Australian Parliamentary Library Bills Digests

[Index] [Search] [Download] [Bill] [Help]

PAYMENT PROCESSING LEGISLATION AMENDMENT (SOCIAL SECURITY AND VETERANS' ENTITLEMENTS) BILL 1998

Bills Digest No. 26  1998-99
Payment Processing Legislation Amendment (Social Security and Veterans' Entitlements) Bill 1998

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details

Passage History

Date Introduced: 12 November 1998

House: House of Representatives

Portfolio: Family and Community Services

Commencement: Generally 1 July 1999

Purpose

The Payment Processing Legislation Amendment (Social Security and Veterans' Entitlements) Bill 1998 (the Bill) implements initiatives to pay most social security and veterans' affairs payments fortnightly in arrears.

In addition, it seeks to spread pension and family payments over each fortnightly period to facilitate an even distribution of paydays each period, which will result in an evening out of annual expenditure.

Background

Currently the social security system accommodates three different cycles under which payments are made. These are payday-based payments, period-based payments and lump sum payments.

The existence of three different regimes largely arises from the divergent origins and evolutionary paths of the payments.(1)

Approximately 2.5 million payday-based payments for pensions are made each alternate Thursday and 2.0 million payday-based benefits and supplements (for example family allowance) are made in the alternate week to the week that the pensions are paid. It is argued this results in peaks of demand that lead to administrative inefficiencies.

There has been criticism of the current system in a number of areas:

• three different payment cycles and their attendant rules cause unnecessary complexity for recipients and staff
• transfer from period-based payments to payday-based payments can result in substantial overpayments. A recipient may receive 27 days payment for a 14 day period
• different date of effect provisions result in inconsistent recipient treatment across payment categories
• for couples receiving payments under different cycles, different payment days combined with different date of effect provisions can cause changes in the circumstances of the couple to be applied to each member at different times. In addition, payments can rarely be coordinated, and
• payday-based payments place administrative strain on Centrelink, financial institutions and other businesses.

This Bill presents for the first time, in any legislative forum, an opportunity to examine the rationale and sensibility of the payment regimes.

Main Provisions

Schedule 1 amends the Social Security Act 1991 and commences on 1 July 1999.

To facilitate the payment of most social security payments fortnightly in arrears it is proposed to substitute existing sections for new provisions:

1. new section 57 in relation to the age pension (Item 31)
2. new section 119 in relation to the disability support pension (Item 39)
3. new section 161 in relation to the wife pension (Item 43)
4. new section 212 in relation to the carer payment (Item 53)
5. new section 331 in relation to the bereavement allowance (Item 61)
6. new section 378 in relation to the widow B pension (Item 66)
7. new section 504A in relation to the parenting payment (Item 75)
8. new section 660XGB in relation to the mature age allowance and mature age partner allowance (Item 98)
9. new section 798 in relation to the special needs pension (Item 114)
10. new section 900AZE in relation to the family tax payment (Item 125)
11. new section 969 in relation to the child disability allowance (Item 132)
12. new section 1012 in relation to the double orphan pension (Item 138)
13. new section 1046 in relation to the mobility allowance, ( Item 144) and
14. new section 1061PZI in relation to the pensioner education supplement.(Item 154)

New section 57 in respect of the age pension will provide that the pension:

• is payable in arrears and by instalments relating to such periods (not exceeding 14 days) as the Secretary determines; new subsection 57(1)
• is paid at such times as the Secretary determines; new subsection 57(2)
• is the sum of the daily rates for the days in that period; new subsection 57(3)
• is paid at such times as the Secretary determines in relation to a person who is outside Australia; new subsection 57(4)
• is to be paid at such times as the Secretary determines in the case of a person receiving a veterans' disability pension or the person's partner receiving an age pension and a veterans' disability pension; new subsection 57(5) and
• each period is an instalment period. new subsection 57(6)

New subsection 57(3) will ensure that the new rules concerning the effective date of a determination will be followed.

