1. Social Security Chapter 14 PowerPoint presentation by Lindsay Cowling
Holmesglen Institute
©2011 John Wiley & Sons Australia, Ltd

2. Introduction
The purpose of social security is to care for those in need
Over time benefits had been expanded but are now being rationalised
Social security accounts 33% of Govt. budgeted revenue
Social security benefits include
unemployment benefits
aged pension
disability benefits

3. The Purpose of Social Security
Social security provides support for a basic level of living standards
Before 1900 voluntary charitable organisations accepted care of destitute
Legislation enacted in early 1900s to create an age pension
New social security initiatives introduced in 1945 to meet different social needs
Over the past 10 years there has been a rationalisation of specific benefits in favour of more generally applicable benefits

4. Rationale Underlying the Provision of Social Security
Reasons for providing social security
benefits include:
Altruism
Humanitarian
Utilitarian
Economic
Reduction in crime

5. Centrelink First established in 1997.
Centrelink is responsible for integrated service delivery to Australian public.
Virtually the sole provider of social security programs.
Part of a broader shift to use of market-like mechanisms in the running of public programs.

6. Centerlink continued Table 13.1
Social Security payment ($ billion), to
Type of assistance to:
1998–99 Budget
2009–10 Budget
2010–11 Estimates
2011–12 Estimates
The aged
15.6
40.7
44.0
46.9
Veterans and dependants
4.6
6.9
6.8
People with disabilities
6.7
18.0
20.3
21.4
Families with children
14.8
30.1
30.4
31.4
Unemployed and sick
5.9
7.0
7.2
Other programs and administration
6.3
6.1
Overall total
53.5
109.7
114.9
119.8
Source: Data derived from Treasury 1998, 2010

7. The Range of Social Security Benefits
For aged people
For people raising children
For people who are ill, injured or disabled
For people who are unemployed
For people caring for others
For students
Concession cards

8. The Rate of Payment for the Majority of Government Pensions
Maximum pension entitlements (effective from 1 July 2010)
Source: Centrelink 2010.
Status
Maximum payment per fortnight
Single
Couple (each)
$ $56.90 maximum pension supplement
$ $42.90 maximum pension supplement

9. The Rate of Payment for the Majority of Government Allowances
Includes Newstart allowance, sickness allowance and widow allowance (effective from 1 July 2010)
Source: Centrelink 2010.
Status
Maximum payment per fortnight
Single, no children
$462.80
Single, with children
$500.70
Single, aged 60 and over, after 9 months on allowance
$ (includes pharmaceutical allowance)
Couple (each)
$417.70

10. Pension and Allowance Benefit Eligibility Rules
Means testing of a persons assts and their income – eligibility is based on the test that produces the lowest payment
Residence requirements – to qualify a person must be a permanent resident
An Australian resident living outside Australia, but within a country with which Australia has an Agreement may still be eligible – see:

11. Assistance Provided to Retirees
Age pension available to those who satisfy criteria
Paid fortnightly and reviewed in March and September each year to keep in line with eth greater of CPI or MTAWE
Now indexed against MTAWE at 27.7% for singles and 41.76% for couples

12. Age Test Eligibility Eligibility Age Requirements
Men born before 1 July 1952 are eligible at age 65.
Women born before 31 December 1945 have reached pension age.  For women born between 1 January 1946 and 30 June 1952, see table below.
Date Pension Age Applies to Women Born:
1 July 2009: 64 years - from 1 January 1946 to 30 June 1947
1 July 2011: 64.5 years -from 1 July 1947 to 31 December 1948
1 July 2013: 65 years - from 1 January 1949 to 30 June 1952

13. Age Test Eligibility continued
For both men and women born on or after 1 July 1952 the pension age is progressively increasing from 65 to 67, starting on 1 July 2017, and will reach 67 in see table below.
Date Pension age Applies to people born
1 July years - from 1 July 1952 to 31 December 1953
1 July years - from 1 January 1954 to 30 June 1955
1 July years – from 1 July 1955 to 31 December 1956
1 July years - from 1 January 1957

14. Means Testing A means testing system is used to determine
eligibility and the rate of payment
Entitlements are based on the test that produces the lowest payment
Assets test for pensions
Assessable assets must be within set limits.
Income test for pensions
Actual income received
Deemed income from ‘financial assets’
Rates of payment
Set fortnightly rates for singles and couples.

15. Asset Test Limits for Allowances and Full Pensions (effective April 2011)

16. Asset Test Limits for Allowances and Part Pensions (effective April 2011)

17. Assessable Assets include:
Bank deposits
Shares, managed funds
Loans, bonds, debentures
Loans to family
Household contents and vehicles
Superannuation assets (after reaching age pension age.)

