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Wednesday, 19 August 2009
Page: 8317

Mr GRIFFIN (Minister for Veterans’ Affairs) (12:45 PM) —in reply—The Veterans’ Affairs and Other Legislation Amendment (Pension Reform) Bill 2009 gives effect to the key elements of the government’s secure and sustainable pension reform package in relation to veterans and their dependants. The measures in this bill closely parallel for veterans and their dependants the reforms recently enacted in relation to certain social security pensions. These reforms stem from a major review of the pension system conducted by Dr Jeff Harmer, Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs, and a dedicated team of officers. Officers from my department provided advice and assistance to the review team in relation to veteran specific issues. I thank all those who worked on this monumental task.

As has been said before but is worth repeating, these are the most significant pension system reforms to have been undertaken in the past 100 years. This government is very pleased to be delivering a simpler, more responsive, more adequate and more sustainable pension system for veterans, their dependants and social security recipients. These reforms prepare Australia to meet future challenges, including an ageing population, through changes to social security, family assistance, veterans’ affairs and aged-care legislation. This bill delivers these goals for veterans and their dependants.

More than 320,000 veterans’ affairs pensioners will benefit from these reforms, boosting their incomes by $1.1 billion over the next four years. A key feature of the reforms is the increase to pension rates. From 20 September 2009 the secure and sustainable pension reform package will increase pensions for all veterans’ affairs income support recipients and war widows and widowers. The reforms will deliver increases of $32.50 per week for single service pensioners and $10.15 per week combined for couples on the maximum rate. War widows and widowers will benefit from an increase of $30 per week. Income support supplement recipients will also receive an increase in the supplement and the ceiling rate will be increased. These increases are in addition to the regular indexation due in September.

A significant improvement will be made to the indexation of income support pensions, benchmarking them against a more realistic indicator of changes to the cost of living for pensioners. The pension reform package introduces a new pensioner and beneficiary living cost index that actually measures the cost of living for pensioners. The new pensioner and beneficiary living cost index recognises that the cost of living for pensioners and beneficiaries may increase faster than the cost of living for the general community, as measured by the consumer price index. From 20 September 2009 the maximum base rate of income support pensions will be adjusted in line with either the consumer price index or the new pensioner and beneficiary living cost index, whichever is the higher.

Another important increase being delivered by this package of reforms is the increase in the relativity of the single pension rate to the combined couples rate. For a person being paid the single rate of pension, the relativity of that rate will be increased from the current 60 per cent to a rate of 66.33 per cent of the maximum rate payable to a couple. This reform is further complemented by the new male total average weekly earnings benchmark arrangements. From 20 March 2010 a new pension benchmark will be introduced for the maximum combined couple rate of pension. The benchmark will be 41.76 per cent of the annualised amount of male total average weekly earnings. Therefore, the new benchmark for the maximum single rate of pensions will be 27.7 per cent of male total average weekly earnings, an increase of more than 10 per cent from the current 25 per cent benchmark.

The current complex system of allowances and supplementary payments will be simplified and made more flexible with the introduction of a new pension supplement for service pension recipients. Telephone allowance, pharmaceutical allowance, utilities allowance and the GST pension supplement will be consolidated into a single pension supplement for service pensioners. From 1 July 2010 income support recipients will have the option of receiving a portion of this payment quarterly instead of fortnightly. This introduction of the new pension supplement arrangements will provide income certainty for veterans and their dependants while maintaining flexibility in managing their budgets. War widows and income support supplement recipients will have the former allowances added to their base rate of pension. Self-funded retirees of pension or qualifying age will also benefit from the pension reforms.

A new senior supplement for holders of a Commonwealth seniors health card or gold card holders over qualifying age will be introduced from 20 September 2009. The senior supplement will replace the existing seniors concession allowance and telephone allowance. In addition, all senior supplement recipients will now be paid telephone allowance at the higher internet rate regardless of whether or not they were previously in receipt of the allowance. The senior supplement for a single person will be $785.20 per annum. For couples the combined payment will be $1,185.60 per annum. Depending on what allowances they are currently in receipt of, all senior supplement recipients will benefit from an increase of up to $266.40 per annum for a single person and $148 per annum for couples. The senior supplement will be paid quarterly.

The bill also establishes two new supplements to replace pharmaceutical and telephone allowances for those veterans, members and dependants who do not receive a veterans’ affairs or social security income support payment. The veterans supplement replaces pharmaceutical and telephone allowances under the Veterans’ Entitlements Act. The MRCA supplement will replace pharmaceutical and telephone allowances under the Military Rehabilitation and Compensation Act. These new supplements will commence on 20 September 2009.

