Veterans’ Entitlements (Value of Asset-tested Income Streams (Lifetime)) Determination 2019

The Determination revolves around a small set of defined terms, each critical to the valuation.

Asset‑tested income stream (lifetime) is a term defined in section 5J(1) of the Act. It means an income stream that meets the requirements for asset‑testing under the Act, is payable for the life of the person (or for the joint lives of two persons), and is not a “deductible amount” income stream. The Determination takes this definition as given.

Assessment day is defined in subsections 52BAB(6) and (7) of the Act. It is the day on which the Commission values the income stream - typically the day the person applies for a pension or the day of a periodic review. The Determination uses this day as the starting point for calculating the life expectancy period and the comparison values.

Surrender value and death benefit are both defined by reference to “the maximum commutation amount that would be payable for the income stream, as determined by the contract or governing rules for the provision of the income stream”. The surrender value assumes the person does not die on that day (so it reflects a voluntary commutation); the death benefit assumes the person dies on that day (so it reflects the amount payable to a beneficiary). Both are essentially the amount the provider would pay if the income stream were terminated, subject to the rules of the product.

Access amount is the sum of (a) the maximum commutation amount that would have been payable if the income stream had been commuted on the assessment day, and (b) any instalments paid after the assessment day and before the access day. This effectively locks in the value at the assessment day and adds any subsequent payments. This prevents double‑counting: if part of the capital has already been paid out as income instalments, those amounts are not also counted as assets.

Surrender comparison value and death benefit comparison value are the thresholds set by formulas in subsections 5(4) and 6(4). For the first 14 days after the assessment day (surrender method) or the first half of the life expectancy period (death benefit method), the comparison value is simply the access amount. After that, it reduces according to a formula:

access amount - (previously commuted amount × (remaining life expectancy / total life expectancy period))

This formula reflects the idea that as the income stream runs, the capital that has already been paid out (through commutations) should be excluded from the asset test. The remaining life expectancy is expressed in days.

Life expectancy period ties the valuation to official actuarial tables: the Australian Life Tables 2010‑2012 (for assessment days before 1 January 2020) and the Australian Life Tables 2015‑17 (for assessment days on or after 1 January 2020), as amended by the 2020 Amendment Determination. The period is calculated by taking the life expectancy in days at the assessment day (for the person, or for the eldest in a joint income stream), rounding down to a whole number of years, then converting to days (365 days per year). This simplification avoids fractional years but may introduce slight discrepancies.

First half of the life expectancy period is simply half of that number of days, rounded down. During this initial period, the death benefit comparison value remains at the access amount, meaning any death benefit up to that amount is ignored. After the first half, the comparison value starts declining.

These concepts together create a dual‑threshold structure: one for surrender (short‑term) and one for death benefit (longer‑term). The result is that income streams with low commutation values early on are not penalised, but later they become assessable.

The Determination directly affects veterans and their dependants who hold an asset‑tested income stream (lifetime) and who are applying for or receiving a service pension, income support supplement, or other veterans’ entitlement that is subject to an assets test. This includes:

• Veterans of the Australian Defence Force who meet the qualifying service or operational service criteria under the Act.
• Dependants of veterans, including widows, widowers, and orphans, who may receive a pension in their own right.
• Partners of veterans, where the income stream is held jointly (a “joint income stream” under s 5J(1) of the Act). In that case, the value of the income stream is apportioned between the two persons according to the proportion attributable to each (s 5(2) step 3(b), s 6(2) step 3(b)). This affects both members of a couple, not just the veteran.

