Title Veterans' Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021
Database Bills Digests
Date 29-11-2021
Source Bills Digest Service
Parl No. 46
Author KLAPDOR, Michael
Citation Id 8302180
Key item No
Major subject Veterans
Disabled veterans
Means tests
Social Security payments
Compensation
Minor subject Bills
Legislative amendments
Pages 23p.
Volume no. 036 (2021-22)
System Id legislation/billsdgs/8302180


Veterans' Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021

ISSN 1328-8091

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BILLS DIGEST NO. 36, 2021–22 29 NOVEMBER 2021

Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 Michael Klapdor Social Policy Section

Contents

The Bills Digest at a glance .............................................. 3

Purpose of the Bill ........................................................... 4

Structure of the Bill and the Bills Digest ........................... 4

Background ..................................................................... 4

Overview of veterans’ compensation schemes .......... 4 Compensation payments for disability ....................... 5

MRC Act Special Rate Disability Pension ................... 6 Offsetting ................................................................... 6

Effect of disability compensation on veterans’ income support payments .......................................... 6

Rent Assistance ......................................................... 7

Effect of disability compensation payments on social security payments ............................................. 7

Defence Force Income Support Allowance ............... 8 Disability Pension and compensation payment statistics ....................................................................... 8

Tune Review of Special rate Disability Pension .......... 9 Other recent reports ................................................. 10

2019 KPMG Review of TPI Benefits ......................... 10

2019 Productivity Commission report on compensation and rehabilitation for veterans ....... 11 2021 Senate Foreign Affairs, Defence and Trade References Committee report ................................ 11

Committee Consideration.............................................. 12

Senate Standing Committee for the Scrutiny of Bills ............................................................................ 12

Policy position of non-government parties/independents.................................................... 13

Date introduced: 21 October 2021

House: House of Representatives

Portfolio: Veterans' Affairs

Commencement: Sections 1–3 on Royal Assent; Schedules 1–3 and Schedule 5 on 1 January 2022; Schedule 4 on 1 July 2022.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at November 2021.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 2

Position of major interest groups................................... 13

Financial implications .................................................... 13

Statement of Compatibility with Human Rights.............. 13

Parliamentary Joint Committee on Human Rights ... 13 Key issues and provisions .............................................. 14

Schedule 1—Exempting adjusted disability pension from the social security income test and removal of Defence Force Income Support Allowance .................................................................. 14

How many will be affected? .................................... 14

Key provisions ......................................................... 14

Social Security Act 1991 ........................................ 14

Veterans’ Entitlements Act 1986 .......................... 15

Amendments to other Acts ................................... 15

Schedule 2—Increased rent assistance .................... 15 How many will benefit?........................................... 16

Key provisions ......................................................... 16

Schedule 3—Removing references to Disability Pension ...................................................................... 16

Rationale for the proposed amendments ............... 16 Amendments do not remove most references to pensions .................................................................. 17

Key provisions ......................................................... 17

Schedule 4—Indexation of Above General rates ...... 18 Indexation of the Service Pension ........................... 19

Indexation of compensation payments .................. 19 Changes to Disability Pension indexation ............... 20 Proposed change ..................................................... 21

Schedule 5—Non-liability rehabilitation pilot........... 21 Key provisions ......................................................... 21

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 3

The Bills Digest at a glance The Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 (the Bill) proposes amendments to the Veterans Entitlements Act 1986 (the VE Act), the Military Rehabilitation and Compensation Act 2004 (the MRC Act) and various social security, family assistance, child support and income tax Acts to:

• exempt certain disability pensions paid under the VE Act and the MRC Act from the social security income test

• remove the Defence Force Income Support Allowance, which currently tops-up the rate of social security payments reduced as a result of disability pensions paid under the VE Act or the MRC Act

• remove an income test that applies to Rent Assistance paid to some veterans’ disability pension recipients, which will allow those receiving higher rates of disability compensation to receive higher rates of Rent Assistance

• change references to ‘Disability Pension’ in the VE Act to the terms ‘pensions by way of compensation to veterans and their dependants’ or ‘pensions’ to clarify that it is a compensation payment not a means tested income support pension

• change the way certain rates of the veterans’ Disability Pension are indexed so that different components of the total rate are not indexed separately

• establish a pilot program allowing veterans to access rehabilitation without making a claim for liability for an injury or medical condition.

The measures are in response to the 2019 Independent Review into the TPI Payment by David Tune (the Tune Review) and recommendations of the Productivity Commission’s 2019 report, A Better Way to Support Veterans.

Other than the changes to Rent Assistance arrangements, the changes affecting veterans’ disability compensation payments will have little impact on recipients and their families. The removal of the disability income test for Rent Assistance paid under the VE Act will benefit 6,900 veterans and their dependants.

The proposed non-liability rehabilitation pilot program will run for two years with around 100 veterans expected to access the program in each year.

The changes relating to disability compensation payments will cost an estimated $33.3 million over four years. The non-liability rehabilitation program will cost $2.3 million over four years (including the cost of an evaluation).

The TPI Federation, an ex-service organisation, has welcomed the changes providing greater access to Rent Assistance for veterans receiving disability compensation. However, the changes do not address the key concern of the TPI Federation around the level of the Special rate of Disability Pension under the VE Act. The Tune Review, Productivity Commission report and a separate 2019 report by KPMG did not support the TPI Federation’s call for an increase in the Special rate. A Senate committee inquiry in 2021 did recommend the Government consider an increase in the Special rate.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 4

Purpose of the Bill The purpose of the Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 (the Bill) is to amend the Veterans Entitlements Act 1986 (the VE Act), the Military Rehabilitation and Compensation Act 2004 (the MRC Act) and various social security, family assistance, child support and income tax Acts to:

• exempt certain disability pensions paid under the VE Act and the MRC Act from the social security income test

• remove the Defence Force Income Support Allowance, which currently tops-up the rate of social security payments reduced as a result of disability pensions paid under the VE Act or the MRC Act

• remove an income test that applies to Rent Assistance paid to some veterans’ disability pension recipients, which will allow those receiving higher rates of disability compensation to receive higher rates of Rent Assistance

• change references to ‘Disability Pension’ in the VE Act to the terms ‘pensions by way of compensation to veterans and their dependants’ or ‘pensions’ to clarify that it is a compensation payment rather than a means tested income support pension

• change the way certain rates of the veterans’ Disability Pension are indexed so that different components of the total rate are not indexed separately

• establish a pilot program allowing veterans to access rehabilitation without making a claim for liability for an injury or medical condition being accepted.

The Explanatory Memorandum to the Bill states that the measures are in response to the 2019 Independent Review into the TPI Payment by David Tune (the Tune Review) and recommendation 6.3 of the Productivity Commission’s 2019 report, A Better Way to Support Veterans.1

The Disability Pension changes, removal of the Defence Force Income Support Allowance and Rent Assistance measures were announced in the 2020–21 Budget.2 The non-liability rehabilitation pilot was announced in the 2021–22 Budget.3

Structure of the Bill and the Bills Digest The Bill comprises five Schedules, four of which relate to the veterans’ disability compensation measures and one providing for the non-liability rehabilitation pilot. The Background and Key Issues sections of this Bills Digest focus on the disability compensation measures, and the amendments relating to the rehabilitation pilot are addressed in brief.

