centrelink as partially asset-test exempt from 29 August 2007 with the result of 50% of its value being included in their assets for the purpose of calculating their AP. In December 2011 on the advice of his financial advisor, Mr Hamblion rolled over all available funds supporting the MLC income stream into a different scheme, the Avanteos First Wrap Plus Term Pension (the Avanteos income stream) that had lower fees and a broader range of investment options and listed securities. Notably, some funds from the MLC scheme were frozen and could not be accessed and so were retained in the MLC income stream. These funds were subsequently released in 2012.

Centrelink decided that the commutation was not made for an allowable reason and as a result the Avanteos income stream did not retain the partial asset-test exemption and also that the MLC income stream was to be reassessed as asset-tested resulting in a reduction of Mr and Mrs Hamblion’s rate of AP and the raising of AP debts.

Mr and Mrs Hamblion applied for a review of Centrelink’s decisions. A Centrelink Authorised Review Officer (ARO) affirmed the decisions, Mr and Mrs Hamblion then applied for a review of the decisions at the Social Security Appeals Tribunal (SSAT). The SSAT set aside the ARO’s decision and substituted a new decision that the Aventeos income stream was not asset-test exempt and that the debts were waived due to special circumstances.

Mr and Mrs Hamblion then applied for a review of the SSAT decision that the Aventeos income stream was not assettest exempt.

The legal framework and issues

Mr and Mrs Hamblion’s AP rate is calculated in accordance with s.1064-A1 of the Social Security Act 1991 (the Act). The term ‘income stream’ is defined in s.9 of the Act. There was no dispute that Mr Hamblion’s MLC income stream met these requirements. Section 1119 of the Act applies to the value of the income stream and s.1118 provides for certain assets to be disregarded in calculating the value of a person’s assets. The principles referred to in s.1118 (b)(ii) are the Social Security(Retention of exemption for asset-test exempt income streams) (DEEWR) Principles 2011 (No 1) (the 2011 Principles).

Relevantly s.3.3 and s.3.8 of Part 3 of the 2011 Principles refer to partially asset-test exempt income stream resulting from transfer to a successor fund and the commutation of another partially assettest exempt market-linked income stream. Section 1120B refers to the value of partially asset-test exempt income streams.

Until December 2011, half the value of Mr Hamblion’s MLC income stream was exempt from the asset test pursuant to s.1118(1)(da). At issue was whether Mr Hamblion’s investment in the Avanteos income stream was a partially asset-test exempt income stream as defined in s.1118(1A) of the Act so that s.1118(1) (da) applied resulting in half the value being disregarded when calculating the value of Mr and Mrs Hamblion’s assets. The AAT considered whether the Avanteos income stream satisfied the conditions set out in Part 3 of the 2011 Principles.

Discussion

The AAT accepted Mr Hamblion acted in good faith at all times, relying on the financial advice that the MLC income stream rolled over into the Avanteos income stream would be partially asset test exempt. Mr Hamblion’s financial advisor made submissions on Mr Hamblion’s behalf and submitted that he understood the partial asset-test exemption would be retained provided no new monies were added to and no withdrawals were made in the roll-over. However it appeared the adviser did not make further enquiries about the effect of the unavailable frozen funds on retaining the exemption.

The AAT decided the first issue to be determined was whether the Avanteos income stream satisfied either s.3.3 or s.3.8 of the 2011 Principles. The AAT concluded that the Avanteos income stream was not a successor fund as defined in s.1.4 of the Principles which refers to subregulation 1.03(1) of the Superannuation Industry (Supervision) Regulations 1994, in particular there was no evidence that the trustees of the respective funds came to the agreement regarding equivalent member rights as required by paragraph (b) of the regulations.

Secondly with regard to s.3.87 of the 2011 Principles the Tribunal found that the Avanteos income stream did not satisfy the requirement in s.3.8(b) that ‘all the assets supporting a partially asset-test exempt income stream’ (AAT emphasis) must be rolled over. There was no discretion to disregard, as in Mr Hamblion’s case, the circumstance of frozen and unavailable funds at the time of rollover.

Mr Hamblion’s financial advisor contended the remaining funds did not support Mr Hamblion’s MLC income stream payments (s.3.8(b) of the Principles) made after the commutation and rollover to the Avanteos income stream. The AAT found the remaining assets in the MLC income stream supported the payments made.

The AAT surmised Mr Hamblion’s situation may not have been anticipated when the Principles were drafted and commented that it is a matter that could be addressed by amending the Principles. The AAT considered the Explanatory Statement that accompanied the 2011 Principles in particular the operation of Part 3 and specifically s.3.8 but found that it did not support an expansive view of the interpretation of s.3.8(b) to take into account Mr Hamblion’s acting in good faith and attempt to comply with the spirit and principles of the legislation.

Formal decision

The AAT decided the Avanteos income stream was not a partially asset-test exempt income stream for the purpose of the calculation of the value of Mr and Mrs Hamblion’s assets in determining their rate of AP. The AAT affirmed the SSAT’s decision.

[C.O.]