Indirectly, the Determination affects:

• Providers of lifetime income streams (life insurance companies, superannuation funds, retirement savings account providers, etc.). They need to design income stream products that comply with the Act’s definition of “asset‑tested income stream (lifetime)” and provide the Commission or the person with the necessary commutation amounts and death benefit figures. The choice of product features (e.g., whether commutation is allowed, what the death benefit is) will directly affect the asset value calculated under this Determination.
• Financial advisers who recommend lifetime annuities or other lifetime income streams to veterans. Advisers must understand how the value will be assessed under the Determination to correctly advise clients on the impact on their pension entitlements.
• The Repatriation Commission and the Department of Veterans’ Affairs (DVA), which administer the means test. The Commission must apply the appropriate method (either surrender value or death benefit) to each income stream, based on the type of product and any election made by the person or the provider. The Determination gives the Commission a standardised tool, reducing the need for individual actuarial assessments.
• The Australian Government Actuary, whose Life Tables are incorporated by reference (s 4 definition of Life Tables). Any future updates to those tables will automatically affect the valuation under this Determination, without needing to amend the Determination itself (unless the tables are changed by the Actuary).

The effect on pensioners is direct: a higher asset value reduces the pension rate or may disqualify the person from receiving a pension altogether. A nil value (when surrender value or death benefit is below the comparison value) means the income stream is not counted as an asset, preserving the pension. Therefore, the Determination creates a strong incentive for pensioners to choose income streams with low or nil surrender/death benefits, and for product providers to design such products if they want to attract veterans.

The Determination itself imposes no direct duties or rights on persons; it is purely a valuation methodology. However, it operates within a statutory framework that creates duties and rights for pension applicants and the Commission.

Duty to provide information: Under the Act, a person applying for or receiving a pension must provide information about their assets, including the details of any lifetime income stream. The Commission may require the person to produce a statement from the income stream provider showing the surrender value, death benefit, and commutation amounts on relevant days. Failure to provide that information can lead to a cancellation or suspension of pension.

Right to have the value determined in accordance with law: The person has a right to have the asset value calculated correctly according to the Determination. If the Commission applies the wrong method or makes a calculation error, the person can request a review under the Act’s internal review mechanisms (e.g., application to the Veterans’ Review Board or the Administrative Appeals Tribunal). The Determination is a legislative instrument, so a tribunal can interpret and apply it independently.

Right to know which method applies: The Determination does not specify which method (surrender value or death benefit) the Commission must use for a particular income stream. The Act at subsection 52BAB(2) says the Commission must determine the value “in accordance with the determination”. This implies the Commission must apply both methods, but the instrument is silent on whether the higher or lower value is taken, or whether the Commission may choose. In practice, the Commission has issued policy guidelines (not in this instrument) that specify which method applies for which type of income stream (e.g., market‑linked annuities use death benefit method, while account‑based products use surrender value). But the Determination does not codify that choice, creating ambiguity.

Right of commutation: The Determination treats commutation as a capital event. If a person commutes part of the income stream, the previously commuted amount is subtracted from the comparison value, which reduces the asset value. This gives an incentive to commute only after the assessment day, because commutations before the assessment day are captured in the access amount. The right to commute is governed by the contract or governing rules of the income stream, not by this instrument.

No duty to report changes in value between reviews: The Determination values the income stream on the assessment day, and that value stands until the next assessment day (typically the next periodic review). Changes in market values or life expectancy are not reflected unless a new assessment day occurs. This creates a static valuation that may become out of date, but the person does not have a duty to voluntarily report changes in the surrender value or death benefit between reviews.

The Determination itself does not contain any penalty provisions. It is a methodological instrument that only sets out how to calculate a figure. However, incorrect application of the Determination can lead to penalties under the Act.

Overpayment penalties: If the Commission relies on an incorrect asset value provided by the person (e.g., the person understates the surrender value), and as a result the person receives a higher pension than entitled, the overpayment is a debt due to the Commonwealth. The Act provides for recovery of debts and may impose penalty interest or administrative penalties under the Social Security Act 1991 (which is incorporated by reference for some provisions). There is no criminal penalty in the Determination itself, but the Act at Part VIIIC contains offences for making false statements to obtain a pension (criminal penalties of imprisonment up to 12 months).

Civil penalties: The Act does not provide for civil penalties specifically for asset valuation errors. But the general law on false or misleading statements to a Commonwealth entity could apply under the Criminal Code.