A work bonus will be established to provide an incentive for those who wish to take up or continue to undertake paid work. The work bonus will apply to those veterans and dependants who are over veteran pension or qualifying age and will provide concessional treatment for their employment income. With the bonus, only 50 per cent of the first $500 a fortnight of employment income will be counted in the income test.

The work bonus provides a real and timely incentive for those veterans and dependants who are able to continue contributing their skills and experience in the paid workforce. With the introduction of the work bonus the existing pension bonus scheme will be closed to new entrants from 20 September 2009. The Harmer pension review found that the scheme is not meeting its objective of encouraging workforce participation among older Australians. The existing members of the scheme will be able to remain in the scheme and claim a pension and their bonus when they finish working.

The reforms in the bill introduce greater flexibility to the pension advance arrangements from 1 July 2010. The maximum advance amount will be increased for income support recipients and will link the maximum and minimum advance amounts to future movements in the service pension rate. More flexibility will be provided in the frequency of advances with up to three advances being available within a 12-month period. This will enable pensioners to better manage large, unforeseen costs.

To secure a pension system that is sustainable into the future, this government has had to make responsible but hard decisions. One of these decisions was to tighten the pension income test to ensure that the pension system is targeted at those most in need. From 20 September 2009 the pension income test taper rate will increase from 40c to 50c for each dollar of income over the income test free area. In the case of a pensioner couple their combined pension will reduce by 50c for each dollar of combined income over the income test free area. The pension as paid to each partner will reduce by 25c for each dollar of combined income over the income test free area. In addition to bringing the veterans entitlements income test in line with other means-tested payments the additional income test free area for dependent children will be removed.

As part of the reforms, new transitional payment arrangements are being introduced so that part-rate pensioners who would otherwise face a reduction in their payments as a consequence of the reforms will have their current payment rates maintained. The transitional safety net will maintain indexation in line with increases in the consumer price index and will provide an increase of $10.10 per week for singles or $10.15 per week for couples combined. The transitional rules will continue to apply until changes under the pension reforms result in a higher payment.

It is important to recognise that the pension reforms will have no impact on veteran pension age and qualifying age under the Veterans’ Entitlements Act. There will be no increase in these ages. The pension age for persons other than veterans, which is currently aligned with the social security age pension age, will increase from 65 to 67 for both men and women. These changes will be phased in gradually commencing in 2017. This was another of the responsible but hard decisions that this government had to make to maintain a viable and sustainable pension system. The delayed start date and gradual increase will allow those individuals who will be affected by the change time to make their retirement plans. The change in age pension age will allow the government to respond to the long-term costs of an ageing population.

Finally, the bill will provide a vehicle for the Carbon Pollution Reduction Scheme increases to be payable to service pensioners, war widows and disability pensioners. This government is acting to introduce much-needed and long overdue reforms that significantly improve the adequacy of the pension, and simplify and strengthen the nation’s social security and repatriation pension systems. These reforms will make for a more secure repatriation pension system, provide greater certainty to veterans and their dependants, and ensure the system remains both adequate and sustainable.

There have been a number of issues regarding aspects of this bill raised by speakers and I will endeavour to address some of them that were raised particularly by the opposition. The shadow minister, the member for Paterson and the member for O’Connor raised the issue that this is overdue and that it should have been done in the budget last year when the opposition, then under the member for Bradfield, moved for an increase in the single age pension of some $30. I think we need to go back and remember exactly what happened at that time.

There was a debate that was going on in the community, and understandably so, about the adequacy of income support pensions, particularly for those on the single rate. There was recognition in the community that something needed to be done. That is why a review was established and that is why the government took action. With respect to the argument that it could have been done 12 months ago, I think you have to go to the question of what was proposed 12 months ago. Initially, under the member for Bradfield, the opposition proposed a $30 increase for the single age pension. For example, if we look to this bill, what would have happened 12 months ago if we had acted on the proposal of the member for Bradfield, the then Leader of the Opposition? Frankly, nothing would have happened because aged service pensioners were not included. I know this because at the time I raised this matter with the national president of the RSL, who said that he felt sure it would be included and he would seek advice to that effect. The advice he got was that it was not included.

With respect to the $10.15 per week increase for couple pensioners, again, there was nothing in what the opposition proposed last year for couple pensioners. The circumstances are that what is included in this bill overwhelmingly would not be put in place under what the opposition then proposed. Subsequently, with the member for Wentworth as opposition leader there was an adjustment to the proposal of the opposition. This was some months later. Then they included the single rate age service pension in their proposal, but once again there was no inclusion which related to the circumstances around couples, and so again significant components of the veteran community would have missed out entirely under what was proposed at the time.

