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5.1.8.40 Pension Reform - Transitional Arrangements

Summary

This topic contains information on the transitional arrangements that apply to those receiving a pension as at 19 September 2009.

 

This topic contains information on the following:

  • overview of the transitional arrangements,
  • rationale for the transitional arrangements,
  • application of the transitional arrangements,
  • working out whether a person is paid under the transitional arrangements,
  • calculating the rate of pension under the transitional arrangements,
  • maximum transitional rate of pension,
  • calculating the rate of pension under the transitional arrangements - members of a couple,
  • periods when a person is paid the transitional arrangements pension rate,
  • access to transitional arrangements - working credit,
  • taxation of transitional arrangements rate pension payments, and
  • transitional arrangements for people receiving DSP under 21 with no children at 20 September 2009.

 

Overview of transitional arrangements

The transitional arrangements refer to provisions in the social security legislation that allow a person whose pension is affected by changes made to pensions from 20 September 2009 to have their pension assessed under the pension rules that applied before 20 September 2009 plus an increase ($20.20 a fortnight for singles, $20.30 per fortnight for couples combined), or the rules that applied from that date, whichever provides a higher rate of payment.

 

The relevant pension changes that applied from 20 September 2009 were:

  • the MBR of pensions for all pensioners was increased, apart from those on DSP for those under 21 with no dependent children,
  • the income test withdrawal rate was increased from 40 cents to 50 cents for each extra dollar of private income above the income test 'free area',
  • the additional income test free area for dependent children was removed, and
  • a work bonus was introduced that means that half of the first $500 of employment income earned a fortnight is disregarded under the income test for pensioners over age pension age (in addition to the usual operation of the income test free area).

 

Rationale for the transitional arrangements

Most pensioners including all full maximum rate pensioners immediately benefited from 20 September 2009 from the increase to the MBRs of pension.

 

However, the change to the income test withdrawal rate and the free area for dependent children could mean that a person's pension would be reduced or cancelled.

 

The transitional arrangements were introduced to ensure that no pensioner who was receiving a pension at the commencement of the changes to the income test from 20 September 2009 is worse off as a result of the changes.

 

Act reference: SSAct Schedule 1A Savings and transitional provisions

 

Application of the transitional arrangements

The transitional arrangements may be used from 20 September 2009 to work out a person's provisional annual rate of:

  • age pension, including to a person who is permanently blind,
  • DSP or disability wage supplement of a person who:
    • has turned 21, or
    • of a person who has not turned 21 and has one or more dependent children*,
    • including to a person who is permanently blind,
  • wife pension,
  • carer payment,
  • mature age allowance under Part 2.12A,
  • mature age partner allowance,
  • bereavement allowance, and
  • widow B pension.

 

The transitional arrangements may apply to a person if the person was receiving on 19 September 2009 one of the following social security pensions:

  • age pension,
  • disability support pension*,
  • wife pension,
  • carer payment,
  • bereavement allowance,
  • widow B pension,
  • special needs pension,
  • service pension,
  • income support supplement.

and the person continues without a break to receive one of the above payments.

 

* Special rules apply to people receiving DSP who are under 21 with no children - see below.

 

Act reference: SSAct Schedule 1A clause 146 Transitional provision for rates of certain social security pensions on and after 20 September 2009

 

Transfer between payments

The transitional arrangements can apply if a person transfers between one of the above payments or otherwise stops receiving one of these payments and starts receiving another of the above payments without a gap of a day or more between the payments.

Example: A person is receiving DSP on 19 September 2009, and their rate is calculated under the transitional arrangements. They transfer to age pension on 25 September 2009. Their pension can continue to be calculated under the transitional arrangements, assuming that this continues to provide them with the higher rate of payment.

 

Pension payments cease to be payable on or after 20 September 2009

If the person ceases to receive a social security pension on or after 20 September 2009, the transitional arrangements cease to apply to the person. The person can no longer have their pension calculated under the transitional arrangements. They have their payment assessed under the relevant pension rate calculator e.g. at point 1064-A1, 1065-A1 or 1066-A1, or under section 796.

Example: A person is receiving a pension calculated under the transitional arrangements and, for whatever reason, pension is cancelled on 20 September 2009. The person reapplies and is granted pension with effect from 21 October 2009. The person cannot have their pension assessed under the transitional arrangements. They will have their pension assessed under the relevant pension rate calculator.

 

Act reference: SSAct Schedule 1A clause 146 Transitional provision for rates of certain social security pensions on and after 20 September 2009

 

Pension commences to be payable on or after 20 September 2009

The transitional arrangements do not apply to a person who commences to receive a pension on or after 20 September 2009.