Background

Overview of veterans’ compensation schemes There are three main Acts that provide for support and compensation for veterans and their dependants:

• the VE Act which primarily provides benefits and entitlements for those who undertook wartime service, operational service, peacekeeping service and hazardous military service

1. Explanatory Memorandum, Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021: ii; David Tune, Independent Review into the TPI Payment, (the Tune Review), report prepared for the Department of the Prime Minister and Cabinet (PM&C), (Canberra: PM&C, 2019); Productivity Commission (PC), A Better Way to Support Veterans, Inquiry report, 93, vol. 1, (Canberra: PC, 2019).

2. Australian Government, ‘Part 2: Payment Measures’, Budget Measures: Budget Paper No. 2: 2020–21: 168–169; Department of Veterans’ Affairs (DVA), Totally and Permanently Incapacitated Veterans – rent assistance, Budget 2020–21 factsheet, (Canberra: DVA, 2020).

3. Australian Government, ‘Part 2: Payment Measures’, Budget Measures: Budget Paper No. 2: 2021–22: 195.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 5

before 1 July 2004, and/or peacetime military service from 7 December 1972 up to 30 June 19944

• the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (the DRC Act) which provides coverage for illness, injury or death arising from military service undertaken from 3 January 1949 to 30 June 2004; and for certain periods of operational service between 7 April 1994 and 30 June 20045 and

• the MRC Act, which provides coverage for illness, injury or death arising from military service undertaken from 1 July 2004.6

The DRC Act and MRC Act have many similarities with civilian worker’s compensation schemes, providing payments, rehabilitation services and treatments for injuries and disease arising from military service, and compensation for the dependants of veterans who have died because of their service.

The VE Act is different. The VE Act also provides compensation payments and rehabilitation services for injuries and disease arising from military service, and compensation for veterans who have died because of their service, as well as means-tested income support payments similar to social security payments; health treatments for both service-related conditions and, for eligible individuals, treatments for non-service-related conditions or conditions for which no liability has being accepted; as well as a range of other allowances and assistance programs for veterans.

Some VE Act benefits, such as income support payments, are not tied to periods of service but rather the type of service (for example, whether it involved service during wartime in an area where there was danger from hostile enemy forces). Other benefits, such as compensation payments and benefits, are tied to periods of service—eligibility under one or more of the three statutes will be determined by the period of service and the timing of the event giving rise to compensation (such as an injury or death).

Compensation payments for disability The three schemes provide different forms of compensation payments for injuries or disease caused or aggravated by military service.

The MRC Act and DRC Act provide permanent impairment compensation payments for the functional impairment and lifestyle effects from injuries or disease accepted as being related to service covered by these Acts—both Acts provide for these payments to be made as lump sums while the MRC Act also provides for permanent impairment payments to be made periodically.7 These two schemes also provide periodic incapacity payments which compensate for the economic loss arising from the accepted injuries or disease.

The VE Act does not provide lump sum payments for injuries or disease accepted as being related to a veteran’s service. Instead, the VE Act provides the periodic (fortnightly) Disability Pension.8 There are different rates of the Disability Pension:

• the General rate, which is determined by a point-based assessment of the medical and lifestyle impacts of a veteran’s impairment—this assessment determines which level of the General rate is paid, in 10 per cent increments up to the maximum per fortnight, and

4. ‘The VEA’, DVA, 10 January 2020. 5. ‘The DRCA’, DVA, 9 September 2021; ‘Overview of the DRCA’, DVA, 14 January 2020. 6. ‘The MRCA’, DVA, 10 January 2020. 7. ‘The DRCA’, DVA; ‘The MRCA’, DVA. 8. ‘Overview of disability pensions and allowances’, DVA, 29 March 2019.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 6

• three Above General rates which provide a payment level beyond the maximum General rate. Two of these Above General rates, the Special rate (often known as the Totally and Permanently Incapacitated (TPI) rate) and the Intermediate rate compensate for the impact of the veterans’ disability on their ability to earn income. The other, the Extreme Disablement Adjustment (EDA) rate, is for those aged 65 or more considered to have an extreme level of disability but who are ineligible for the Intermediate or Special rates.9

MRC Act Special Rate Disability Pension The MRC Act also provides a payment known as the Special Rate Disability Pension (SRDP).10 While having a similar name and being paid at the same rate as the Special rate of Disability Pension under the VE Act, the SRDP is a different payment with different conditions attached. It is offered as an alternative to MRC Act incapacity payments for eligible veterans.11 The SRDP is intended as a safety net payment for those whose incapacity payments, combined with other benefits such as permanent impairment compensation and superannuation, fall below the level of the Special rate of Disability Pension paid under the VEA. This might include part-time defence force members with a low level of civilian income and no access to a Commonwealth superannuation scheme. The payment was originally intended to ensure no one would be worse-off in the transition from coverage under the VE Act to the MRC Act—particularly those in junior ranks.12

Offsetting Depending on their circumstances, individuals can be eligible for compensation under more than one of the statutory schemes for the same condition. Where an individual receives compensation from more than one of the schemes for the same condition, one of their payments will be reduced or offset to prevent double compensation—this is known as compensation offsetting.13

Compensation payments under the DRC Act and the MRC Act can also be offset by employer-funded components of Commonwealth superannuation payments.14

Effect of disability compensation on veterans’ income support payments The VE Act also provides means-tested income support payments for eligible veterans and their partners/dependants. The main payments are the Service Pension, the Income Support Supplement (for widows/widowers) and the Veteran Payment (for those waiting for a claim for compensation for a mental health condition under the MRC Act or DRC Act to be processed).

The Service Pension includes a payment like the social security Age Pension (but paid from age 60) as well as a payment like the social security Disability Support Pension (for those whose disability prevents them working), known as the Invalidity Service Pension.15

Service Pension payment rates are the same as social security pension rates and there are similar supplementary payments (such as the Pension Supplement, Energy Supplement and Rent Assistance).

