Comparable Foreign Payments

Introduction

A Comparable Foreign Payment (CFP) is any payment from a foreign country that is paid periodically to an Australian pensioner to provide income in respect of:

  • retirement;
  • disability;
  • widowhood; or
  • survivorship.

It also includes:

  • payments to a partner or carer; and
  • company pensions and superannuation payments that are regulated through a country's national social security system.

War service and restitution pensions and compensation payments are not regarded as CFPs.

Under the social security legislation, Centrelink customers who are likely to be eligible for a foreign payment must take reasonable action to claim their foreign entitlement. Customers who fail to do this may not be able to claim or continue to receive an Australian pension.

Background to CFP Legislation

Prior to September 2000, only customers who were likely to have been eligible for a foreign payment from a country with which Australia has a social security agreement were required to take reasonable steps to obtain foreign payments. However, some customers from non-agreement countries did not pursue their entitlements, due to a lack of awareness about their entitlements or the added complications in making claims for these entitlements. Such customers frequently missed out on the additional income that CFP provided.

In September 2000 the requirement to claim a CFP was extended to all Centrelink customers who are likely to have a foreign pension entitlement. The extension means that all Australian pensioners who have lived and worked overseas may be required to test their eligibility for a foreign pension.

These requirements benefit customers (where entitled) through increased disposable income.

As at April 2012, 395,177 Age Pensioners in Australia were receiving a foreign pension. This translates into a significant reduction in social security outlays and a $1.14 billion inflow of foreign currency each year.

Benefits of CFP Legislation

Around one quarter of Australians were born overseas and many have spent part of their working lives outside Australia. Requiring customers who are likely to be eligible for a foreign payment to claim ensures a fairer social security system. It ensures that those in need receive income support, while recognising that countries should share the cost of social support and retirement in the new trans-national labour market.

The CFP policy acknowledges that there is an increasing movement of people between Australia and other countries. It reconciles Australia's model of social security with the contributory-based models that operate in much of Europe, Asia and the Americas. Under contributory systems, entitlements to benefits are an 'accrued right' and rates of payment often relate to the length and value of contribution. By contrast, the Australian social security system is universal, subject to eligibility, income and assets tests, and is funded through general revenue. Benefits are paid on the basis of residence and need (assessed through income and asset tests). Once a person has satisfied the qualification criteria, their rate of payment in Australia does not depend on their length of residence in Australia.

Claiming a CFP is beneficial for customers. In most cases it provides an increased level of disposable income for pensioners. Subject to the 'income free area' rules, customers are able to receive a CFP in addition to an Australian pension up to a certain amount before their Australian pension will be reduced. For instance, a single customer receiving an Age Pension can receive up to $152 per fortnight in CFP and still be entitled to the full rate of Age Pension (July 2012). For every dollar earned above $152, their Australian pension will be reduced by fifty cents.

CFP and International Social Security Agreements

The requirement to claim a CFP puts Australia in a better position to negotiate future social security agreements.

Many countries do not allow access to their social security payments if a customer is not a resident. Also, former residents of Australia cannot claim Australian social security payments from overseas. To overcome this obstacle, many countries sign reciprocal agreements, which facilitate access to other countries' social security payments. To date, there are twenty nine such agreements in operation. Because Australian social security rules may require people to claim foreign pensions, other countries may also be interested in gaining access to Australian social security payments for former Australian residents who now reside in these countries. In this way the extension of the CFP requirement may particularly impact on expanding the network of social security agreements. This is important as it removes inhibitors to migration by enhancing access to social security in both countries.

Operation of CFP Scheme

If a customer indicates that they have lived overseas, Centrelink may issue a legal notice which requires the customer to apply for the relevant foreign pension. If the customer's partner is likely to be entitled to a CFP he or she may also be issued with a legal notice from Centrelink requiring them to do the same.

Centrelink issues notices to customers who are likely to make successful claims for foreign pensions. Customers who are unlikely to be eligible for a foreign pension are not required to make a claim.

Reasonable Action

A Centrelink customer who is required to make a claim for a CFP must take 'reasonable action' to claim the CFP. This translates into two actions on the part of the customer. Firstly, the customer must lodge a claim for the foreign pension within a specified time and, secondly, the customer must then pursue this claim to finalisation.

The requirement to take 'reasonable action' is a legal requirement and thereby obliges the customer to do anything that is within his or her power and would not expose him or her (or his or her family) to danger or trauma. Thus, although CFP countries may vary their claim requirements, the customer's obligation is to meet these requirements. Customers can only become exempt from the CFP requirement in very limited circumstances. In broad terms these may be defined as medical, political and age-related factors that make it unreasonable for the customer to comply with the requirements of the CFP country. Examples would be situations where a customer:

  • is in political exile and contacting the CFP country would expose him or her to danger;
  • has a well-founded fear of persecution if the CFP country is contacted;
  • has dementia or another serious ongoing illness and cannot supply the CFP country with the information necessary to complete the claim.

If a customer or a customer's partner are not exempt from the requirement and fail to take reasonable action to obtain a CFP:

  • Australian payment may be cancelled or suspended; or
  • claim for an Australian pension may be rejected.

Overpayment of Benefits

The CFP rules reinforce customers' obligations to declare that they are receiving a foreign payment. Australian income support payments are paid to Australian residents in need. The level of required support is tested through the income and assets test. Comparable foreign payment along with any other payments received from Australia or overseas are treated as "income" under these tests. Therefore, customers have always had to declare their foreign pensions.

The CFP rules introduced in 2000 reflect the need to declare a foreign pension and provide a better mechanism to check whether a customer receives any overseas payment.

All new claimants potentially eligible for foreign payment are now required to test their eligibility. The mechanism allowing for assessment of existing customers has been improved. For example, Centrelink now collects information on the length of time a customer has lived outside Australia. Also, Centrelink has developed a comprehensive database of the requirements of many overseas countries to claim their payments.

Conclusion

The CFP requirements constitute a 'win-win' situation for Australian pensioners and taxpayers alike. As at April 2012, 395,177 Australian Age Pensioners living in Australia were receiving a foreign pension. A further 83,305 Australian Age Pensioners living overseas were also receiving a CFP. In an overwhelming number of cases, the combination of the Australian pension and the CFP increases the person's overall level of disposable income. The rules strengthen the policy of mutual obligation while helping Australia to discharge its international obligations. CFPs result in reduced social security outlays and leads to increasing numbers of Australian residents receiving their earned overseas entitlements.

Revised: 10 January 2013
International Policy Section, Social Security, Relationships and International Branch

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