 

People who commence to receive a social security pension on or after 20 September 2009, (and were not receiving a pension on 19 September 2009) have their payment assessed under the relevant pension rate calculator.

Example: George makes a claim on 19 September 2009, and pension is determined to be payable from 20 September 2009. As George was not receiving a pension on 19 September 2009, his pension cannot be assessed under the transitional arrangements, but is determined under the relevant pension rate calculator.

 

Act reference: SSAct Schedule 1A clause 146 Transitional provision for rates of certain social security pensions on and after 20 September 2009, section 1064-A1 Pension Rate Calculator A - Method of calculating rate, section 1065-A1 Pension Rate Calculator B - Method of calculating rate, section 1066-A1 Pension rate Calculator C - Method of calculating rate, section 796 How to work out a person's special needs pension rate

 

Working out whether or not a person is paid under the transitional arrangements

The transitional arrangements may apply where the person's provisional pension rate in the relevant pension rate calculator is worked out under the income test.

 

To work out whether the person's income tested rate is to be calculated under the transitional arrangements, it is necessary to make a comparison between:

  • the provisional annual rate payable to a person under the relevant pension rate calculator (as amended from 20 September 2009).
    • From 20 September 2009, the MBRs of pensions were increased over and above the usual indexation arrangements, the income test withdrawal rate was increased to 50 cents, the 'free area' for dependent children was removed and a work bonus (3.1.14) was introduced, under which half of the first $500 of employment income earned in a fortnight is disregarded under the income test for pensioners over age pension age, and
  • the rate of pension payable to the person that would have been paid under similar pension rules that applied prior to 20 September 2009 including the 'old' income test rules and CPI indexation (including the increase payable from 20 September 2009), plus the increase of $20.20 a fortnight for singles, or $20.30 per fortnight for couples combined (referred to here as 'the transitional arrangements rate').
    • Prior to 20 September 2009, the income test withdrawal rate was 40 cents for each extra dollar of private income above the income test 'free area'.

 

The following table shows the steps involved in working out whether the person is paid a transitional rate of pension.

Table A
Step Action SSAct/Guide reference
1

Work out the person's provisional annual rate of pension, using the relevant pension rate calculator.

Part 3.2 Pension Rate Calculator A, Part 3.4 Pension Rate Calculator C, section 796 How to work out a person's special needs pension rate

2

Multiply the result at Step 1 by 1/364 to produce a daily rate of pension.

3

Add any DFISA payable.

 

Note: DFISA is calculated at a daily rate

SS Guide 4.3.5.70 About DVA Defence Force Income Support Allowance (DFISA)

4

Total A

5

Work out the person's transitional arrangements rate of pension (see below).

Transitional arrangements rate of pension (see below)

6

Multiply the result at Step 5 by 1/364 to produce a daily rate of pension.

7

Add any DFISA payable.

 

Note: DFISA is calculated at a daily rate

4.3.5.70 About DVA Defence Force Income Support Allowance (DFISA)

8

Total B

9

Compare Total A and Total B.

- If Total A is equal to or greater than Total B, then the person's provisional annual rate of pension is Total A.

 

- If Total B is greater than Total A, then Total B is the person's provisional annual payment rate.

Part 3.2 Pension Rate Calculator A, Part 3.4 Pension Rate Calculator C, section 796 How to work out a person's special needs pension rate

 

Act reference: SSAct Schedule 1A clause 146 Transitional provision for rates of certain social security pensions on and after 20 September 2009, section 1064-A1 Pension Rate Calculator A - Method of calculating rate, section 1065-A1 Pension Rate Calculator B - Method of calculating rate, section 1066-A1 Pension Rate Calculator C - Method of calculating rate, section 796 How to work out a person's special needs pension rate, Part 3.2 Pension Rate Calculator A, Part 3.4 Pension Rate Calculator C

 

Calculating the rate of pension under the transitional arrangements

A person's transitional pension rate under the relevant pension rate calculator is worked out as follows:

Table B

Step

Action

SSAct/Guide reference

1

Work out the person's maximum payment transitional arrangements rate or pension.

See below.

2

Add any amount of RA payable.

SS Guide 3.8.1 RA - Qualification & Payability

3

Apply the income test and the assets test in the relevant pension rate calculator to work out the person's provisional payment rate assuming:

- the deduction for income in excess of the income threshold is 40 cents for every dollar,

- the additional income test 'free area' for dependent children does apply,

- the work bonus does not apply in working out the person's ordinary income.