9. ‘General Rate’, DVA, 1 January 2020; ‘Special and Intermediate rates’, DVA, 10 January 2020; ‘Extreme Disablement Adjustment’, DVA, 14 January 2020. 10. ‘Special Rate Disability Pension’, DVA, 2 September 2020. 11. ‘Special Rate Disability Pension’, DVA. 12. PC, A Better Way to Support Veterans, vol. 2, (Canberra: PC, 2019), 653. 13. ‘Disability pension and compensation offsetting’, DVA. 14. PC, A Better Way to Support Veterans, vol. 2, 611–631. 15. ‘Service pension overview’, DVA, 20 September 2021.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 7

The Service Pension, Income Support Supplement and Veteran Payment income and assets tests are also very similar to the social security income and assets tests with a key difference being the treatment of disability compensation payments:

• the Disability Pension provided under the VE Act and the SDRP under the MRC Act are not assessed as income for the purposes of the Service Pension, Income Support Supplement and Veteran Payment income tests

• compensation payments for incapacity or death resulting from employment connected with a war or war-like operations in which Australia has been engaged are not considered income for the Service Pension or Veteran Payment income tests but are for the Income Support Supplement income test

• compensation payments which are for a recognised war-related condition or injury and which have already been used to offset a Disability Pension or MRC Act payment are exempt from the Service Pension, Veteran Payment and Income Support Supplement income tests.16

Incapacity payments made under the MRC Act are considered income for veterans’ income support payment income tests. For those under the Age Pension age, compensation payments made under the MRC Act or DRC Act which are not exempt income could result in their income support payment being reduced or cancelled for a specified period.17

Lump sum compensation payments will be assessed under the assets test. Lump sums held in a bank account or invested may be subject to the deemed income rules where a percentage of the asset value is assessed under the income support income test.18

Rent Assistance Rent Assistance is a supplementary payment for Service Pension, Income Support Supplement and Veteran Payment recipients who pay private rent that exceeds a certain threshold. Disability Pension and permanent impairment payment recipients have these compensation payments taken into account in the calculation of any Rent Assistance paid with a Service Pension, Income Support Supplement or Veteran Payment.19 These disability compensation payments can reduce the Rent Assistance payable if an individual’s compensation payment rate exceeds certain thresholds.20

Effect of disability compensation payments on social security payments Some veterans receive disability compensation payments under the VE Act, MRC Act or DRC Act and claim social security income support payments. Partners of veterans may also be ineligible for a veterans’ income support payment but eligible for social security income support.

While the social security pension income test is very similar to the veterans’ Service Pension income test, the social security income test does assess veterans’ disability compensation payments. The Disability Pension under the VE Act (including Above General rates) is treated as ordinary income.21 Compensation payments under the DRC Act and MRC Act are treated in different ways:

16. ‘DVA Income Exempt from Assessment’, DVA, 5 March 2013; ‘What happens if you receive a compensation payment’, DVA, 17 January 2020. 17. ‘What happens if you receive a compensation payment’, DVA. 18. ‘Disability pension and compensation offsetting’, DVA, 14 January 2020. 19. ‘Rent assistance’, DVA, 20 September 2021. 20. ‘Rent assistance’, DVA. 21. ‘4.3.5.10 How income from DVA is assessed’, Social Security Guide, Department of Social Services (DSS), 22 March 2021.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 8

• periodic payments with an economic loss-component are treated as compensation and can offset certain social security payments on a dollar-for-dollar basis22

• lump-sum payments with an economic loss component can result in a period during which a social security claimant is precluded from receiving any payment23

• payments with no economic loss component may be treated as ordinary income under the income test24 and

• some specific compensation payments, such as certain payments for prisoners of war, are excluded from assessment under the social security income test.25

Since 2004, social security claimants who are receiving a Disability Pension under the VE Act, the SRDP under the MRC Act or a permanent impairment payment under the MRC Act can receive the Defence Force Income Support Allowance (DFISA) which tops up a person’s social security payment rate to the level it would be if these compensation payments were exempt from the income test assessment.

Defence Force Income Support Allowance The DFISA was introduced from September 2004 in response to the 2003 Clarke Review of Veterans’ Entitlements’ recommendation that the various veterans’ Disability Pension rates be no longer regarded as income under the Social Security Act 1991.26 The Clarke Review had found discrepancies in the level of support offered to Disability Pension recipients who also received social security payments compared to those who also received a Service Pension.27

The rate of DFISA paid is equal to the difference between the rate of the social security pension or benefit the person actually receives under the social security means test and the rate they would receive if the veterans’ disability compensation payment:

• was excluded from income in the assessment of the person’s actual rate but

• included in the calculation of any Rent Assistance.28

The introduction of the DFISA was a much more complicated solution to this issue than that proposed by the Clarke Review. As the Bills Digest for the legislation introducing the DFISA stated:

The proposal to create this new and extra payment (that is DFISA), creates far more complexity and cost, especially in administrative costs, now and in the future. If disability pension were simply exempted in the SSA [Social Security Act 1991], then only two calculations need to be made at claim or review: one calculation of the disability pension rate under the VEA [Veterans’ Entitlements Act 1986] and a second for the income support payment under the SSA, the second simply ignoring any disability pension received (as is done now for the service pension paid under the VEA which ignores any disability pension paid).29

Disability Pension and compensation payment statistics As at June 2021 there were 80,252 recipients of a Disability Pension under the VE Act. Of these:

22. ‘4.3.5.60 About DVA compensation payments’, Social Security Guide, DSS, 9 August 2021; ‘4.13.3.20 Effect of Periodic Compensation on a Compensation Recipient’, Social Security Guide, DSS, 7 November 2016. 23. ‘4.13.2.30 Compensation part of lump sum - 50% rule’, Social Security Guide, DSS, 20 March 2020. 24. ‘4.3.5.60 About DVA compensation payments’, Social Security Guide, DSS. 25. ‘4.3.5.10 How income from DVA is assessed’, Social Security Guide, DSS, 9 August 2021. 26. Peter Yeend, ‘Veterans’ Entitlements (Clarke Review) Bill 2004’, Bills Digest, 134, 2003–04, (Canberra: Parliamentary Library,

2004); John Clarke, Doug Riding and David Rosalky, Report of the Review of Veterans’ Entitlements, (the Clarke Review), (Canberra: Commonwealth of Australia, January 2003), Chapter 30, 625, 627–628, 639. 27. Clarke Review, Chapter 29, 608. 28. ‘4.3.5.70 About DVA Defence Force Income Support Allowance (DFISA)’, Social Security Guide, DSS, 22 March 2021. 29. Yeend, 8.

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• 27,201 received the Special rate

• 695 received the Intermediate rate

• 3,687 received the EDA rate

• 9,595 received 100 per cent of the General rate and

• 39,074 received 10–95 per cent of the General rate.30

Of the 80,252 Disability Pension recipients, 39 per cent (31,597) also received a Service Pension and three per cent (2,148) also received a social security Age Pension.31 Of the 27,201 Special rate recipients, 67 per cent (18,244) also received a Service Pension and two per cent (451) also received a social security Age Pension.32

DVA data provided to the Senate Foreign Affairs, Defence and Trade References Committee found that as at January 2021, around 68 per cent of Special rate recipients received a Service Pension and around eight per cent also received another income support payment.33 Around 25 per cent of Special rate recipients did not receive any income support (from DVA or social security).34

As at March 2021, there were 27,092 veterans receiving a permanent impairment payment under the MRC Act (either a commuted or periodic payment) and 6,725 incapacity payment recipients. There were 17,501 veterans receiving a permanent impairment payment under the DRC Act and 2,500 incapacity payment recipients.35