Let us not forget when it comes to the question of what support was provided. With the first stimulus package we had over 325,000 members of the veteran community receive that bonus. As members would recall, that was a bonus which initially was supported in the House by the opposition but was subsequently rejected. With the second stimulus package, which the opposition opposed right down the line, it is estimated that some 130,000 in the veteran community received that bonus. I would ask those members in the veteran community who received those bonuses to remember that what this opposition—which now says we could have acted 12 months ago on dealing with these issues—proposed then excluded them overwhelmingly. When they adjusted their position it then included some but excluded most, while at the same time they voted for and then rejected one stimulus package in terms of the public forums and opposed the second package right down the line. So, frankly, their issue around this question, that it could have been dealt with earlier, smacks of hypocrisy when it comes down to what it actually means for the veteran and ex-service community in this country.

The shadow minister raised an issue around advances, which I gather to mean a concern about the effect of too many advances. I would say that this came about as a result of requests for additional flexibility in the operation of the system. Advances in total cannot exceed the maximum amount and so the repayments cannot exceed a reasonable repayment amount. The issue of the work bonus and the taper rate as a disincentive was also raised, as I understand it, by the shadow minister for veterans’ affairs. I make the point clearly with respect to its operation that it does not provide a disincentive to those to work for the income that they earn because the additional increase in the free area overcomes any impact on the movement from 40c to 50c in the taper for the individual who is earning the income. There is no doubt that there are impacts for those who have investment income, there is no doubt there are impacts for those who have superannuation income, but again it is mitigated by transition mechanisms and overwhelmingly people will still be in front. They are in front now and they will be in front for some years, and in most cases they will be in front right the way through.

Both the shadow minister for veterans’ affairs and the shadow minister for defence, science and personnel have raised the question of how the changes will be communicated to recipients. Communication will be a priority because there is no doubt this is a complex issue and a complex reform. I want to assure the House that everyone receiving a payment will get a personal letter describing the change as it affects them. Additional communication with the veteran community will include a hotline, articles in Vet Affairs, the website and press and radio ads from Centrelink that also mention veterans and the circumstances as they will impact upon them.

Another issue which got some discussion was the question of the indexation of TPI pensions, how it fits into the system and the basic point we are dealing with today of increases in income support pensions and the argument that it should also have included disability pensions as paid under Veterans’ Affairs. I want to put a few points on the record with respect to that. The key question resolved just prior to the last election was the method of indexation to be used to adjust disability pensions relative to income support pensions. The argument was that it was only fair that they should be treated in the same manner to maintain indexation relativities over time. This was the argument that Labor championed in the lead-up to the election and which the coalition government belatedly acted upon. It is not the same argument as the need to adjust the base rate of income support pensions to allow those who rely on them the opportunity to try to maintain a reasonable standard of living, particularly when around 80 per cent of TPIs will also benefit from the changes made to income support pensions. A percentage of part-pensioners over a number of years will drop back, but there will be an immediate gain to just over 80 per cent.

One of the major issues regarding the indexation method was the argument that over time there was an increasing gap between the TPI pension and the percentage of male total average weekly earnings that it represents and that this led to greater inequity for TPIs regarding the value of their repayment. The link was to MTAWE and not to income support pensions like the age or service pension. The point relating to income support pensions is that they had the benefit of the better indexation method—that is, to maintain their relative value as a percentage of MTAWE. Because the overwhelming majority of TPIs receive some form of income support pension, there was an inconsistency of indexation methods across different types of pensions that were being received.

The indexation method for disability pensions of all sorts and income support pensions will remain the same. In fact, an additional indexation formula has also been added to ensure that the value of pensions is better maintained. The means of maintaining the value of both income support and disability pensions over time has been secured. What has altered, on a one-off adjustment basis, is an increase to the base rate and pension supplement for single income support pensions in recognition of the inability of those who rely solely or substantially on them to make ends meet. There has also been a one-off adjustment to the pension supplement for couples. As the one-off increase to income support pensions also flows on, completely or in part, to more than 80 per cent of TPIs and is only denied to those who have substantial other sources of income, it shows that the increase is targeted to those most in need. It is not an adjustment that relates to how damaged you have been in service to your country. It is not designed for compensation pensions where income support pensions are still available for those who qualify for them. It is an adjustment designed to provide additional income support to those who must rely on income support payments to survive. That this includes a majority of TPIs should be expected and it is deserved. (Time expired)

The DEPUTY SPEAKER (Ms JA Saffin)—Before I move to put the question, I shall make a comment about two events that just took place in this chamber. You might have noticed that we had a stranger in the House and then we also had a telephone going off. I will not name the members but it is disrespectful to the House. I would ask those two members who were involved in those events to please take note.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.