Part 3.2 Pension Rate Calculator A, Part 3.4 Pension Rate Calculator C, section 796 How to work out a person's special needs pension rate

4

Deduct the minimum pension supplement if the person has elected to receive that supplement on a quarterly basis.

3.12 Pension Supplement & Seniors Supplement - Qualification & Payability

5

The result is the person's transitional rate of pension.

 

Act reference: SSAct Part 3.2 Pension Rate Calculator A, Part 3.4 Pension Rate Calculator C, section 796 How to work out a person's special needs pension rate

 

Maximum transitional rate of pension

The maximum pension rates payable to a person assessed under the transitional arrangements are set out at 5.1.8.10 Common Pension Rates.

 

A person's maximum transitional pension rate depends on the person's partnered status and whether or not they are in residing in Australia or have been temporarily absent from Australia for up to 6 weeks.

 

The maximum transitional rates of pension incorporate some additional payments that before 20 September 2009 were identified separately, such as PhA, TAL and UA.

 

Where a person receives the transitional rate of pension, these former payments are no longer separately identified. However, equivalent amounts have been incorporated into the rate of pension.

 

The maximum transitional rates of pension are based on the former payments set out in the following table.

Table C
Person's Situation Composition of Transitional Arrangements Rate

Transitional arrangements single maximum rate of pension - in Australia rate

The total amount comprises:

- the single MBR (including CPI indexation of the amount at 20 September 2009),

- the GST pension supplement,

- pharmaceutical allowance,

- TAL (internet rate),

- utilities allowance,

- an increase of $20.20 a fortnight for singles, or $20.30 per fortnight for couples combined.

 

(Includes indexation of the amount at 20 September 2009 and ongoing March and September CPI indexation).

Transitional arrangements partnered max rate of pension (for an individual) - in Australia rate

The total amount comprises:

- the partnered MBR (including CPI indexation of the amount at 20 September 2009),

- the GST pension supplement,

- pharmaceutical allowance,

- TAL (internet rate),

- utilities allowance,

- an increase of $20.20 a fortnight for singles, or $20.30 per fortnight for couples combined.

 

(Includes indexation of the amount at 20 September 2009 and ongoing March and September CPI indexation.)

Transitional arrangements single max rate of pension - overseas rate

The total amount comprises:

- the single MBR (including CPI indexation of the amount at 20 September 2009),

- the GST pension supplement.

 

(Includes indexation of the amount at 20 September 2009 and ongoing March and September CPI indexation.)

Transitional arrangements partnered max rate of pension (for an individual) - overseas rate

The total amount comprises:

- the partnered MBR (including CPI indexation of the amount at 20 September 2009),

- the GST pension supplement.

 

(Includes indexation of the amount at 20 September 2009 and ongoing March and September CPI indexation.)

 

Indexation of the transitional pension rates

The transitional pension rates are subject to indexation on indexation days. The amounts will be indexed to the CPI on 20 March and 20 September of each year under SSAct Part 3.16.

 

Act reference: SSAct Schedule 1A clause 146(3) Provisional annual payment rate

 

Calculating the rate of pension under the transitional arrangements - members of a couple

Where a person is a member of a couple, and at least one member is a pensioner (i.e. paid under the pension means test), the person and their partner's assessable ordinary income is added together, and half of the total income is used to work out each member of the couple's social security payment under the relevant rate calculator. The work bonus provisions may apply to either member of the couple (where the person is of age pension age) and affect the amount of the couple's combined income. The work bonus is applied first to each member of a couple's income (if applicable) before their income is added to their partner's income and the combined total is halved.

 

Once a person's rate has been calculated under the relevant rate calculator, it will then be necessary to determine if the transitional rate provisions apply to one or both members of the couple. If they do, it will be necessary to then calculate the person's pension rate under the transitional provisions to determine whether or not the person's payment would be higher under those provisions.

 

If the transitional provisions apply to a member of the couple, half of the couple's combined income (excluding any application of the work bonus provisions) is used to work out that member of the couple's (Partner A) transitional rate of pension.

 

In working out their partner's social security payment (Partner B) under the relevant rate calculator, it is assumed that the transitional provisions do not apply to Partner A. This means that the Partner B's rate of social security payment under the relevant rate calculator continues to take account of the work bonus rules (if applicable).

 

If Partner B has their rate determined under the transitional rate provisions, half of the couple's combined income is used to work out that member of the couple's pension, and the work bonus provisions do not apply to that person.

 

In other words, members of a couple always have their pension calculated under the 'new rules' (including the work bonus if applicable), and then a comparison is done with the person's transitional rate to determine which rate of pension will be payable. If the transitional rate of pension applies to one member of a couple, there is no recalculation of the couple's income when calculating the partner's payment to disregard any affect of the work bonus.