Tune Review of Special rate Disability Pension Most of the measures proposed in the Bill were recommendations of the 2019 report of the Independent Review into the TPI Payment conducted by former Secretary of the Department of Finance, David Tune. In April 2019, Prime Minister Scott Morrison directed the Department of the Prime Minister and Cabinet to commission an evaluation of the Australian Federation of Totally and Permanently Incapacitated Ex Servicemen and Women’s (TPI Federation’s) claim that an increase in the Special rate of Disability Pension ‘is needed to remedy a downward trend in its value relative to wages since the 1950s’.36 The TPI Federation is an ex-service organisation representing recipients of the Special rate of Disability Pension and the SRDP under the MRC Act.37

The Tune Review did not agree with the TPI Federation’s claim:

Analysis conducted by the review, using more appropriate wage benchmarks than used by the TPI Federation, does not support the contention that the rate of the TPI payment has fallen against wages (regardless of whether it is split into two components). Against some wage measures, the TPI payment has increased in value over time. TPI veterans also have a higher net disposable income than many veterans who work full time earning Male Total Average Weekly Earnings (MTAWE). Veterans’ compensation is also provided under the Military Rehabilitation and Compensation Act 2004 (MRCA) and the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA). Analysis highlights that many TPI veterans receive higher payments from Government over the course of their life than veterans compensated under the MRCA or the DRCA.38

30. DVA, ‘Pensioner summary statistics—June 2021’, (Canberra: DVA, 2021), Table 02. 31. DVA, ‘Pensioner summary statistics—June 2021’, Tables 18 and 24. 32. DVA, ‘Pensioner summary statistics—June 2021’, Tables 02, 18 and 24. 33. DVA, Submission to Senate Foreign Affairs, Defence and Trade References Committee, Inquiry into the TPI payment (Special

Rate of Disability Pension), [Submission no. 15], April 2021, 12. 34. DVA, Submission, 12. 35. DVA, Stats at a Glance: March 2021, (Canberra: DVA, 2021). 36. Tune Review, 4. 37. TPI Federation of Australia website. 38. Tune Review, 4.

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The Review recommended there be no increase in the Special rate of Disability Pension other than normal indexation adjustments. However, the Review found that some veterans in receipt of the Special rate had fewer financial resources than others in the cohort and that other changes would be beneficial (bolded in original):

- Defence Force Income Support Allowance (DFISA) be abolished and Disability Pension – including the TPI payment – and permanent impairment payment under the MRCA be defined as exempt income under the social security law. In addition, the disability income rent test should be abolished. This would simplify payment arrangements and allow TPI veterans who are renting to receive Commonwealth Rent Assistance.

- Indexation of TPI payment be changed to index the whole payment at once, rather than in two components. This could also apply to the Intermediate and Extreme Disablement Adjustment rates of Disability Pension. The split indexation mechanism was introduced in 2004 due to the different indexation mechanisms in place for the General Rate and Above General Rate (AGR) components, but it is now redundant as the indexation mechanisms were aligned in 2008.

- Change terminology and language in legislation, guidelines and policy documents to no longer refer to the TPI pension as a ‘pension’ – but as a ‘payment’. Some stakeholders are concerned that the term ‘pension’ implies welfare instead of compensation.

- Conduct a data linkage project across agencies with the aim of examining the long-term wellbeing and overall outcomes for TPI veterans and links with mainstream services. Existing data on financial resources and Government payments provided to TPI veterans does not provide a complete picture of the needs of TPI veterans, or their overall wellbeing.39

The Government accepted all the recommended changes with measures announced in the 2020– 21 Budget.40

Other recent reports

2019 KPMG Review of TPI Benefits In 2019, DVA commissioned consulting firm KPMG to review the concerns and recommendations of the TPI Federation and the Disabled Veterans of Australia Network in relation to the value of the Special rate of Disability Pension.41 The scope of the KPMG review was limited to ‘developing a framework’ to review the TPI Federation’s recommendations and commenting on the proposals of the two ex-service organisations but did not extend to providing policy recommendations to DVA.42

The Review produced a framework for considering the payment based on principles underpinning worker’s compensation and insurance schemes. The KPMG review found that, based on the benchmarking analysis (considering the package of support available to Special rate Disability Pension recipients against average weekly earnings and the supports available under the MRC Act and DRC Act), there was not strong evidence to increase the Special rate for all TPI veterans.43 However, the Review did find that some Special rate recipients were worse off than others, in

39. Tune Review, 5. 40. ‘Independent Review into the TPI Payment’, DVA, 8 October 2020. 41. KPMG, Review of TPI Benefits, report prepared for DVA, (Canberra: DVA, 2019), ii. 42. KPMG, ii. 43. KPMG, iv, vi–vii.

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particular those whose disability occurred at a young age, those first granted the Disability Pension before 1983, and those renting.44

2019 Productivity Commission report on compensation and rehabilitation for veterans In 2018, the then Treasurer, Scott Morrison, commissioned the Productivity Commission (PC) to undertake an inquiry into the system of compensation and rehabilitation for veterans (both serving and ex-serving Australian Defence Force members).45

The Commission’s 2019 report, A Better Way to Support Veterans, considered the level of the Special rate of Disability Pension and found:

… the package of compensation received by veterans on the special rate of disability pension is reasonable. Despite strong veterans’ representation on this issue, there is no compelling case for increasing the rate of the pension.46

The PC also considered the DFISA and recommended that payments covered by the DFISA should be made exempt from the income test for social security income support payments, and the DFISA abolished.47

The PC’s comparison of disability compensation across the three schemes over a lifetime found that the package of supports for a recipient of the Special rate under the VE Act provided greater assistance for an older veteran (age 50) when compared with the package of supports available through the MRC Act and DRC Act, but a younger veteran (age 30) would fare better with MRC Act or DRC Act supports.48

2021 Senate Foreign Affairs, Defence and Trade References Committee report On 18 March 2021, the Senate referred the issue of the Special rate of Disability Pension to the Senate Foreign Affairs, Defence and Trade References Committee for inquiry and report. The terms of reference included an examination of the purpose, adequacy, structure and indexation of the Special rate and the TPI Federation’s concerns that the value of the Special rate had declined over time.49

The Committee considered the findings of the Tune, KPMG and Productivity Commission reports, as well as the 2020–21 budget measures announced in response to the Tune Review. Regarding the budget measures, the Committee found that the measures, ‘while welcome, will not address the primary concerns of the stakeholder groups who gave evidence to this inquiry’.50 The Committee’s report stated:

The committee believes that the TPI Federation and other submitters have made a persuasive case for a fair and just structural increase in the AGR [above General rate] component of the TPI Payment to help restore the relative value of the payment and recognise and replace TPI veterans’ loss of income.51

44. KPMG, iv. 45. PC, A Better Way to Support Veterans, vol. 1, iv. 46. PC, A Better Way to Support Veterans, vol. 2, 654. 47. PC, A Better Way to Support Veterans, vol. 2, 672. 48. PC, A Better Way to Support Veterans, vol. 2, 599–600. 49. Senate Foreign Affairs, Defence and Trade References Committee, TPI Payment (Special Rate of Disability Pension), (The

Senate: Canberra, July 2021): 1. 50. Senate Foreign Affairs, Defence and Trade References Committee: 38. 51. Senate Foreign Affairs, Defence and Trade References Committee: 38.