Liability of providers: Income stream providers are not directly regulated by this Determination. They have no duty under the Determination to provide accurate commutation amounts; that duty arises from the terms of the contract and from obligations under the Corporations Act 2001 (if the provider is an AFS licensee). If a provider gives incorrect information to the Commission or the pensioner, leading to an incorrect asset value, the provider may face liability for misleading conduct, but not under the Determination itself.

Enforcement by the Commission: The Commission is responsible for applying the Determination correctly. If the Commission makes an error in calculation (e.g., using the wrong life expectancy period), that is an administrative error that can be corrected on review. No penalty attaches to the Commission; the remedy is correction of the pension and potential compensation if the error caused detriment (under the Act’s compensation provisions).

No criminal enforcement for non‑compliance with the Determination: Because the Determination is a legislative instrument, a failure to comply with its methodology by an officer of the Commission is not a criminal offence; it is an administrative mistake. The only enforcement mechanism is the internal and external review system.

Interaction with the Privacy Act: The Determination does not affect privacy obligations. The disclosure of commutation amounts and death benefits between the provider and the Commission is governed by the Act’s information‑sharing provisions and the Privacy Act 1988.

The Determination sits within a complex web of Commonwealth laws dealing with veterans’ entitlements, social security, and superannuation.

Veterans’ Entitlements Act 1986: This is the primary Act. The Determination is made under subsection 52BAB(4). Section 52BAB of the Act itself provides that the value of an asset‑tested income stream (lifetime) is to be determined in accordance with the determination. The Determination thus fills a gap in the Act, which does not prescribe the valuation methodology directly. Other sections of the Act that are relevant include:

• Section 5J (definitions of asset‑tested income stream, asset‑tested income stream (lifetime), etc.). The Determination takes these definitions as given.
• Section 52B (standard valuation of assets) - the general rule that assets are valued at their market value, with exceptions. The Determination overrides the general rule for lifetime income streams.
• Sections 52BAB(6) and (7) - define assessment day, which is used in the Determination.
• Part III (Pensions) - the means test provisions that incorporate the asset value.

Social Security Act 1991: The Social Security Act has its own valuation rules for asset‑tested income streams under section 1122 and the Social Security (Value of Asset‑tested Income Streams) Determination. The Veterans’ Entitlements Act often mirrors the Social Security Act for consistency, but the Determination is specific to veterans. The two regimes are not identical. For example, the life tables used may differ (the Social Security Determination also uses Australian Life Tables but may update at different times). The interaction arises when a person receives both a service pension and a social security payment (e.g., age pension). In such cases, the asset value under the Veterans’ Entitlements Act is used for the service pension, but the social security payment may use its own determination. This can lead to different valuations for the same income stream, creating complexity for the person and for administrators.

Superannuation Industry (Supervision) Act 1993 (SIS Act): Lifetime income streams are often provided through superannuation funds. The SIS Act regulates the offering of such products and imposes standards for commutation, death benefits, and payment rules. The Determination relies on the “maximum commutation amount” as determined by the contract or governing rules - which are themselves constrained by the SIS Act. If the SIS Act limits commutation (e.g., a lifetime annuity cannot be commuted after a certain age), that directly affects the surrender value and death benefit used in the Determination. Providers must ensure their product design is consistent with both SIS Act requirements and the definition of “asset‑tested income stream (lifetime)” under the Veterans’ Entitlements Act.

Income Tax Assessment Act 1997: The Determination does not interact directly with tax law, but the tax treatment of lifetime income streams (e.g., tax‑free component, assessability of payments) can affect the attractiveness of such products. The asset value under the Determination is independent of tax treatment.

Australian Life Tables: The Determination incorporates by reference the Australian Life Tables published by the Australian Government Actuary. This means that when the Actuary issues new tables (e.g., after a census), the Determination automatically uses the updated tables for assessment days on or after the commencement date specified in the amendment. The 2020 Amendment Determination changed the reference from 2010‑2012 tables to 2015‑17 tables effective 1 January 2020. Future updates will similarly be done by amending the definition of “Life Tables” in the Determination.

