Referral
1.1
On 18 March 2021, the Senate referred the following matter to the Senate Foreign Affairs, Defence and Trade References Committee for inquiry and report by 24 June 2021:
The TPI payment (Special Rate of Disability Pension), with particular reference to:
(a)
the purpose, adequacy, structure and indexation arrangements of the TPI pension;
(b)
the case made, and analysis provided, by the TPI Federation, including the extent to which the TPI pension value has changed over time and the support available to TPI veterans;
(c)
all relevant existing information and previous reviews in relation to the TPI pension, including the recommendations of the Tune review;
(d)
recommendations on any potential changes to the payment and any other issues;
(e)
advice on costs associated with any recommendations; and
Conduct of the inquiry
1.2
Details of the inquiry were placed on the committee website at: http://www.aph.gov.au/senate_fadt. The committee also contacted a number of relevant individuals and organisations to notify them of the inquiry and invite submissions by 30 April 2021.
1.3
The committee received 20 submissions. Public submissions received are listed at Appendix 1.
1.4
The committee held a public hearing on 20 May 2021 in Canberra. A list of witnesses who gave evidence at the public hearing is available at Appendix 2. Submissions and the Hansard transcript of evidence may be accessed through the committee website.
1.5
The committee thanks organisations and individuals who provided submissions and participated in the committee's hearing.
Background
1.6
As noted in the committee's terms of reference, a number of previous reviews in relation to the TPI payment are relevant to the committee's inquiry, including:
the Productivity Commission's report A Better Way to Support Veterans, released in June 2019;
a review of TPI benefits commissioned by the Department of Veterans Affairs (DVA) in January 2018 and undertaken by KPMG (KPMG Review), with the report of the review published in November 2019; and
a review of the TPI Payment undertaken by Mr David Tune PSM (Tune Review), initiated at the request of the Prime Minister in April 2019 and completed in August 2019.
1.7
Further information about the findings of these reviews is included below.
What is the TPI Payment?
1.8
The TPI Payment is a regular fortnightly payment, paid to a totally and permanently incapacitated veteran under the Veterans' Entitlements Act 1986 (VEA). It is also known as the Special Rate of Disability Pension (SRDP) or TPI Rate/Pension.
Purpose of the TPI Payment
1.9
The TPI Payment and other veteran disability payments are paid 'to compensate veterans for conditions caused or aggravated by war service or certain defence service on behalf of Australia'.
1.10
DVA noted comments made by the relevant Minister during the introduction of the VEA in 1985 which articulate the purpose of the TPI Payment:
Since 1920, there has been a special rate of disability pension payable in circumstances where, because of total and permanent incapacity resulting from war service, a veteran has been unable to resume or to continue in civil employment.
The special or TPI rate pension was designed for severely disabled veterans of a relatively young age who could never go back to work and could never hope to support themselves or their families or put away money for their old age.
1.11
The initial precursor to the TPI Payment was introduced in 1920 by the Australian Soldiers Repatriation Act 1920. The structure and indexation of the payment have undergone numerous changes in the decades since.
1.12
The TPI Payment is paid for life, is tax exempt and not means tested. While it may be offset by other compensation payments, it is not offset by superannuation. In addition, it is excluded as income from the Service (and age) Pension means testing.
Disability payments under the VEA
1.13
Under the VEA, there are several levels of disability payments available depending on a veteran's level of incapacity and ability to work, of which the TPI Payment constitutes the highest rate.
1.14
The General Rate (GR) of Disability Payment is available to veterans with incapacity relating from service-related conditions, as explained by DVA:
For veterans with incapacity that results from their service-related conditions, the General Rate of Disability Payment is provided for service-related incapacity (effects of injury, illness or disease) by a combination of medical impairment and lifestyle effects of a condition. It is paid in 10 per cent multiples, between 10 per cent and 100 per cent incapacity. Generally, the higher the degree of incapacity, the higher the rate of payment. The General Rate (GR) does not have regard to whether or not a veteran is employable, although lifestyle factors are considered with functional impairment in determining the rate.
1.15
For veterans who suffer from higher degrees of incapacity or for those veterans who are unable to work due to the effects of their condition(s), the VEA also provides the Above General Rate (AGR) Disability Payment, with payments made at several rates according to the level of incapacity and ability to work. The Special Rate (TPI) is the highest rate of payment under the VEA and has the most stringent eligibility criteria. The other AGR rates available are the Intermediate Rate and the Extreme Disablement Adjustment, as shown at Figure 1.1.
Eligibility criteria for the TPI Payment
1.16
Broad eligibility criteria for the TPI Payment are that the veteran:
has 70 per cent or greater incapacity;
is aged less than 65 on application;
is unable to work more than 8 hours per week due to service related conditions alone; and
is suffering a loss of earnings due to service related conditions alone.