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The Committee recommended the Government consider an increase in the Special rate of Disability Pension.52

The Government Response to the Committee report stated:

The Government notes the Committee’s recommendation that the Australian Government consider an increase in the TPI payment, and will take this recommendation together with the views of the ex-service community as presented to the Committee into account when considering future policy options for support to TPI veterans.53

Committee Consideration At the time of writing, the Bill had not been referred to any Committees. At meetings on 20 October 2021 and 24 November 2021, the Senate Selection of Bills Committee deferred consideration of the Bill.54

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills raised issue with significant matters in Schedule 5 (the rehabilitation pilot program) left to delegated legislation. Proposed section 53D of the MRC Act, inserted by item 5 of Schedule 5, provides for the class of persons eligible for the pilot program to be determined in a legislative instrument. The Explanatory Memorandum provides no further information on who will be included in this class of persons.

The Scrutiny of Bills Committee stated:

The committee's consistent scrutiny view is that significant matters, such as the key details of rehabilitation programs, should be included in primary legislation unless a sound justification for the use of delegated legislation has been provided.

…

The committee has generally not accepted a desire for administrative flexibility as a sufficient justification of itself for leaving significant matters to delegated legislation.55

The Committee also noted that while the pilot is intended to only run for two years, the proposed amendments do not limit the operation of the provisions to this timeframe.56

The Committee requested the Minister for Veterans’ Affairs provide more detailed advice as to:

- why it is considered necessary and appropriate to leave the key details of the non-liability rehabilitation pilot program to delegated legislation;

- whether the bill could be amended to:

o include at least high-level guidance regarding these matters on the face of the primary legislation; and

52. Senate Foreign Affairs, Defence and Trade References Committee: 39. 53. Australian Government, Australian Government response to the Senate Foreign Affairs, Defence and Trade Committee report: TPI Payment (Special Rate of Disability Pension), October 2021. 54. Senate Standing Committee for the Selection of Bills, Report, 12, 2021, 21 October 2021; Senate Standing Committee for the

Selection of Bills, Report, 13, 2021, 25 November 2021. 55. Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 17, 2021, 24 November 2021:40–41. 56. Senate Standing Committee for the Scrutiny of Bills: 41.

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o provide that proposed Part 2A of Chapter 3 is repealed after two years.57

Policy position of non-government parties/independents At the time of writing, non-government parties and independents had not commented directly on the Bill.

The Shadow Minister for Veterans’ Affairs and Defence Personnel, Shayne Neumann, had previously raised the issue that most Special rate Disability Pension recipients would not benefit from the proposed removal of the Rent Assistance income test.58 Labor had also criticised the original proposed timing of the commencement of the disability compensation measures (September 2022 rather than January 2022).59

Position of major interest groups The TPI Federation has previously welcomed the proposed removal of the disability income test for Rent Assistance under the VE Act. TPI Federation President Pat McCabe noted previous concerns around the timing of the commencement of this measure had been addressed in the 2021–22 Budget:

As part of the October 2020 Federal Budget, the Government finally agreed, after 15 years of campaigning by the TPI Federation, and as from September 2022, to allow TPIs eligibility of the Federal Governments Rent Assistance allowance. The TPI Federation disagreed with the length of time this provision would take to be implemented and, as a result, as part of the May 2021 Federal Budget, this timeline was bought forward so that this initiative could commence on the 1st January 2022.60

Financial implications The Explanatory Memorandum states that the changes relating to disability compensation payments will cost $33.3 million over four years. The non-liability rehabilitation program will cost $2.3 million over four years (including the cost of an evaluation).61

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.62

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considered the Bill in its thirteenth report of 2021 and had no comment.63

57. Senate Standing Committee for the Scrutiny of Bills: 41. 58. Shayne Neumann (Shadow Minister for Veterans’ Affairs and Defence Personnel), ‘Veterans left out and left behind by Federal Budget’, media release, 7 October 2020. 59. Shayne Neumann (Shadow Minister for Veterans’ Affairs and Defence Personnel), ‘Budget an admission of Government failure

in veterans' affairs’, media release, 12 May 2021. 60. TPI Federation Australia, Federation President’s Report, October 2021, 2. 61. Explanatory Memorandum, Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing

and Other Measures) Bill 2021, iii. 62. The Statement of Compatibility with Human Rights can be found at pages iv-ix of the Explanatory Memorandum to the Bill. 63. Parliamentary Joint Committee on Human Rights, Human Rights Scrutiny Report, 13, 2021, 10 November 2021, 32.

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Key issues and provisions

Schedule 1—Exempting adjusted disability pension from the social security income test and removal of Defence Force Income Support Allowance Schedule 1 proposes to exempt certain disability pensions paid under the VE Act and the MRC Act from the social security income test and to remove the DFISA, which currently tops-up the rate of social security payments affected by the inclusion of these disability pensions in the income test.

As set out in the Background section, the DFISA is essentially a complex method for ensuring certain disability pensions do not affect the rate of a recipient’s social security income support payment. Exempting these disability pensions from the income test and removing the DFISA simplifies the arrangements but will have little to zero financial impact on affected payment recipients.

Exempting the Disability Pension from the social security income test was a recommendation of the 2003 Clarke Review, as well as the more recent reports on the Special rate discussed in the Background section.64

How many will be affected? The Minister for Veterans’ Affairs, Andrew Gee, stated that the changes will simplify payment arrangements for around 14,000 veterans and their dependants.65

Key provisions

Social Security Act 1991 Subsection 8(8) of the Social Security Act 1991 provides a list of amounts which are not included in the definition of ‘income’ for the purposes of the Act. Item 21 adds to this list new subparagraph 8(8)(y)(ia) which will provide for VE Act disability compensation payments (currently known as Disability Pensions but the term will be amended by Schedule 4 of the Bill) to be excluded as income under the social security income test. Item 22 adds new subparagraph 8(8)(y)(ib) which will provide for some saved pensions under the Veterans’ Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 (grandfathered veterans’ payments which were removed by the VE Act) to be excluded as income under the social security income test.

Items 23–24 repeal the social security income test exemption for the DFISA as it will be abolished.

Item 25 adds new paragraphs 8(8)(zoa) and (zob) which exclude permanent impairment payments under the MRC Act and the SRDP under the MRC Act as income under the social security income test.

Item 27 repeals subsection 23(1D). This subsection currently allows those whose social security payment rate is reduced to nil as a result of them receiving a veterans’ Disability Pension (or one of the saved pensions) or a permanent impairment payment or SRDP under the MRC Act, to still have their social security payment considered ‘payable’ under social security law. Having these nil-rate payments defined as payable ensures these recipients can still access certain supplementary payments and concession cards. As these veteran’s payments are being made exempt from the income test and will no longer affect payment rates, this subsection is redundant.

64. Clarke Review, 639. 65. Andrew Gee, Second Reading Speech: Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021, House of Representatives, Debates, (proof), 21 October 2021, 1.

