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. This means the person receives a lump sum payment that represents arrears for a past period. In some cases, such as 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 exist because of small back payment of regular increases (Consumer Price Index) in foreign pensions are too small to be recovered and investigation is not cost effective. For example, Italian pensions are generally increased from January each year but are only calculated and advised from April resulting in a small arrears amount. If an Assumed Rate (ASR) of New Zealand (NZ) pension has been zeroed due to hardship, this is not an arrears scenario and any overpayment should be raised as an ordinary debt using the historical NZ Actual Rates as advised by the NZ pension authorities.

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

The keyed DOV will generate the correct exchange rate to use and also determine the Date Last Confirmed. The system will:

• change the keyed DOV to equal the Arrears Period Start Date (APSD)
• automatically insert a new DOV. This displays in:
  • Process Direct as a new child row, or
  • Customer First/Customer Record as a new page
• set the new:
  • DOV to the Arrears Period End Date (APED) + 1, and
  • component amounts to zero

If a country provides the rates of foreign pension applicable during the arrears period, manually convert and code the rates from the 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 APED.

Note: only code arrears or rate increases for foreign survivor’s pensions from the day after the Bereavement Period End Date (BPED) + 1. If the arrears start date advised is on or before the BPED, manually convert the rates of the survivor pension to Australian dollars and code from the BPED + 1 to the arrears end date. If an arrears amount is being recorded, reduce it by the number of days, pro-rata between the APSD and the BPED.

Arrears lump sums are treated in the same way as ongoing pensions, such as income or 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 the FPD screen 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. Manually check these cases to ensure the system calculated amount is correct.

Where a non-protected Special Category visa (SCV) holder, who is paid a direct deduction rate of Australian pension under the NZ Agreement and who receives an NZ payment is granted a third country pension (3CP), an Assumed Rate (ASR) of NZ pension must be coded. This usually means that there is no debt for the customer due to the 3CP. See Third Country Pension (3CP) on the General information tab in New Zealand Agreement and foreign pension information.

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 new grants of NZ pension can be embargoed. Arrears debts for backdated NZ pension increases or where an Assumed Rate (ASR) has been coded, cannot be recovered by embargo. If an ASR was zeroed for hardship, code the NZ Actual Rate from the date the ASR was zeroed and investigate as an ordinary debt. See Foreign pension coding.