Comparable Foreign Payment (CFP) lump sum arrears debts 107-04040000

When a customer or their partner is granted a Comparable Foreign Payment (CFP), on most occasions they are granted with a backdated start date, which means the person, receives a lump sum payment that represents arrears for a past period. In some cases, for example, rate revision, foreign pension authorities may backdate increases in the rate of a foreign pension and pay a lump sum arrears payment.

Note: arrears debts that may exist because of small back-payment of regular increases (Consumer Price Index (CPI)) in foreign pensions are too small to be recovered and investigation is not cost effective.

If the customer's Australian payment would have been reduced had they received regular payments during the arrears period instead of a lump sum, a recoverable arrears debt may exist, however, before considering any arrears debt, it is important to first code the ongoing income from the correct date of event, see Foreign Pension coding.

Before 1 July 2004, arrears debts could only exist if the CFP was covered by an international social security agreement and then only applied to the customer, not their partner. Since 1 July 2004, under section 1228A of the Social Security Act 1991, a debt may exist for both the customer and their partner for lump sum arrears of a CFP from any country.

Pension Bonus Scheme (PBS) payments are not affected by lump sum arrears payments of foreign pensions.

If the person who is entitled to the CFP is deceased at the time the overpayment is calculated, no arrears debt exists for them or their partner.

If the partner of a person who is entitled to the CFP is deceased at the time the overpayment is calculated, an arrears debt only exists for the person who is entitled to the CFP and not the deceased partner, even if the partner was alive for any part of the arrears period

After coding the ongoing rate of the CFP, arrears periods for backdated grants are also recorded on the Foreign Pension Details (FPD) screen. As CFP arrears lump sums are received at a point in time, to reflect the relative value of the amount received, policy advice is that the exchange rate used must be the rate that was applicable at the time the lump sum was received.

If available, the arrears period and lump sum amount received may be coded on FPD. System processing will apply the relevant exchange rate from the Date of Event coded and divide by the arrears period to derive a consistent rate of foreign pension to be applied throughout the arrears period.

If a country provides the rates of foreign pension applicable during the arrears period, the rates may be manually converted and coded from the Arrears Period Start Date (APSD) in Australian dollars at the exchange rate applicable at the time the lump sum was received. In some cases, the rate of foreign pension may be coded as zero from the Arrears Period End Date (AESD).

Note: arrears or rate increases for foreign survivors' pensions must only be coded from the Bereavement Period End Date (BPED). If the arrears start date advised is before the BPED, the rates of the survivor pension must be manually converted to Australian dollars and coded between the BPED and the arrears end date.

Arrears lump sums are treated in the same way as ongoing pensions, for example income, direct deduction. When coding lump sum arrears amounts, the system will assess independently of notification rules as they are assessed under s1228A Social Security Act 1991. Foreign pension rate revisions that include arrears can also be coded on FPD even if the new arrears period overlaps other arrears and will assess any adjustment independently.

However, where coding the rates of foreign pensions during the arrears periods, the system will apply the date of effect rules which may affect the overpayment calculation. These cases must be checked manually to ensure the system calculated amount is correct.

Arrears debts may be recovered by any normal debt recovery methods available under the Social Security Act 1991. This does not apply to arrears debts under the Italian Agreement before 1 July 2004.

Some agreements provide for one country to withhold amounts from any lump sum arrears associated with the grant of pensions and send them to the other country to recover a debt that arises because of the arrears amount. This is referred to as an embargo.

For practical reasons, embargoes on foreign pension arrears are only applied under the Agreement with New Zealand. The NZ Agreement uses a direct embargo model which means whatever arrears are payable are sent to the other country. Requests for embargo from NZ pension arrears are sent on the agreed liaison form with the NZ pension claim.

Note: only arrears from NZ claims can be embargoed. Arrears debts for backdated NZ pension increases cannot be recovered by embargo.