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Items 28–34 repeal various provisions relating to the DFISA which will no longer be applicable.

Veterans’ Entitlements Act 1986 Items 43–56 remove definitions and references relevant to the DFISA in the VE Act which will no longer be applicable.

Item 57 repeals Part VIIAB of the VE Act. Part VIIAB provides for the payment of the DFISA.

Items 58–62 repeal redundant provisions and references relevant to the DFISA.

Amendments to other Acts Items 1–20 and items 36–42 make amendments to the A New Tax System (Family Assistance) Act 1999, Child Support (Assessment) Act 1989, Child Support (Registration and Collection) Act 1988, Farm Household Support Act 2014, Income Tax Assessment Act 1936, Income Tax Assessment Act 1997 and the Social Security (Administration) Act 1999 to make amendments consequential to the amendments to the Social Security Act 1991 and the VE Act. The changes primarily remove redundant references to the DFISA or provisions relating to the DFISA from these Acts.

Schedule 2—Increased rent assistance Schedule 2 proposes to remove the disability income test which can reduce the level of Rent Assistance payable under the VE Act to those in receipt of Disability Pension or a permanent impairment payment under the MRC Act. The test effectively lowers the level of Rent Assistance available to those receiving higher rates of disability compensation.

Rent Assistance is a supplementary payment available to income support recipients (such as Service Pension, Income Support Supplement or Veteran Payment recipients) who rent privately. The rate of rent payable must exceed a certain threshold with rates of Rent Assistance related to the level of rent paid, up to a maximum. The disability income test affects those receiving Rent Assistance with a DVA income support payment. There is no similar test applicable to those receiving Rent Assistance with a social security income support payment. However, the DFISA does not currently cover any Rent Assistance reduced under the social security income test.66

The 2003 Clarke Review had recommended removing the disability income test for Rent Assistance, as did the 2019 Tune Review.67 The Tune Review noted the impact of the disability income test:

The effect of the disability income rent test is that the greater the veteran’s impairment, the less rent assistance is payable. A TPI veteran is unable to receive any rent assistance because the disability income rent test reduces the rate of rent assistance payable to nil. The disability income rent test can also result in Service Pension recipients being paid a lower income support payment than if they were paid age Pension [sic].68

DVA states that the reason Disability Pension and permanent impairment compensation recipients have their rate of Rent Assistance reduced is to target that supplementary payment at those with limited means:

66. PC, A Better Way to Support Veterans, vol. 2, 669. 67. Clarke Report, 622, 639–640; Tune Review, 31. 68. Tune Review, 21.

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People whose rent assistance is affected by their rate of disability pension or the amount of permanent impairment compensation are not considered to be entirely dependent on their income support pension or veteran payment.69

The amendments in Schedule 2 will mean that veterans eligible for Rent Assistance under the VE Act will not have their rate of Rent Assistance affected by their Disability Pension or permanent impairment payment.

How many will benefit? The Minister for Veterans’ Affairs Andrew Gee stated that around 6,900 veterans and their dependants will benefit from the removal of the disability income test for Rent Assistance.70

Key provisions Items 6–12 of Schedule 2 to the Bill amend or repeal relevant points in the Rent Assistance rate calculator at Schedule 6 to the VE Act that apply to those who receive a pension by way of compensation (Disability Pension, permanent impairment payments under the MRC Act and the SRDP). The amendments will mean that these payments will no longer affect an individual’s rate of Rent Assistance.

Schedule 3—Removing references to Disability Pension Schedule 3 proposes to amend some references to the term ‘disability pension’ in the VE Act where it is used to refer to Disability Pension and War Widow’s/er’s Pension (WWP). Amended references will instead refer to the term ‘pension by way of compensation’.

The Tune Review found that some veterans’ compensation payment recipients were concerned that ‘the word “pension” implies welfare as opposed to compensation’.71 The Tune Review noted that the term ‘pension’ is not used solely for payments provided as ‘welfare’ but can also be used to describe other forms of regular income such as periodic payments from superannuation.72 The Tune Review noted that the Special rate of Disability Pension was a form of compensation but differed from other forms of compensation such as the DVA Gold Card or lump sum payments in that it was paid at intervals (as a pension).73

However, the Tune Review recognised the concerns from stakeholders over the use of the word pension and recommended that the term ‘TPI payment’ be used instead of ‘TPI pension’ in legislation, policy guidelines and related material.74

Rationale for the proposed amendments Minister Gee stated the amendments ‘clarify that these payments are compensation and will reduce the potential for the payment to be confused with Department of Social Services disability support pensions’.75 The Minister suggests there is the potential for confusion between VE Act’s Disability Pension and the social security Disability Support Pension. However, no evidence was put forward by the Government suggesting widespread confusion. It would seem more likely that the terminology risks confusion between different VE Act pensions, such as the means-tested Invalidity Service Pension and the non-means-tested Disability Pension. The term ‘pension’ has

69. ‘Rent assistance’, DVA. 70. Gee, 1. 71. Tune Review, 13. 72. Tune Review, 14. 73. Tune Review, 14. 74. Tune Review, 35. 75. Gee, 2.

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been used for veterans’ compensation payments for more than a century, preceding the introduction of the Service Pension.76

The concerns put forward in the Tune Review suggest that the issue for stakeholders is that the word ‘pension’ suggests the payment is a ‘welfare payment’, with welfare considered a pejorative term. It is unclear how widespread this view of the word ‘pension’ is—as the Tune Review pointed out, pension is commonly used to refer to regular payments outside the social security system such as superannuation pensions.

Amendments do not remove most references to pensions The proposed amendments do not actually remove most references to the term ‘pension’ in relation to Disability Pension in the VE Act. Rather, the amendments add a qualifier, ‘pension by way of compensation’ to some headings and some references to compensation pensions generally.

The Explanatory Memorandum notes the amendments implement the Tune Review’s recommendation to some extent:

… including clarifying the nature of pension by way of compensation, rather than by means of welfare. This will also be captured in guidelines and policy documents.

However, the word “pension” has not been removed throughout the VEA. It is important to recognise that it is not only the Commonwealth that provides benefits to veterans and their dependants. Various State, Territory and local government laws and regulations also provide for benefits and discounts for veterans and their families. These laws and regulations refer to veterans and their families in a variety of different ways, including referring to “pensions under the VEA”. Similarly, private businesses and charities may target “pensioners”. There is a risk that removing the word “pension” could mean these benefits and discounts would no longer flow to veterans and their families.77

The Government’s concern is that some compensation pension recipients might miss out on other benefits if the term ‘pension’ was removed altogether.

The proposed amendments do not actually address the recommendation of the Tune Review to remove the term ‘pension’. They remove legislative references to ‘Disability Pension’ but retain the term ‘pension’ in describing these compensation payments.

Key provisions Item 1 of Schedule 3 amends the definition of ‘adjusted income’ at subsection 5H(1) of the VE Act to substitute the reference to ‘disability pension’ as defined at subsection 5Q(1) with a reference to:

a payment to the person that is a payment in respect of incapacity or death resulting from employment in connection with a war or war-like operations in which the Crown has been engaged, other than:

(i) a pension under Part II or IV (other than a pension that is payable under section 30 to a dependant of a deceased veteran); or

(ii) a pension payable because of subsection 4(6) or (8B) of the Veterans’ Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 (other than a pension payable in respect of a child).