18. Assets Test – Exemptions include:
Family home – and up to 2 hectares of land on a single title. Rural applicants may have a greater exemption based on “effective use of land” test
Gifts up to $10,000 in a financial year and up to $30,000 over a five year period (excess amount counted as asset for 5 years)
Prepaid funerals up to $10,750

19. Assets Value of Income Streams under the Assets Test
The Asset Test value of income streams depends on:
Commutable income streams (assets tested)
Non-commutable (asset test exempt)
Generally, income stream investments which ensure a steady drawdown of income and capital of person’s lifetime, allowing no access to capital, gain the benefit of an asset test exemption.

20. Income Test
The Income Test imposes a limit on the allowable income for full or part benefits.
Income Test differs between pensions
and allowances.
Reduction factor applies when income level exceeds a threshold.

21. Income Test (effective April 2011)

22. Income Test continued Extra allowable income for each child $24.60
Pensions payable are reduced by 50 or 25 cents per fortnight for every dollar of income in excess of the full pension limit for a single or couple respectively
Assessable income includes the usual concepts of income plus deemed income…

23. Income Exempt under the Income Test
Lump sums received from a home equity conversion loan
Capital gain from sale of assets
Rent subsidies and other government assistance
Emergency relief payments
Medical benefits

24. Deeming Rules
Income from financial assets (eg. bank deposits, shares, managed funds) is assessed by a deemed rate of return and not by the actual return
Example: March 2011 for a single person / couple the first $43,200 / $72,000 is assessed at 3.5% pa; the amount above the limit is assessed at 4.5% pa.

25. Excluded Income Life insurance policies Rental properties
Long term income stream products
Superannuation balances for those aged under pension age

26. Gifting Rules Allow an applicant to give away
A maximum of $10,000 annually and
A maximum of $30,000 over a 5 financial year rolling period

27. The Assessment of Income Streams
Retirement income-stream products, covering both pensions and annuities, fall under one of the following three categories for purposes of the assets and income tests:
1. Asset-test-exempt income streams — income streams commutable (ability to withdraw a lump sum) only in limited circumstances and have a nil residual value
2. Asset-tested income streams — long-term (more than 5-year) income streams which are assessable on the account balance (such as account-based pensions)
3. Asset-tested income streams — short-term (less than 5-year) income streams which are assessable on the account balance (such as short-term annuities)

28. The Assessment of Income Streams continued
For asset-test purposes, income-stream products are generally assessed based on the account balance however, some income streams are exempt under the assets test
Those that may be exempt include lifetime or life expectancy pensions and annuities and term-allocated pensions acquired as follows:
100% exempt if purchased before 20 September 2004
50% exempt if purchased on or after 20 September 2004 and up to 19 September 2007
(Most income-stream products acquired from 20 September 2007 are fully assessable)

29. The Assessment of Income Streams continued
For pensions and annuities for which there is no account balance, such as a lifetime pension or annuity, the value of the asset is calculated under the original purchase price depletion method
This calculates the value of the asset based on the original purchase price reduced periodically for income payments made by the product provider

30. Work Bonus
From 20 Sept 2009, those eligible to receive an age pension may be entitled to disregard some of their employment income under the income test
The bonus allows those eligible to receive an age pension to disregard half of the first $500 of fortnightly employment income from the income test; that is, a maximum amount of $250 can be disregarded.
The work bonus replaced the pension bonus scheme which was closed to new entrants from 20 Sept Those registered with the pension bonus scheme prior to 20 Sept 2009 continue to receive this bonus payment

31. Pension Bonus Scheme
Offered tax-free lump sum for deferring pension or continuing working
Features:
Voluntary
Must register at appropriate time
Could not register after receiving pension
Amount of bonus depended on whether single or couple, years worked, pension entitlement.