New subsection (5) will enable the age pension payments to be made at the same time as instalments of veterans' disability pensions. This will permit the current arrangements to continue that allow age and wife pensioners to have their pensions managed by the Department of Veterans' Affairs.

The new provisions in relation to these payments are similar to each other and to new section 57 concerning the age pension and provide that the payments are:

• payable in arrears by instalments relating to such periods (not exceeding 14 days) as the Secretary determines
• paid at such times as the Secretary determines
• the sum of the daily rates for the days in that period
• paid at such times as the Secretary determines in relation to a person who is outside Australia, and
• each period is an instalment period.

These provisions are repealed and substituted with new sections 408GB (Item 70), 559A (Item 86), 646 (Item 91), 716 (Item 105), 771KG (Item 110) and 863 (Item 118) respectively. These new sections generally mirror those referred to above in point 2. The substitution provides consistency in drafting and therefore in interpretation.

Current provisions provide that the fortnightly rate of a pension is the annual rate divided by 26. To determine the daily rate of an instalment the fortnightly rate is divided by 10 based on the number of weekdays in the period rather than the entire week.(2)

The Bill introduces a daily rate.

This has the effect of making redundant all the current provisions that allowed a calculation of an amount of an instalment for a period less than a fortnight.

Chapter 3 of the Social Security Act 1991 contains general provisions relating to payability and rates. There are several rate calculators in Chapter 3. Method statements specify, step by step, the method of calculating the appropriate rate of payment. The Bill proposes amendments that will state that the rate of pension is a daily rate and thus provide for new denominators and divisors.

The daily rate will be worked out by dividing the annual rate by 364.

The provisional payment rate for certain payments(3) will be confirmed to be a fortnightly rate. This will clarify that the method statement is to provide a basis for calculating a recipient's fortnightly rate. The daily rate, in this instance, is calculated by dividing the fortnightly rate by 14.

For examples, refer to new point 1064-A1 and new point 1068-A1.

Schedule 2 amends the Social Security Act 1991 and commences on 1 July 1999.

In essence the Schedule seeks to amend the bereavement provisions so that it introduces consistency of treatment between these provisions and the amendments contained in Schedules 1 and 3.

The main amendments:

• ensure that the bereavement period starts from the date of the person's death. It currently starts on the day after the person has died. Amended subsection 21(2) states that the bereavement period in relation to the person's death is the period of 14 weeks starting on the day on which the person dies, and
• include numerous consequential amendments to ensure that the paydays in the bereavement period are the paydays of the person who has died and where necessary the partner's paydays.

Schedule 3 amends the Social Security Act 1991 and commences on 1 July 1999.

This Schedule changes the date of effect of determination provisions to generally ensure that for the purposes of calculation of entitlements the date of an event or a change in circumstances is the actual date of the event or change in circumstances.

The current position is that date of effect provisions vary from payment to payment. The date of effect provisions will be simplified and amended to provide consistent treatment across all categories of payments.

Pursuant to section 68(1) of the Social Security Act 1991 a person to whom the age pension is being paid is given a notice that requires the person to inform the Department if a specified event or change in circumstances occurs or is likely to occur.

The period within which the person is to give the information is proposed to be 7 days. It is currently 14 days. Accordingly, new subsection 68(4) (inserted by Item 2) proposes to introduce a tighter notification period regime than has previously applied to pension payments.

1.1 Date of Effect of Termination of Pension

If a person informs the Department of an event or change in circumstances within 7 days and because of the change ceases to be qualified for the pension and the pension is not cancelled before the expiration of the 7 days, then depending upon when the change is processed pursuant to new subsection 72(f) inserted by Item 5:

• the pension continues to be payable until the end of the instalment period in which the event or change in circumstances took place, or
• until the end of the notification period.