76. War Pensions Act 1914 (Cth); Philip Payton, Repat: A Concise History of Repatriation in Australia, (Canberra: DVA, 2018), 37. 77. Explanatory Memorandum, 15.

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This is because the definition of ‘disability pension’ at subsection 5Q(1) is being repealed by item 3.

Item 2 also substitutes a reference to a ‘disability pension payable to a person under Part 2 or Part 4’ at paragraph 5H(8)(ea) with a reference to ‘a pension payable to the person under Part II or IV’. Paragraph 5H(8)(ea) excludes from the definition of ‘income’ under the VE Act certain compensation payments that affect the rate of a Disability Pension paid under Part II or IV (see ‘Offsetting’ section above). Parts II and IV of the VE Act also provide for compensation payments other than the Disability Pension, including payments to the dependants of deceased veterans (War Widow’s/er’s Pension and Orphan’s Pension).78 Removing the reference to Disability Pension slightly changes the effect of paragraph 5H(8)(ea) so that compensation payments that reduce Disability Pension and/or pensions for dependants such as the War Widow’s/er’s Pension as excluded income under the VE Act.

Item 4 replaces the current heading for Part II of the VE Act—'Pensions, other than service pensions, for veterans and their dependants’—with the new heading: ‘Pensions by way of compensation to veterans and their dependants’. Item 5 makes a similar change to the heading of Division 2 of Part II to replace the current heading—‘Eligibility for pension’—with the new heading: ‘Eligibility for pensions by way of compensation to veterans and their dependants’.

Item 7 makes a similar amendment as item 2 at paragraph 52Z(3A)(da) with similar effect of expanding the scope of the provision to include compensation payments that affect all pensions under Part II and IV of the VE Act, including those for dependants.

Items 8–12 substitute various references to ‘disability pension’ or ‘pensions’ with references to ‘pensions by way of compensation’.

Section 98A of the VE Act deals with bereavement payment in respect of partnered disabled veterans. Item 13 amends paragraph 98A(1)(b) to substitute the term ‘disability pension’, with ‘a pension under Part II or IV (other than a pension payable to a person as a dependant of a deceased veteran)’.

Items 14–22 amend various other references to ‘disability pension’ in section 98A and the heading for section 98AA—these sections currently provide for bereavement payments where a Disability Pension recipient has died. While the term ‘Disability Pension’ will no longer appear, the term ‘pension’ will continue to be used.

Schedule 4—Indexation of Above General rates Different veterans’ payment rates are adjusted in different ways to maintain their value over time via the process known as indexation. Currently, the Service Pension is indexed in the same way as the Age Pension and other social security pensions by adjusting in line with price indexes with a minimum benchmark rate set as a percentage of average wages. Veterans’ Disability Pension, War Widow’s/er’s Pension and Veteran Payment are not indexed in the same way as the Service Pension but the methodology is linked to the Service Pension rate. A number of supplementary payments are indexed to the Consumer Price Index (CPI).

The separate Disability Pension rates are currently indexed separately. That is, the General rate and each of the three Above General rates are all adjusted separately. Schedule 4 proposes to simplify this process so that the Above General rates are adjusted in the same way as the General rate. The change will have minimal impact on how payment rates are calculated.

78. ‘Pension for orphans and war widow(er)s’, DVA, 19 January 2021.

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Indexation of the Service Pension The Service Pension is indexed twice each year (on 20 March and 20 September) by the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI).79 Rates are then benchmarked against a percentage of Male Total Average Weekly Earnings (MTAWE).80 The combined couple rate is benchmarked to 41.76 per cent of MTAWE; the single rate of pension is set at 66.33 per cent of the combined couple rate (which is equal to around 27.7 per cent of MTAWE).81 ‘Benchmarked’ means that after it has been indexed, the combined couple rate is checked to see whether it is equal to or higher than 41.76 per cent of MTAWE. If the rate is lower than this percentage, the rates are increased to the appropriate benchmark level.

The CPI is a measure of changes in the prices paid by households for a fixed basket of goods and services. Adjusting (or indexing) payment rates in line with movements in the CPI, maintains their ‘real’ value over time, in the sense that the payment should be able to purchase the same amount of goods and services over time. The PBLCI is another method for measuring changes in costs. It is different from the CPI in that, instead of measuring changing prices in a fixed basket of goods as experienced by the general population, it measures the effect of changes in prices of the out-of-pocket living expenses experienced by age pensioner and other households whose main source of income is a government payment.82

The use of the MTAWE benchmark serves a different purpose from indexation generally, it ‘is not intended to maintain the value of pensions relative to costs; rather, it is seen as ensuring pensioners maintain a certain standard of living, relative to the rest of the population’.83

The current indexation method took effect from 20 September 2009.84 Prior to this date, the service pension was indexed to CPI or benchmarked to 25 per cent of MTAWE (for the single rate).85

Indexation of compensation payments Disability Pension, the War Widow’s/er’s Pension and Veteran Payment are also indexed twice each year, according to movements in the Maximum Basic Rate (MBR) factor.86 The MBR factor is a measure of the change in the single Service Pension rate. This means that the Disability Pension and other compensation payments are indirectly indexed to movements in the CPI or PBLCI, and to MTAWE changes.

The MBR factor equals:

• current ‘not a member of a couple’ Service Pension MBR amount (after it has been indexed and/or benchmarked) divided by the

• previous ‘not a member of a couple’ MBR amount, worked out to three decimal places.

79. Australian Bureau of Statistics (ABS), Selected Living Cost Indexes, Australia, (Canberra: ABS, 2021). 80. ABS, Average Weekly Earnings, Australia, (Canberra, ABS, 2021). 81. ‘Indexation of income support pensions and allowances’, DVA. 82. ‘Indexation of income support pensions and allowances’, DVA. 83. Michael Klapdor, ‘Pension indexation: a brief history’, FlagPost (blog), Parliamentary Library, 16 April 2014. 84. Klapdor, ‘Pension indexation: a brief history’; Veterans' Affairs and Other Legislation Amendment (Pension Reform) Act 2009

(Cth).

85. Klapdor, ‘Pension indexation: a brief history’. 86. ‘Pension MBR factor’, Compensation and Support Policy Library, DVA.

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For example, the MBR Factor for 20 September 2021 would be worked out using this formula: $22,937.20 (annual rate as at 20 September 2021) ÷ $22,575.80 (the annual rate prior to 20 September 2021) = 1.016 (MBR factor).87

To apply the MBR factor, the relevant Disability Pension rates on 19 September 2021 were multiplied by the MBR factor (that is, 1.016) and rounded up to the nearest ten cents to arrive at the new rates. On 20 September 2021, the 100% General rate increased from $513.10 to $521.40 per fortnight.88 The formula results in a simple proportional rate increase. This only occurs where multiplying the current rate by the MBR factor would result in a higher rate than adjustment in line with movements in the CPI.

