Senator MOORE (Queensland) (09:31): We seem to be going through this particular process quite regularly at the moment with one particular bill. You would remember that in the past we had a composite bill that included about seven changes that were proposed, some of which were not going to be implemented until 2017. The one before us today is to be implemented in January 2016, and there was one that was going to be earlier than that.
I will not traverse the arguments that I put to this place on Monday about my concerns about the fact that we on the Senate Community Affairs Legislation Committee have not had significant time, I believe, to look in depth at the proposals in front of us. I think we went into detail on our view that the best way in any of these situations is to allow people who are interested in the legislation to have the opportunity to provide submissions, to ask questions and then to come to a public inquiry of a committee to allow all of us to understand fully the complexities of the issues and also the concerns. That particular process was handled in this place. We have not had that issue. We have already passed the largest component of that composite bill, which was the change to the assets test, and the second part has come before us. This is another part where we have had real trouble in really looking at exactly what the impact will be, the numbers of people that will be involved and also how it fits into the overall planning of people on pensions.
In this case, we have advised the government that we will be supporting this particular part of the legislation, the Social Services Legislation Amendment (Defined Benefit Income Streams) Bill 2015, which is on the defined benefit process. We have had considerable discussion with people who understand the impact, and we note-and we say this very openly-that, in the time that we had submissions in this area, there was only one submission that actually pointed out objections to this part. We know that a number of individual people have contacted us subsequently and pointed out their concerns because of their personal circumstances, and we acknowledge that there will be people who are affected by this change. However, in view of the overall process and the overall budgetary impact, our party is supporting this particular change.
We accept also that in this case the information that we received in the departmental submission points out clearly the background to how we have arrived at what is defined as an anomaly in the way the income test is handled for people in this area. There is a clear explanation in the department's submission:
A defined benefit income stream is a pension paid from a public sector or other corporate defined benefit superannuation fund …
It particularly impacts on people who have had a public sector background, 'where the pension generally only reflects years of service and final salary'. The department continues:
In these schemes employers usually fund these income streams as liabilities arise. Generally employees do not provide any of their own contributions to these income streams.
However, some of these schemes, particularly State Government schemes, include up front contributions …
Then the department goes on to explain clearly how the anomaly has occurred that there has been different treatment to the defined benefits scheme. The department's explanation goes back to 1998. I have to admit I was working in the department around that time-
Senator Fifield interjecting-
Senator MOORE: The Department of Social Security at the time. My corporate memory does not actually go back to that time, but I remember clearly that at that stage there was one of the fairly regular overhauls of social security legislation. This happened many times, but 1998 was a big one. As part of the overhaul of the social security rules for income streams, the means test treatment for defined benefit income streams was standardised. There was discussion across the community at the time. Under the income test in particular there were changes to the asset test treatment, and we are looking at an income test change here. Under the income test, all income was accessible except for a small portion representing the amount of personal after-tax contributions, if any, provided directly by the member. This amount was called the deductible amount and was based on the income tax definition, again trying to make sure there was some consistency between the definitions. It was set at a fixed dollar amount when the income stream commenced. It was clear that was the way that planning was done.
In July 2007 there was another process of change which does occur. It looked at superannuation. I remember this one very clearly. I was here, and there was great discussion around this one. This was called at that stage the better superannuation package, and at that stage superannuation measures were introduced to simplify the taxation of superannuation payments. Through that process, the change in the calculation of the deductible amount resulted in people with service prior to 30 June 1983 having a significant amount of up-front employer contributions treated as after-tax contributions. The higher deductible amount was also changed from a fixed amount to a percentage of annual income, which meant it increased as income stream payments increased.
This is complex in the way it operates, but we know that the people who are affected, who have their own packages involved, have great interest in and great knowledge of their individual circumstances. They have taken advice, they understand and they know what the impact of every dollar is in their weekly, monthly and annual process. They understand most clearly what any changes would mean to the way their circumstances are assessed and, particularly under our social security network, how their processes are affected in terms of their access to pensions as well as the other things that run with pensions at the state, federal and local government levels.
Together, the changes that I indicated happened as part of the better superannuation package resulted in a higher deductible amount and, consequently, higher income support payments even though nothing had changed for the defined benefit recipient in terms of their contribution. For example, as at 30 June 2006, only 2.6 per cent of income support recipients had a deductible amount greater than 10 per cent. The figures in terms of those who are going to be impacted by this are small but still significant. The department has indicated in their submission that there are around 140,000 DSS recipients with the defined benefit income streams. Around 55 per cent of income support recipients with defined benefit income streams currently have no deductible amount. The processes I have described in the way the schemes were handled. Their circumstances indicate that they are not assessed in this way. A further 10 per cent have a deductible amount less than 10 per cent, which was about 2.6 per cent, as we said. Approximately 35 per cent-around 47,700 people-are impacted by the change, of which around 20 per cent are provided by federal government, 75 per cent by state and local governments and round five per cent by corporate organisations that had had their own defined scheme.
The measures that are in this piece of legislation will generate savings of $465.5 million, as calculated by Treasury, over the forward estimates for all affected agencies. For the first full year, approximately 46,000 DSS recipients will receive a pension allowance reduced by an average of $2,150 a year-$82.70 a fortnight-and the allowances of 1,700 DSS recipients will be cancelled. That is the explanation of the process and the background to how this package will impact on pensioners across Australia.
I have to mention the correspondence that I have received in my office. Mr President, a large number of the correspondents have been from your state, Tasmania. I am not sure-and I have not been able to get information from the department-whether any greater number of people in Tasmania are part of this scheme. But in the emails and letters that have been coming there have been quite a number from Tasmania. I am interested in this and I will be following up, Minister, as to whether we can get more information about why that is so. It could well be that they are just people who have more networks and more access to information and share the process of contacting their parliamentarians from Tasmania. That is a possibility. We have had people from across the country contact us with different concerns about the other changes in this bill. I acknowledge those people who have taken the time to contact our office and to make their concerns known.
As the shadow minister said in the other place when this bill was being debated, I think only yesterday, this is not an easy decision. It is clear that any such decision by anyone in this place is not easy, because we know that there will be an immediate impact on people's own plans, ways of living and process of planning for the future. However, because of the very limited number in the quite small client group that will be impacted by this, I think there is an opportunity for them to have information and to have support-to get some financial support both through the Centrelink process and outside, to see what the maximum income will be if they lose part payment or if they lose the kinds of figures that were given to us by the department in their submission.
We will be supporting this bill. We maintain our concern about the fact that there has not been, I believe, an opportunity for sufficient scrutiny to give those people who have taken the time to contact us more chance to work through the documentation that we have received from the department. As I said earlier on this particular part of the submission, I made some comments the other day about the quality of the modelling that we had received. On my reading of the departmental submission that we received on this-the background and the figures that they provided-I have confidence in supporting it. So, with those caveats about lack of consultation, with the concern about the people who will be affected-because I know there will be those-and with the understanding that the whole issue of retirement payments will necessarily be considered by this chamber into the future, Labor will support this bill.