Question hangs over loans, gifts

A woman asked to repay $120,000 because she took out loans while receiving a Work and Income benefit may be just the tip of an iceberg of concerns with the way the Ministry of Social Development categorises income.

In the High Court, the ministry argued that the woman, whose identity is suppressed, should repay money she received in government benefits because she had taken out the loans to pay for home repairs and expenses for her children.

The outcome of the case has not yet been decided. But financial adviser Liz Koh said there were many other people being caught in similar situations.

The Social Security Act defines income for benefit purposes as being ‘‘whether capital or not’’.

That means, even in situations where people are drawing down their own money, or taking gifts of money from family, they can be affected.

Koh said anyone with an income-tested benefit could be caught out.

‘‘If … your parents give you a regular amount of money to top you up, a couple of hundred a month, they [Work and Income] treat that as income even though it’s a gift,’’ she said.

‘‘In situations where you’re using a mortgage line of credit, drawing on that credit, even though you’re using your own money it’s defined as income and it interferes with your benefit. People can’t just believe it. It makes them really angry.’’

Ralph Stewart runs Lifetime Retirement Income, which offers a variable annuity product designed to help people make their money last through retirement.

The way it is structured, some or all of people’s payments each fortnight might be their own money being distributed back to them.

If that were counted as income, it would not affect the pension, which is not means-tested.

But it could cause problems for people who were claiming a rest home subsidy.

Stewart said, at present, some were told their Lifetime income would be offset as income against the subsidy and some were not.

‘‘I don’t think it was the way it was intended but it’s just the way it is,’’ he said.

He had seen people on widow’s benefits and with off-shore pensions also being caught out.

Minister of Social Development Carmel Sepuloni was approached for comment.

‘‘The issue of whether gifts of money from family members or drawing down money on a house should be counted as income under the Social Security Act is currently before the High Court,’’ she said.

‘‘It would be totally inappropriate to comment until that process is complete, but I can confirm I am watching the proceedings closely.’’

Koh said the outcome of the case could have wide-ranging effects.

‘‘It could cost the Government a huge amount because at the moment they are abating those benefits to take account of that money.’’