Each of the Above General rates are adjusted by the MRB factor separately.89 The 100% General rate for the day before indexation is deducted from the total amount payable to an Above General rate payment recipient to isolate the Above General rate component. This is then multiplied by the MBR Factor and rounded up to the nearest ten cents. This indexed amount is then added to the new, indexed 100% General rate to equal the total amount payable to an Above General rate recipient.

The War Widow’s/er’s Pension is also divided into components and adjusted separately—one part is set equal to the Service Pension rate, one part is adjusted by the MBR Factor, and one part is adjusted by CPI-only indexation.90

Changes to Disability Pension indexation Prior to March 2004, the Disability Pension was indexed to CPI only (CPI indexation began in 1976). Changes were made in response to the Clarke Report so that, from March 2004, the General rate Disability Pension continued to be adjusted in line with CPI movements but Above General rate payments were indexed to the MBR factor (only the components of these Above General rates that were above the 100% General rate were indexed to the MBR factor).91

In July 2007, the Special and Intermediate rates of Disability Pension received ad hoc increases of $50 and $25 per fortnight respectively.92

From March 2008 the indexation method changed again, and all Disability Pension rates were adjusted by the MBR Factor (so indirectly to CPI or MTAWE).93 The General rate, EDA rate and non-indexed component of the War Widow’s/er’s Pension also received a one-off increase at the same time as this indexation change.94

87. ‘Income support payment rates 20 September 2021’, Annual rate is the fortnightly rate multiplied by 26. Compensation and Support Reference Library, DVA. Clause SCH6-B1 of the Rate Calculator in Schedule 6 of the VE Act includes both annual and fortnightly maximum basic rates of the Service Pension. Subclause SCH6-A1(1) of the Rate Calculator in Schedule 6 states that the rate of the Service Pension is an annual rate (fortnightly amounts are provided for information only). Veterans’ Entitlements Act 1986 (Cth).

88. ‘Disability Pension Rates & Supplements 20 September 2021’, Compensation and Support Reference Library, DVA. 89. Subsection 198(5E), Veterans’ Entitlements Act 1986 (Cth). 90. ‘How Certain Pensions and Allowances are Indexed’, DVA. 91. Yeend, ‘Veterans' Entitlements (Clarke Review) Bill 2004’. 92. Peter Yeend, ‘Social Security and Veterans Affairs Legislation Amendment (One-off Payments and Other 2007 Budget

Measures) Bill 2007’, Bills Digest, 1, 2007–08, (Canberra: Parliamentary Library, 2007), 15. 93. Veterans’ Entitlements Amendment (Disability, War Widow and War Widower Pensions) Act 2007 (Cth). 94. Peter Yeend, ‘Veterans’ Entitlements Amendment (Disability, War Widow and War Widower Pensions) Bill 2007’, Bills Digest,

4, 2008–09, (Canberra: Parliamentary Library, 2008).

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As the Tune Review noted, the different components of the Disability Pension (the General rate and the Above General rates (Special, EDA and Intermediate) are still adjusted separately but all use the MBR Factor.95

Proposed change Schedule 4 proposes to simplify the way Above General rates of Disability Pension are indexed. Rather than using the formula whereby the Above General rates component is separated from the 100% General rate to be indexed separately, one formula for adjusting the total amount payable to an Above General rate recipient will be used. The formula will adjust the total amount by the relevant MBR Factor rounded up to the nearest ten cents.

As the Explanatory Memorandum notes, the changes will mean that rounding only occurs for one amount, not two as currently occurs.96 This could mean that indexation increases on some dates will be up to ten cents lower than if adjusted according to the current method. This means that Above General rates could be slightly lower in the future than if the current formula was maintained.

Item 1 of Schedule 4 repeals and substitutes proposed subsection 198(5E) which provides for the new simplified formula for adjusting Above General rates.

Schedule 5—Non-liability rehabilitation pilot In the 2021–22 Budget, the Government announced a two-year pilot program to allow veterans with vocational and psychosocial rehabilitation needs to access services and support without requiring them to have lodged a compensation claim.97 The pilot program is in response to Recommendation 6.3 of the Productivity Commission’s 2019 report which said that consideration should be given ‘to providing rehabilitation on a non-liability basis across the interval from ADF [Australian Defence Force] service to determination of claims post-service’.98

The program will cost $2.3 million over four years including the cost of an evaluation.99

Minister Gee stated that the measure ‘aims to encourage and enable access to voluntary rehabilitation for 100 veterans for each of the two years of the pilot’.100

Key provisions Item 5 inserts the substantive provisions allowing for the pilot program in the form of new Part 2A of Chapter 3 of the MRC Act. The provisions provide for a rehabilitation program to be provided to members or former members of the ADF who meet eligibility criteria.

Individuals will be eligible for the pilot program if:

• they are a current member of the ADF or a former member of the ADF (provided they were a member at any time on or after 1 December 1988) and

• they have not made a claim for liability for an injury or disease related to their service under paragraph 319(1)(a) of the MRC Act

95. Tune Review, 30. 96. Explanatory Memorandum, 18. 97. DVA, Pilot of Non-Liability Rehabilitation, Budget 2021–22 Information Sheet, (Canberra: DVA, 2021). 98. PC, A Better Way to Support Veterans, vol. 1, 49. 99. DVA, Pilot of Non-Liability Rehabilitation. 100. Gee, 2.

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• they are in a class of persons determined by the Military Rehabilitation and Compensation Commission101 (the Commission) for the purposes of the pilot via a legislative instrument made under new section 53D (the Explanatory Memorandum does not provide further detail on what class of persons will be determined via this instrument) and

• the Commission has determined, in writing, that this part of the MRC Act applies to the person.

The rehabilitation program will be delivered through an approved provider and must consist of vocational assessment and rehabilitation and/or psycho-social training.102 Conditions and limits (including financial limits) for any such program are to be set out in a legislative instrument.103

New subsection 53C(5) provides that section 38 of the MRC Act does not apply in relation to the pilot program. Section 38 sets out the aim of rehabilitation:

The aim of rehabilitation is to maximise the potential to restore a person who has an impairment, or an incapacity for service or work, as a result of an injury or disease to at least the same physical and psychological state, and at least the same social, vocational and educational status, as he or she had before the injury or disease.104

The Explanatory Memorandum states that the reason section 38 does not apply in relation to this pilot is due to ‘the shorter duration and targeted nature of the pilot and that it will not be aiming to achieve the same outcome as the full rehabilitation services usually provided’.105

101. ‘Veterans’ Affairs portfolio’, DVA, 5 August 2020. 102. Proposed subsection 53C(1), Military Rehabilitation and Compensation Act 2004 (Cth). 103. Proposed subsection 53C(3), Military Rehabilitation and Compensation Act 2004 (Cth). 104. Section 38, Military Rehabilitation and Compensation Act 2004 (Cth). 105. Explanatory Memorandum, 21.

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Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Bill 2021 23

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