 

These arrangements were introduced so that the benefit of the work bonus is able to flow from one member of a couple to the other irrespective of whether or not a person's rate is determined by the transitional arrangements.

Example: Mary is receiving an Age at 19 September 2009. Her partner Barry is not receiving any income support payments. Mary and Barry's only income is $1,500 per fortnight that Mary earns from employment.

 

Mary's pension is assessed under the transitional rate provisions because she receives a higher rate of pension than if the work bonus and 50 cent taper rate was applied in working out her rate of her pension. As Mary's pension is calculated under the transitional safety net rules, half of Mary's earnings ($750), being half of Barry and Mary's combined income is used to work out the pension payable to her. Mary's pension is reduced by 20 cents for each dollar (based on the income withdrawal rate of 40 cents) of her share of the couple's income in excess of the income test allowable income threshold.

 

Barry claims a pension on 20 September 2009. When working out Barry's rate of pension, it is assumed that the work bonus applies to the calculation of the Mary's income from employment. This means that the couples combined assessable income is $1,250, with Barry's share half of that amount ($625).

 

This rule means that, while the work bonus is not applied in working out Mary's rate of pension, it can be applied to work out Barry's pension.

 

Periods when a person is paid the transitional arrangements pension rate

A pensioner can continue to be paid the transitional arrangements (Total B in Table A) until a determination is made that this amount is equal to or less than Total A in Table A, i.e. where the transitional rate provides the higher rate of payment.

 

Where the transitional arrangements cease to apply, the person's payment is calculated under the relevant payment rate calculator.

 

Act reference: SSAct Schedule 1A clause 146(3) Provisional actual payment rate

 

Limit on access to transitional arrangements

Where a person has been paid under the transitional arrangements, and those arrangements have ceased to apply to the person (because they do not a provide a higher rate of payment than if their pension were assessed under the relevant pension rate calculator), the person's pension cannot ever again be paid under the transitional arrangements, except where they have been a 'respite care couple' (see below).

Example: Geoff is receiving Age on 19 September 2009, and is paid under the transitional arrangements as this provides him with the higher rate of pension than if his pension were calculated under Rate Calculator A.

 

On 1 October 2009, Geoff's investment income is reduced and his pension commences to be paid under Rate Calculator A, as this provides him with the higher rate of pension.

 

On 1 May 2010, Geoff's income investment increases again, and his pension would otherwise be assessed under the transitional arrangements as this would provide him with the higher rate of pension. However, because the transitional arrangements previously ceased to apply from 1 October 2009 in working out Geoff's pension, the transitional arrangements cannot be applied again to work out the amount of pension that is payable to Geoff.

 

Act reference: SSAct Schedule 1A clause 146(5) Limit on future application of subclause (3)

 

Access to transitional arrangements - respite care couples

A person who is a member of a couple (except an illness separated or respite care couple, or their partner is in goal) does not lose access to the transitional arrangements where:

  • they had been receiving payment under the transitional arrangements, and
  • they or their partner become a member of a respite care couple (as defined in SSAct subsection 4(8)).

 

When the person ceases to be a member of a respite care couple, they can resume being paid in accordance with the transitional arrangements.

Example: John and Janine are both receiving Age paid under the transitional arrangements from 20 September 2009.

 

Due to ill health, John moves into approved respite care on 1 October 2009. John and Janine commence to be paid as a respite care couple under Rate Calculator A and receive the higher respite care couple rate of pension.

 

On 1 December 2009, John returns home. In working out John and Janine's pensions, Centrelink determines that the transitional arrangements rate of pension provides John and Janine with that higher rate of pension than that payable under Rate Calculator A. As John and Janine were receiving pensions under the transitional arrangements, and they were a respite care couple for the whole period that those provisions ceased to apply to them, their pensions can again be paid under the transitional arrangements (assuming they provide John and Janine with the higher rate of pension).

 

Act reference: SSAct Schedule 1A clause 146(5) Limit on future application of subclause (3), section 4(8) Respite care couple

 

Access to transitional arrangements - working credit

A person may continue to have access to the transitional arrangements where:

  • at 19 September they were using their working credits to reduce their assessable employment income, and
  • on 20 September 2009 they commenced to be paid under the new rules rather than the transitional rules because of these working credits.

 

The person is allowed to continue to have access to the transitional rules, where those rules provide a higher rate of pension, when their working credits have been exhausted.

 

When their working credits have been exhausted, if their pension rate would be higher under the new system, they would lose access to the transitional rules.