Legislation Act 2003: The Determination is a legislative instrument that is registered on the Federal Register of Legislation. It is subject to tabling and disallowance by Parliament. Its compilation includes editorial changes authorised by the Legislation Act.

The Determination as compiled to 1 January 2020 has two entries in its legislation history (Endnote 3).

1. Veterans’ Entitlements (Value of Asset‑tested Income Streams (Lifetime)) Determination 2019 - registered 20 June 2019 (F2019L00846), commenced 1 July 2019. This was the original determination.

2. Veterans’ Entitlements (Value of Asset‑tested Income Streams (Lifetime)) Amendment Determination 2020 - registered 28 February 2020 (F2020L00180), commenced 1 January 2020. This amendment made two changes:

   • It repealed section 2 (the section that would have contained the commencement date or other preliminary matters). The repeal was done under section 48D of the Legislation Act 2003, which allows the repeal of obsolete or spent provisions. Section 2 of the original instrument presumably provided for the commencement on 1 July 2019; after that date it was spent.
   • It amended section 4 (Definitions) by replacing the definition of Life Tables. Originally, the definition referred to the Australian Life Tables 2010‑2012 for all assessment days. The amendment inserted a split: for assessment days before 1 January 2020, the 2010‑2012 tables; for assessment days on or after 1 January 2020, the 2015‑17 tables. This change aligns the determination with the release of new actuarial tables.

No other provisions were amended. The amendment history table in Endnote 4 shows only these two changes.

The compilation does not include any uncommenced amendments, as of the compilation date. The endnotes note that uncommenced amendments affecting the law are accessible on the Legislation Register. As of January 2020, there are none.

The amendment illustrates that the determination is updated only when life tables change or when minor textual corrections are needed. The amendments are triggered by the Actuary’s publication, not by policy changes. This suggests that the substantive methodology (the formulas and threshold structures) is considered stable, and only the input data (life expectancy) is updated periodically. Practitioners should monitor the Federal Register of Legislation for future amendment determinations that update the life tables or perhaps alter the formula.

No application, saving or transitional provisions are included in the amendment. The change to life tables applies to assessment days on or after 1 January 2020. For assessment days before that date, the old tables remain relevant. This is a clean forward‑looking change.

The Determination itself is relatively new (original 1 July 2019, amended 1 January 2020). As at the compilation date, there is no litigation history recorded in the endnotes or generally known. The instrument is a legislative instrument that has been in force for less than a year. Any disputes about the valuation would be handled through internal review (Veterans’ Review Board) and then the Administrative Appeals Tribunal (AAT), rather than federal court litigation. It is unlikely that any court has yet considered the interpretation of this specific determination.

However, disputes about the predecessor provisions under the Act (before the 2019 determination) may exist. The Act previously had different rules for valuing asset‑tested income streams. For example, prior to 2019, the value was often the gross purchase price less any commutations, or a formula based on residual capital. The 2019 determination replaced those rules. Any case law that interprets the concept of “asset‑tested income stream (lifetime)” or “surrender value” under the Act could be relevant. But the Determination is a self‑contained code for the valuation, so earlier cases on the old rules are likely of limited relevance.

Potential areas of litigation could include:

• Whether a particular product qualifies as an “asset‑tested income stream (lifetime)” under s 5J of the Act, which would trigger the application of the Determination.
• Which method (surrender or death benefit) the Commission must apply. The Determination does not specify; if the Commission applies one method for a particular product and a pensioner argues the other method produces a lower value, that could be litigated.
• The interpretation of “maximum commutation amount” as determined by the contract or governing rules. If the contract allows discretionary commutation, is the maximum the amount the provider would pay in its absolute discretion or the amount under a standard formula? This could lead to disputes.
• The calculation of the access amount, particularly what “instalments paid for the income stream after the assessment day and before the access day” means - does it include regular income payments that are not technically “instalments” of the capital? The instrument does not define “instalments”, so there may be ambiguity.

As of the compilation date, no such disputes have reached reported decisions. This is a low‑litigation area because pension amounts are small and legal costs are a barrier. However, practitioners should be aware that the AAT may develop a body of decisions that interpret this determination in the future.