If a person does not inform the Department of an event or change in circumstances within 7 days and because of the change ceases to be qualified for the pension, the pension ceases to be payable to the person on the day on which the event or change in circumstances occurs. New section 73.

1.2 Date of Effect of Reduction in Pension

If a person informs the Department of an event or change in circumstances within 7 days and because of the change the person's rate of pension is to be reduced and the pension is not reduced before the expiration of the 7 days, then depending upon when the change is processed pursuant to new subsection 73B(f) inserted by Item 8:

• the pension becomes payable at the reduced rate at the end of the instalment period in which the event or change in circumstances took place, or
• at the end of the notification period.

If a person does not inform the Department of an event or change in circumstances within 7 days and because of the change the person's rate of pension is to be reduced, the pension becomes payable to the person at the reduced rate on the day on which the event or change in circumstances occurs. New section 74 (Item 9).

1.3 Date of Effect of Favourable Determination

If a person informs the Department within 7 days of the occurrence of an event or change in circumstances and the determination is favourable; it takes effect on the day on which the change occurred.(4) New subsection 80(5) (Item 10).

If a person does not inform the Department within 7 days of the occurrence of an event or change in circumstances and the determination is favourable, it takes effect on the day on which the advice was received or the day on which the event or change in circumstances occurred, whichever is the later. New subsection 80(5).

1.4 Date of Effect of Adverse Determination

If a person informs the Department within 7 days of the occurrence of an event or change in circumstances and the determination is adverse, it takes effect on the day on which the change occurred. New subsection 81(2)(Item 12).

If adverse determinations are made because of certain specified events, then a determination may take effect on a day earlier than the day of the determination, on the day on which it is made or if a later day is specified in the determination, on that day.

Amendments to other payments, including those specified in Items 2-14 of Schedule 1, along the lines outlined for the age pension in point 1 of this Schedule 2 make up the balance of Schedule 3.(5)

In several sections the Secretary is enabled to extend the notification period to not more than 28 days after the day on which the event or change in circumstances occurs.

This will allow for an extended period to apply in situations where the Secretary is satisfied that there are special circumstances related to the person to whom the notification provisions apply. It will include recipients such as those who are severely disabled, living in a remote locality in Australia, overseas or in situations requiring the notification of death.(6)

Schedule 4 amends the Veterans' Entitlements Act1986 and commences on 1 July 1999, except for amendments to the notice and determination provisions, which will commence on 13 July 1999.

Under the current method of paying instalments of service pension and income support supplement a recipient is either paid a full 14 day instalment or nothing. The payment is dependent upon the rate or pension that the recipient is entitled to on the pension payday.

To enable all income support payments payable under the Veterans' Entitlements Act 1986 to be paid fortnightly in arrears with daily entitlements to bring them into line with payments made under the Social Security Act 1991, it is proposed to make amendments to the arrangements for calculating the instalment of the pension as follows:

• pension is payable in arrears and by instalments relating to each pension period (a pension period is 2 weeks, the start and end days varying depending on whether the payment is for income support supplements); new subsection 58A(1) (Item 55)
• an instalment of pension is payable to the person for the days in the period for which pension was payable; new subsection 58A(2) (Item 55)
• an instalment of pension is payable on the next payday after the end of the pension period; new subsection 58A(3) (Item 55), and
• the rate of pension payable to a person for a day is calculated by dividing the annual rate of pension by 364; new subsection 58A(4) (Item 55)

2. Notice and determination provisions

If a person informs the Department of an event or change in circumstances within 7 days and

• the person's rate of pension or income support supplement is to be reduced then the pension becomes payable at the reduced rate from the day after the end of the notification period; new subsection 56(3) (Item 49)
• the person ceases to be eligible for the pension or income support supplement then the pension or income support supplement is cancelled at the end of the notification period; paragraph 56(1)(e)(i), and
• the person's pension or income support supplement is to be increased then the pension becomes payable at the increased rate from the day on which the event or change in circumstances occurs. New subsection 56G(2)(a) (Item 52)