Example: Toby receives DSP and his partner Lauren receives WP. Lauren starts part-time work on 1 August 2009 and starts to deplete her working credit balance. Lauren's working credit reduces their assessable income and, from 20 September 2009, both Toby and Lauren are paid a pension under the relevant pension rate calculator that applies as this provides them with a higher rate than under the transitional arrangements. On 10 November 2009 Lauren's working credit balance has depleted to NIL. Toby and Lauren's pension may be paid under the transitional arrangements on this date if this provides them with the higher rate.

 

Taxation of transitional payments

Where a person receives a pension under the transitional arrangements, the amount payable is taxable in the same way as if it were the person's pension supplement.

 

A person's pension supplement is exempt from tax in accordance with sections 52-10 and 52-15 of the Income Tax Assessment Act except for the 'person's basic pension supplement' amount.

 

The maximum basic supplement amount of a person's transitional payment depends on a person's family situation. At 20 March 2010 these amounts were:

Person's family situation

Amount as at

20 March 2010

Not a member of a couple

$15,126.80 p.a.

Partnered

$12,636.00 p.a

Member of an illness separated couple

$15,126.80 p.a.

Member of respite care couple

$15,126.80 p.a.

Partnered (partner in gaol)

$15,126.80 p.a.

These amounts are indexed on 20 September and 20 March in line with the CPI.

 

Act reference: SSAct Schedule 1A clause 146(3) Provisional annual payment rate, Schedule 1A clause 146(4) The amount is the one that would be the provisional annual payment rate...

 

Taxable portion where pension paid at less than the maximum rate

Where a person's payment is reduced by the operation of the income test, the assets test or the compensation provisions, the order of reduction, in descending order is:

  • the taxable basic pension supplement amount,
  • the remaining pension supplement amount (apart from the person's minimum pension supplement amount)
  • RA (if applicable)
  • the pension's minimum pension supplement amount.

 

The minimum supplement amount is paid in full where a part-rate entitlement exists, and is the amount that would otherwise be the person's 'minimum pension supplement amount'. See 3.12 for further information.

 

Act reference: SSAct Schedule 1A clause 149 Payment and income tax consequences of receiving social security pension, section 1210 Application of income and assets test reductions and of compensation reductions

 

Transitional arrangements for people receiving DSP under 21 with no children at 20 September 2009

People receiving DSP under 21 with no children at 20 September 2009 were not eligible to the increased rates of pension payable as a result of the pension 20 September 2009 changes. However, DSP paid to these people became subject to an increase in the income test withdrawal rate from 40 cents to 50 cents for each dollar of income over the allowable income test threshold.

 

To ensure that those under 21 and without a dependant child or children receiving DSP at 19 September 2009 with affecting income did not have a reduction in their payment as a result of the increase in the income test withdrawal rate, these pensioners continue to have their payments assessed under the rules that applied to the them before 20 September 2009.

 

Eligibility to the under 21 DSP transitional arrangements

To be eligible for these transitional arrangements, a person must be:

  • under 21 and without a dependant child or children receiving DSP at 19 September 2009, and
  • at 19 September 2009, had their payment reduced because their assessable income exceeds the allowable income threshold.

 

If a person's rate is not reduced because of their income (e.g. they have income below the allowable asset threshold) these transitional arrangements do not apply to them.

 

Act reference: SSAct Schedule 1A clause 145(1) Saving provision for income test taper rate for disability support pensioners under 21 without dependent children, section 1066A Pension Rate Calculator D

 

Operation of the under 21 DSP transitional arrangements

Where the transitional arrangements apply, a disability support pensioner's payment is assessed under Rate Calculator D.

 

Act reference: SSAct Schedule 1A clause 145(2) Saving provision for income test taper rate for disability support pensioners under 21 without dependent children, section 1066A Pension Rate Calculator D

 

When the under 21 DSP transitional arrangements applies

The transitional arrangement applies while a person:

  • is in receipt of DSP,
  • is under 21, and
  • does not have a dependent child or children, and
  • their pension is reduced because of their ordinary income.

 

Once one of these conditions is no longer fulfilled, the transitional arrangement ceases to apply to the person and cannot apply ever again. In these circumstances, their pension is assessed under the relevant pension rate calculator.

 

For disability support pensioners under 21 whose pension would otherwise commence to be assessed using an income test taper rate of 50 cent for each dollar of ordinary income over the allowable income test threshold, a 40 cent taper rate is to be applied.

 

Act reference: SSAct Schedule 1A clause 145(2) Saving provision for income test taper rate for disability support pensioners under 21 without dependent children

_______________________________________________________

Last reviewed: 2 January 2013


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Last Edited: 09/09/2013 2:57:30 PM


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