32. Means Testing of Allowances
Allowance recipients use the same assets test thresholds as for pensions, however, unlike pension payments, no allowance is paid where the level of assets exceeds the lower threshold
The income test for the payment of allowances is slightly more complicated
Fortnightly income in excess of $62 and up to $250 reduces the payable benefit by 50 cents per dollar, and income above $250 reduces the benefit by 60 cents in the dollar

33. Threshold Rates for Allowances
Threshold and upper-limit rates for a number of allowances including the Newstart, Widow, Partner and Sickness allowances

34. Assistance Provided to Families Raising Children
Centrelink provides assistance to families through a range of benefits
Chief benefits are family tax benefit part A, family tax benefit part B, baby bonus, maternity immunisation allowance, child care rebate and parenting payment
Administered through the Family Assistance Office

35. Adjusted Taxable Income
For the purposes of satisfying an income test for eligibility to a number of family benefits, including family tax benefits, child care benefit and baby bonus, an income test based on adjusted taxable income (ATI) is used
An individual’s ATI is made up of:
taxable income
the value of any adjusted fringe benefits (total reportable fringe benefit amounts multiplied by 0.535)
target foreign income
total net investment losses
tax free pension or benefit and
reportable superannuation contributions

36. Assistance for Families Raising Children
Family tax benefit A
Assistance to low and middle income families.
Family tax benefit B
Assistance to single income families.\
Baby bonus
Assists parents with the costs associated with the birth (including the stillbirth) or adoption of a child
Child care benefit
Paid to parents who use approved child care.

37. Disability Support Pension
Provides a level of income for people who have a physical, intellectual or psychiatric impairment assessed under impairment tables
To qualify for a disability support pension, a person must:
be over 16 but less than age-pension age
be unable to work for 15 hours or more per week for the next 2 years as a result of the impairment
meet the requirements for Australian residency and the income and assets tests for pensions
be unable to undertake a training activity due to the impairment which would equip the person for work within the next 2 years, or
be permanently blind

38. Sickness Allowance
The sickness allowance is paid to eligible claimants over 21 years but under age-pension age who are temporarily incapacitated for work or full-time study
They must have a job or student place to which they can return when well
Illness must be verified by medical certificate
Applicants must be Australian residents and have been in Australia for at least 2 years
The allowance is paid at Newstart allowance rates and is means tested as an allowance

39. Carer Payment
Payable to eligible carers who provide daily care for either an adult or child who is being nursed at home
Paid at the same rate as the age pension
The cared-for person must be:
assessed as having a high level of physical, intellectual or psychiatric disability
receiving income support payments from Centrelink
an Australian resident
The carer must:
be an Australian resident or have equivalent permanent-resident status
qualify under the income and assets tests for pensions

40. Austudy
Provides income support to students aged 25 years or over undertaking qualifying study or a full-time Australian apprenticeship
Courses approved for Austudy payment include secondary education, undergraduate courses, graduate courses (excluding most Masters and all Doctorates), TAFE courses and Associate Diplomas
Full-time students under the age of 25 may be eligible for the youth allowance
Subject to assets and income means test

41. Youth Allowance
The youth allowance is payable to full-time students and Australian apprentices aged between 16 and 24 and job seekers under 21 years, either looking for work or combining part-time study with job search, or undertaking other approved activity or temporarily incapacitated for work or study
Those aged 25 and over may also qualify if they were receiving the youth allowance immediately before turning 21
Subject to an income and assets test

42. Taxation of Pensions and Allowances
Complex area with some being taxable and others non-taxable.
Refer to Table 13.17
Generally, benefits are taxable if provide
Substitution of employment income.
Financial assistance for special reasons.
Rebates are non-taxable.

43. Pensioner Tax Offset
Enables pension recipients to earn a little income in addition to their pension without paying any tax
Eligibility for the pensioner tax offset applies to those pensioners in receipt of any taxable
Subject to an income test based on ‘rebate income’

44. Senior Australians Tax Offset
Payable to persons of age-pension age who are self-funded retirees
The offset provides a tax concession for those retirees on a low income who satisfy eligibility for an Australian government pension but who do not qualify because of the application of the means test

45. Publicly Provided Residential Aged Care
When an elderly person is in need of care and aged –care assessment team (ACAT) decides on whether the person requires low level (hostel) care or high level (nursing) care.
Decision based on the person’s ability to cope with daily living, clinical needs, physical hygiene, communication and emotional support structures.

46. Hostel Accommodation Costs- Residents pay:
An accommodation bond based on assets
Daily fees
Income tested fee
Social Security implications-
Home exempt for Asset Test for 2 years.
If home is rented, rent counted under Income Test
Accommodation bond not counted for Income Test but counted for Asset Test

47. Residence in Nursing Homes
Costs-
No accommodation bond required.
Accommodation charge – depends on assets.
Charge is capped and paid for maximum of 5 years.
Social Security implications-
Home exempt for Asset Test for 2 years.
If home is rented, rent counted under Income Test

48. Summary A wide range of benefits are provided to meet community needs.
Measures have been taken to ensure only those in need are assisted.
Social security is an ever-changing area with many rules and eligibility criteria.