If a person does not inform the Department of an event or change in circumstances within 7 days and

• the person ceases to be eligible for the pension or income support supplement then the pension or income support supplement is cancelled from the day on which the event or change in circumstances occurs; new section 56A (Item 50)
• the person's rate of pension or income support supplement is to be reduced then the pension becomes payable at the reduced rate from the day on which the event or change in circumstances occurs; new section 56B (Item 51), and
• the person's pension or income support supplement is to be increased then the pension becomes payable at the increased rate from the day on which the event or change in circumstances occurs. new subsection 56G(2)(b) (Item 52)

The Secretary may extend the notification period to not more than 28 days after the day on which the event or change in circumstances occurs.

This will allow for an extended period to apply in situations where the Secretary is satisfied that there are special circumstances related to the person to whom the notification provisions apply. New subsection 54(5A) (Item 45). The Secretary may also extend the notification period for notification of death for a pensioner whose partner dies or a pensioner whose dependent child dies. New subsection 54 (5AA).

Schedule 5 amends the Child Care Payments Act 1997 and the Income Tax Assessment Act 1997 and commences on 1 July 1999.

Section 5 of the Child Care Payments Act 1997 provides various definitions used in that Act.

The definition of payday currently states that the payment of child care payments is made on the family allowance payday under the Social Security Act 1991.

The Bill repeals and substitutes this definition to provide that payments made under the Child Care Payments Act 1997 will continue to be made on the family allowance payday as if that definition had not been amended.

The actual payment of child care payments is not dependent upon whether a person is or is not receiving family allowance under the Social Security Act 1991.

The Income Tax Assessment Act provides for the calculation of certain amounts paid to a person during the bereavement period under the Social Security Act 1991 because of the death of a person's partner to be exempt from tax.

The amendments ensure that the calculation will reflect the changes made to the Social Security Act 1991 in Schedules 1 and 2.

The example in subsection 52-25(3) of the Income Tax Assessment Act 1997 is repealed and replaced by the example found in Item 5 of Schedule 5.

Schedule 6 amends the Social Security Act 1991 and commences on the day that Royal Assent is given.

It is proposed that the transitional provisions in Schedule 6 will provide for the payment of social security benefits for the period commencing at the end of payday-based payments and ending at the beginning of the regular payment of instalments under the period-based payments system.

In order to transfer recipients from a payday-based cycle to period-based payments a one-off transitional payment will be made. Item 1

If recipients elect to change their payday they will receive on their first new payday after 1 July 1999 a one-off payment for the number of days between their last payday-based payment and their new payday.(7) Item 2

If a person becomes entitled to a social security payment during the transitional period, the person will be paid for the number of days they qualify during the transitional period. Item 2

If a person becomes entitled to a social security payment before the transitional period but the determination to grant the claim is made during or after the transitional period, the person will be paid for each payday they were qualified before the transitional period and they will also be paid for the number of days they qualify during the transitional period. Item 2

The amendments of the Social Security Act 1991 made by Schedule 3 do not apply in relation to a person until the beginning of the person's first new instalment period.(8)

Until the beginning of a person's first new instalment period, the Social Security Act 1991 continues to apply as if Schedule 3 had not been enacted. Item 3

Item 4 will allow transitional regulations to be made arising out of amendments made by Schedule 1, 2 or 3.

The regulations can be used to cater for unforeseen circumstances.

Schedule 7 amends the Veterans' Entitlements Act 1986 and commences on the day that Royal Assent is given.

It is proposed that the transitional period specified in Schedule 7 will be from 1 July 1999 to 15 July 1999. Schedule 7 adds a new Part 3 at the end of Schedule 5 of the Veterans' Entitlements Act 1986 to deal with transitional provisions.

The last payday-based pension under the current rules will be 1 July 1999. A transitional payday-based payment will be made on 15 July 1999 based upon the rate of pension payable under the old rules on 12 July 1999. New section 19.

