Post by Banker on Oct 6, 2012 5:47:28 GMT 7
Wendy Black of Anglicare in Bunbury has drawn to my attention a startling aspect of the ‘deprivation rules’ which are applied by Centrelink in assessing a person’s pension eligibility. This was brought to her attention by Stephen Ayre of Centrelink’s Financial Information Service.
Centrelink Entitlements and Deprivation Rules
Entitlement to Centrelink benefits is generally means-tested. In assessing eligibility for an age pension, a person’s assets and income are considered. Under the deprivation rules, if a person disposes of an asset, it is considered still to be a part of their assets for a period of five years from the date of the disposal. The value placed on the asset is gradually reduced to zero over a five year period.
The point of this is to ensure that if a well-off person disposes of an asset, their pension entitlement is calculated by taking this disposal into account for a five year period. These rules are set out in sections 1123 and 1124 of the Society Security Act 1991 (Commonwealth). They are described as the ‘deprivation rules’.
Guarantors and Deprivation Rules
If a person becomes a guarantor, this is not taken to be a disposal of assets. However, if the borrower does not pay and the guarantor becomes liable to repay the loan, the Centrelink deprivation rules apply to the amount paid by the guarantor.
This may appear to a guarantor to be harsh. They may well think it unjust that at the time they are forced to pay under a guarantee they have given, their pension entitlement is reduced by the application of the deprivation rules. However, this is the clear effect of section 1123 and 1124 of the Social Security Act.
Never Ever, Ever Be A Guarantor
Some years ago,when changes to the Credit Code were being discussed, some financial counsellors and credit advocates argued for the abolition of guarantees. This did not happen. The National Credit Code has some protection for guarantors. However, this is limited. For example, section 72 of the Code which allows changes to a credit contract on the grounds of hardship does not include guarantors. Section 76 of the Code, which allows for the reopening of unjust contracts, does include guarantors. If a person provides a guarantee for a commercial loan, or guarantees the obligation of a business, the Code does not apply. If you have the opportunity to speak with a person before they sign a guarantee, it is desirable to give them information about the risks of being a guarantor, including the possibility of a loss or diminution of pension entitlements if the borrower does not pay, and the guarantor has to. For many elderly people, the consequences could be disastrous.
Ian Macdonald
Solicitor
FCAWA
October 2012
www.financialcounsellors.org/counsellors/guarantees-and-centrelink-entitlements/
Centrelink Entitlements and Deprivation Rules
Entitlement to Centrelink benefits is generally means-tested. In assessing eligibility for an age pension, a person’s assets and income are considered. Under the deprivation rules, if a person disposes of an asset, it is considered still to be a part of their assets for a period of five years from the date of the disposal. The value placed on the asset is gradually reduced to zero over a five year period.
The point of this is to ensure that if a well-off person disposes of an asset, their pension entitlement is calculated by taking this disposal into account for a five year period. These rules are set out in sections 1123 and 1124 of the Society Security Act 1991 (Commonwealth). They are described as the ‘deprivation rules’.
Guarantors and Deprivation Rules
If a person becomes a guarantor, this is not taken to be a disposal of assets. However, if the borrower does not pay and the guarantor becomes liable to repay the loan, the Centrelink deprivation rules apply to the amount paid by the guarantor.
This may appear to a guarantor to be harsh. They may well think it unjust that at the time they are forced to pay under a guarantee they have given, their pension entitlement is reduced by the application of the deprivation rules. However, this is the clear effect of section 1123 and 1124 of the Social Security Act.
Never Ever, Ever Be A Guarantor
Some years ago,when changes to the Credit Code were being discussed, some financial counsellors and credit advocates argued for the abolition of guarantees. This did not happen. The National Credit Code has some protection for guarantors. However, this is limited. For example, section 72 of the Code which allows changes to a credit contract on the grounds of hardship does not include guarantors. Section 76 of the Code, which allows for the reopening of unjust contracts, does include guarantors. If a person provides a guarantee for a commercial loan, or guarantees the obligation of a business, the Code does not apply. If you have the opportunity to speak with a person before they sign a guarantee, it is desirable to give them information about the risks of being a guarantor, including the possibility of a loss or diminution of pension entitlements if the borrower does not pay, and the guarantor has to. For many elderly people, the consequences could be disastrous.
Ian Macdonald
Solicitor
FCAWA
October 2012
www.financialcounsellors.org/counsellors/guarantees-and-centrelink-entitlements/