• Ambiguity on which method applies: The Determination sets out two separate methods, but does not say when to use each. The Act at s 52BAB(2) says “the value ... is to be determined in accordance with the determination”, which could mean either method is acceptable. In practice, the Department of Veterans’ Affairs has a policy that for lifetime income streams that are “asset‑tested income streams (lifetime)” the death benefit method is used, while for other lifetime income streams that are not “asset‑tested” (if any) the surrender method is used. But the Determination does not codify that. If a pensioner’s product has a low death benefit but a potentially higher surrender value, the Commission may choose the method that yields a higher asset value. There is no explicit protection for the pensioner to use the lower method. Litigation risk exists.

• Definition of “access amount” uses “maximum amount that would have been payable ... if commuted on the assessment day” - but many lifetime income streams do not permit commutation at all. For products with zero commutation, the access amount will be zero. Then the comparison value becomes zero, and any positive surrender value or death benefit will exceed it, resulting in the full amount being counted as an asset. This could penalise products that are genuinely illiquid. The Determination does not provide a fallback for products that cannot be commuted; it still uses the “maximum commutation amount” (which is effectively zero). That leads to a harsh result: a product that cannot be cashed in at all is treated as fully assessable. Compare this to the Social Security rules, where some products with no commutation are valued differently.

• Life expectancy period depends on the eldest person for joint income streams. For a couple with a large age gap, the life expectancy of the eldest is used. This shortens the life expectancy period relative to the younger person’s life expectancy. That means the comparison value declines faster, potentially making the asset value higher earlier. For example, if a 90‑year‑old veteran has a joint income stream with a 60‑year‑old spouse, the life expectancy period is based on the veteran’s remaining years (short). The death benefit method will use a short first‑half period, so after a few years the comparison value drops sharply. The result may be that the income stream is valued higher than if the younger person’s life expectancy were used.

• Rounding in life expectancy period: The formula rounds the life expectancy in days down to the nearest whole number of years, then multiplies by 365. This truncation slightly reduces the life expectancy, shortening the period over which the comparison value declines. Over decades, this could make a small difference.

• Previously commuted amount subtracts from the comparison value, but not from the surrender value or death benefit itself. The formula for comparison value reduces it by a proportion of previously commuted amounts. However, the surrender value and death benefit are determined by the contract separately. So if a person commutes a large amount, the comparison value shrinks, making it more likely that the surrender value or death benefit will exceed it. This creates an incentive not to commute, because if you do commute, the remaining asset value becomes larger. That is counter‑intuitive: commuting part of the capital increases the assessed value of what remains. Practitioners need to advise clients accordingly.

• First 14‑day window for surrender comparison value: Under s 5(3)(a), during the 14 days starting on the assessment day, the surrender comparison value is the access amount. After that, it declines. If a person’s assessment day is changed (e.g., because of a late application), the 14‑day window may be missed. The person has no control over the assessment day. This could cause a material difference in asset value.

• No provision for negative comparison values: Both surrender and death benefit methods provide that if the comparison value is negative, it is taken as nil (s 5(3)(b)(ii), s 6(3)(b)(ii)). However, the formulas themselves do not cap at zero; the negative cap is only for the “amount worked out for the day under subsection (4)”. The comparison value for the first 14 days or first half is the access amount, which could be negative if commutation amounts and instalments are netted? Unlikely, but theoretically possible.

• No grandfathering: The Determination applies to all asset‑tested income streams regardless of when they were acquired. There is no transitional provision that protects pre‑existing products. So a lifetime income stream purchased years ago may now have a different valuation method than when purchased. Retirees who made decisions based on the old rules may be unpleasantly surprised.

Compliance with the Determination is primarily the responsibility of the Repatriation Commission and DVA officers who assess a veteran’s assets. For a veteran or their adviser, “complying” means ensuring that the Commission correctly applies the Determination to the particular income stream. Steps include:

1. Confirm that the income stream is an asset‑tested income stream (lifetime) within the meaning of s 5J(1) of the Act. Check the product disclosure statement and governing rules. If it is a lifetime annuity or a lifetime pension from a super fund, it likely qualifies. If it is a market‑linked or term‑certain product, it may not be a “lifetime” stream and would instead be valued under the general provisions of s 52B of the Act.