The first pension period under the amended Act must not commence before 13 July 1999. Therefore the first pension period will be from 13 to 27 July 1999 and the first period-based pension payment will be made on the payday of 29 July 1999. New section 21.

In spite of the commencement of Schedule 4 of this Bill, the Veterans' Entitlements Act 1986 as in force immediately before 1 July 1999, continues to apply in relation to the cancellation and suspension of pensions, and the variation of the rates of such pensions, until and including 12 July 1999. New section 20.

If at any time before 13 July 1999 a notice has been issued under section 54 and the notice has not been revoked, the notice continues to have effect on and after 13 July 1999 as if it had been given under the amended provisions with the amended notification period. New section 22.

If an event or change in circumstances occurs before 13 July 1999 which must be notified to the Department and the person notifies the Department before 13 July 1999, then the current date of effect rules apply and the payment made will be payday-based, varied on the next payday up to 15 July 1999.

If an event or change in circumstances occurs before 13 July 1999 which must be notified to the Department and the person either fails to notify or notifies the Department after 13 July 1999, then the new date of effect rules apply. If the date of effect is before 13 July 1999 the payment made will be payday-based, varied on the next payday up to 15 July 1999. If the date of effect is after 13 July 1999 the payment made will be the new period-based payment calculated on the basis of daily entitlement. The variation, cancellation or suspension will take effect from the actual date of effect.

If an event or change in circumstances occurs after 13 July 1999 the new date of effect rules and period-based payments apply.

4. Transitional Regulations

New section 24 will allow transitional regulations to be made arising out of amendments made by Schedule 4.

The regulations can be used to cater for unforeseen circumstances.

Concluding Comments

The financial impact and projected administrative efficiencies associated with this Bill rely heavily on the spreading of payments over each fortnightly period.

The Explanatory Memorandum states that a fundamental principle in changing recipients' paydays is that there will be no compulsion for change. It is stated that over time, the availability of choice to recipients will be sufficient to spread the payments.

The financial and administrative necessity for payments to be spread is indicative of the following position; existing recipients will not be forced to change paydays but new recipients will most likely be allocated a payday to coincide with the expiration of a 14 day period from the date of entitlement, unless the recipient specifies a position to the contrary. This will ensure a spread of paydays within the fortnightly period.

The exact nature and extent of choice available to a recipient is not reflected in the legislation. Instalments of payments are to be paid at such times as the Secretary determines and therefore as with many of these concepts the degree of flexibility will be dependent upon the administrative guidelines issued within the Department.

One of the stated aims of the amendments is to remove the undue level of complexity for recipients and staff and to avoid the position where the interaction of the different payment cycles can cause anomalies, inefficiencies and inequities.

Transfer of payments to period-based instalments with daily rate calculation does appear to be a sensible approach to solving the administrative difficulties associated with payday-based payments and avoiding inconsistency resulting from differing payment cycles.

It would seem, however, that it would be appropriate to also consider a rationalisation of payment categories to complement the simplification of payment processing initiated by this Bill.

3.1 Social Security Act 1991 -Payment fortnightly in arrears

Normally there are 26 paydays per annum, however, if a payday falls on 1 July there will be 27 paydays in that financial year. This would have occurred in 1999-2000.

The current measures have the effect of spreading payments over each fortnight and it is envisaged that this will result in an average of 26.2 paydays every year and a consequent uniformity of annual expenditure.

	Net Outlays $
1997-98	0.194m
1998-99	19.703m
1999-2000	(-100.770m)
2000-01	(-18.873m)

3.2 Social Security Act 1991 - Date of effect rules

	Net Outlays $
1997-98	0.164m
1998-99	5.483m
1999-2000	(-23.900m)
2000-01	(-26.754m)

3.3 Amendments to the Veterans' Entitlements Act 1986

Similar changes have been made to the Veterans' Entitlements Act 1986. Income support payments will be paid fortnightly in arrears with daily entitlements.

There is negligible effect on net outlays for payments fortnightly in arrears. It is considered that the smaller number of payments and the comparative stability of payments contribute to the negligible financial impact.

The date of effect rules will have some impact, although again smaller than those for social security payments.

	Net Outlays $
1997-98	3.190m
1998-99	5.694m
1999-2000	(-1.284m)
2000-01	(-1.638m)

Schedule 7 defines the amending Act as the Social Security and Veterans' Affairs Legislation Amendment (Payment Processing) Act 1998.

The Bill states that this Act may be cited as the Payment Processing Legislation Amendment (Social Security and Veterans' Entitlements) Act 1998.

Endnotes

1. The invalid and old age pensions were introduced by the Invalid and Old-age Pensions Act 1908 and were substantially modelled on the preceding New South Wales old age pensions scheme of 1900, which in turn was equally modelled on the New Zealand pension scheme of 1897. The pension regime of fortnightly paydays had its origins in the 1908 Act and has been in place since.

The origins of the family allowance income supplement payments lie with child endowment introduced in 1941. Payments were initially made on a monthly basis but this changed to payment by fortnightly instalment from December 1988.

The regime of making payment in respect of a period in arrears in relation to income support payments has its origins in the unemployment and sickness benefits originally introduced in 1944. It seemed more sensible to pay in arrears rather than for a period in the future during which a person's entitlement to payment may change.

2. For example see section 408GC, 'Instalment for period less than a week' in relation to widow allowance.
3. Youth allowance, widow allowance, newstart allowance, sickness allowance, partner allowance and mature age allowance.
4. This represents a potential beneficial change for recipients who report changes within 7 days of the event. They will get the benefit of any rate of increase from the date of the event. This, in part, is more generous than the existing rules, in which the rate increase does not occur until the next pension payday after the date of event, which can be anything from one to thirteen days later.
5. The following section references provide a guide to locating date of effect of determination amendments specified in Schedule 3 of the Bill: section 137 disability support pension, section 176 wife pension, section 226 carer payment, section 345 bereavement allowance, section 393 widow B pension, section 408LB widow allowance, section 508C parenting allowance, section 563B youth allowance, section 660B newstart allowance, section 728GA sickness allowance, section 762 special benefit, section 771NHA partner allowance, section 812 special needs pension, section 875 family allowance, section 900AZP family tax payment, section 982 child disability allowance, section 1027 double orphan pension and section 1061PZT pensioner education supplement.
6. The following section references provide a guide to locating date of effect of determination amendments specified in Schedule 3 of the Bill: section 137 disability support pension, section 176 wife pension, section 226 carer payment, section 345 bereavement allowance, section 393 widow B pension, section 408LB widow allowance, section 508C parenting allowance, section 563B youth allowance, section 660B newstart allowance, section 728GA sickness allowance, section 762 special benefit, section 771NHA partner allowance, section 812 special needs pension, section 875 family allowance, section 900AZP family tax payment, section 982 child disability allowance, section 1027 double orphan pension and section 1061PZT pensioner education supplement.
7. An example from the Explanatory Memorandum to the Bill: Andrew receives a disability support pension. He decides that he would prefer to be paid on a Tuesday in the week in which his "normal" Thursday payday would occur. Because his "new" payday has been moved two days closer to his last "normal" payday (ie the pension payday of 24 June 1999), Andrew will receive a "transitional" instalment of his disability support pension on his first "new" payday after 1 July 1999 which is 12/14ths of the instalment he would otherwise have received if he had continued to be paid on his "normal" payday.
8. In Schedule 6, 'first new instalment period', in relation to a person, means the first instalment period after the end of a transitional instalment period that ends on or after 30 June 1999 and relates to a social security payment being received by the person. Item 3(1).

Contact Officer and Copyright Details

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1998

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1998.

[Index] [Search] [Download] [Help]