2. Identify the assessment day. This is usually the day the Commission assesses the asset value - for example, the date of application for pension, the date of a periodic review, or the date of a change in circumstances. The person can request a specific assessment day only by triggering a review (e.g., reporting a change). The assessment day determines which Life Tables are used and which 14‑day period applies.

3. Obtain from the provider the necessary data on the assessment day:

   • The maximum commutation amount if the income stream were commuted on the assessment day (for access amount).
   • The surrender value on the assessment day (the amount payable if the person voluntarily terminates the income stream without dying).
   • The death benefit on the assessment day (the amount payable if the person died on that day).
   • The previously commuted amount (sum of any partial commutations before the assessment day).
   • Any instalments paid after the assessment day (for comparison values on later days - but generally the valuation is only on the assessment day itself, so the “access day” is the same as the assessment day, making instalments after that day irrelevant. However, if the Commission values the income stream on a later day for some reason, the instalments paid between the assessment day and that later day must be added to the access amount under the definition. That is rare.)

4. Calculate the access amount: For the assessment day, the maximum commutation amount as per the contract (Step 1). If no commutation is possible, this may be zero. The access amount is the same for both methods.

5. Apply the surrender value method (if applicable):

   • Compute the surrender comparison value: If the day is within 14 days of assessment day, use the access amount. Otherwise, use formula: access amount - (previously commuted amount × (remaining life expectancy / total life expectancy period)). If the result is negative, set to nil.
   • Compare surrender value to surrender comparison value. If surrender value ≤ comparison value, asset value is nil. If greater, asset value is the surrender value (or proportion for joint income streams).

6. Apply the death benefit method (if applicable):

   • Compute the death benefit comparison value: If the day is within the first half of the life expectancy period, use the access amount. Otherwise, use the same formula as above (but with “first half” threshold instead of 14 days). Note that the first half of the life expectancy period is calculated from the assessment day.
   • Compare death benefit to death benefit comparison value. Same logic.

7. Determine which method the Commission will use: Unfortunately, the Determination does not specify. The Commission usually has a policy (not in this instrument) that for federally‑regulated lifetime income streams (e.g., from Life Insurance Act companies), the death benefit method is used; for other products, the surrender method. If in doubt, request the Commission to state in writing which method it will apply. If the result differs materially, consider seeking a review if the choice of method seems inconsistent with the product type.

8. Calculate the asset value: For joint income streams, multiply by the proportion attributable to the person. The proportion is determined by the contract or governing rules (e.g., 50% if equal shares). If the contract does not specify, the Commission may apply a default (though not stated in this instrument).

9. Report the value on the pension application or review form. The person does not need to do the calculation themselves; the Commission usually performs it. But the person should check the Commission’s calculation for errors, particularly the life expectancy period and commutation amounts. If the Commission’s value appears wrong, request a formal review.

10. Keep records: Retain all statements from the provider showing commutation amounts, surrender values, and death benefits on the assessment day. Also keep records of any partial commutations and income payments. If a mistake is made years later, these records are essential for a review.

11. Watch for changes: If the Commission updates the Life Tables via amendment (as happened on 1 January 2020), the valuation for new assessment days will change. For existing pensions, the value will be updated at the next periodic review with the new tables.

12. Consider professional advice: The valuation method is complex and can have a significant impact on pension entitlements. A financial adviser who specialises in veterans’ entitlements and understands the interaction with the Act should be engaged, especially when purchasing a lifetime income stream. The choice of product can make the difference between a full pension and no pension.

Overall, compliance is a matter of verifying the Commission’s calculation, not of self‑reporting the asset value. The main risk is that the Commission will apply the wrong method or use incorrect data, leading to an over‑assessment of assets and reduction of pension. The person’s compliance strategy is to be vigilant and challenge any incorrect valuations through the review process.