Current rate of the TPI Payment
1.17
As at April 2021, an eligible Special Rate veteran will receive $1,464.70 per fortnight, including the Energy Supplement. Comparatively, a veteran who is eligible for the General Rate of Disability Payment can receive up to $520.80 per fortnight. This makes the AGR component of the TPI Payment $943.90 per fortnight.
Indexation of the TPI Payment
1.18
Disability payments including the TPI Payment are indexed twice annually, on 20 March and 20 September each year.
1.19
The AGR disability payments, including the Special Rate, are indexed using the pension maximum basic rate (MBR) factor. The MBR factor is derived from the indexation increase in the single maximum basic rate of service pension, and takes account of the Consumer Price Index (CPI), the Male Total Average Weekly Earnings (MTAWE) benchmark and the Pensioner and Beneficiary Living Cost Index (PBLCI).
1.20
DVA noted that the MTAWE benchmark requires the single service pension maximum basic rate to be at least 25 per cent of MTAWE. There is no direct correlation between the pension MBR factor and either CPI or MTAWE.
1.21
The TPI Payment is currently split for indexation purposes, with the General Rate component of the payment indexed separately to the AGR component. This split in indexation was introduced in 2004, whereby the General Rate component was indexed using CPI while the AGR component was indexed using the pension MBR factor. In 2008, the General Rate component also commenced indexation using the pension MBR factor.
1.22
The 2020-21 Budget included a measure to remove this split and index the TPI Payment as a whole, commencing on 20 September 2022. Legislation to implement this measure is yet to be introduced into Parliament. This measure was a recommendation of the Tune Review.
Increases to the General Rate and Special Rate in 2007-08
1.23
DVA noted that in July 2007, there was a structural increase to the Special Rate of $50 per fortnight, or around 5.75 per cent, separate to regular indexation measures. The increase was backdated to March 2007. From March 2008, a five per cent increase (around $16 per fortnight) in the General Rate also flowed through to the Special Rate.
Other payments and supports available to Special Rate veterans
1.24
DVA highlighted that in addition to the lifetime fortnightly disability compensation payment available under the VEA, many Special Rate veterans can also access a range of other payments and benefits, subject to eligibility criteria. These are outlined briefly below. Whether these other payments and benefits should be considered when assessing the adequacy of the TPI Payment was contested by submitters to the inquiry. This is discussed further in Chapter 2.
Service Pension
1.25
The Service Pension is a fortnightly payment that provides a regular income for people with limited means. A service pension can be paid to veterans on the grounds of age or invalidity, and to eligible partners, widows and widowers. Veterans must have qualifying service (essentially service in a conflict or war) to be entitled to the service pension.
1.26
The Age Service Pension is payable earlier (at 60 years for those with qualifying service) than the equivalent age pension for other Australians. This is 'in recognition of the intangible effects of war that may result in premature ageing of the veteran and/or loss of earning power'. Invalidity Service Pension is available for those with qualifying service under 60 years of age.
1.27
There are two different rates of service pension: a singles rate, payable to single pensioners, widows, widowers and former partners of veterans; and a couples rate, payable to each member of a couple who are living together.
1.28
The maximum rate of the single service pension is currently $952.70 per fortnight, and the maximum rate for couples is $718.10 per fortnight for each member of the couple.
1.29
The Service Pension is subject to an income and assets test. DVA stated that where veterans do not receive an income support payment, 'it is usually because their income from other sources is too high'. VEA disability payments including the TPI Payment are exempt from the service pension income test.
1.30
TPI recipients who do not qualify for the service pension may qualify for an alternative payment such as the social security aged pension.
1.31
DVA provided data showing that 67 per cent of the TPI cohort receive the service pension (either at the full rate or at a part rate due to income and asset testing), with a further seven per cent of TPI recipients receiving a different income support payment (see Figure 1.2).
Defence Force Income Support Allowance (DFISA) and Disability Support Pension/Aged Pension
1.32
TPI Veterans that are not entitled to a Service Pension, can apply for the Disability Support Pension (DSP) prior to retirement and the Aged Pension (AP) for retirees. The DSP and AP are income and asset tested and the TPI Pension is included in the income test. However, TPI Veterans are entitled to a DFISA benefit which 'ensures a top up to the equivalent additional amount that would have been paid under the AP/DSP if the TPI Pension was not included in the income test. This effectively treats the TPI Pension in the calculation of Centrelink's income support payments (i.e.DSP/SP) as it is for the Service Pension'.
Superannuation
1.33
Veterans 'who are medically discharged from service with an incapacity, may be entitled to a superannuation pension benefit, based on their years of service, salary in the military, and the level of incapacity'.
Gold Card and other benefits
1.34
All Special Rate veterans receive a Veteran Gold Card which provides free health care under DVA funding arrangements for all medical conditions, whether service-related or not.
1.35
DVA submitted that TPI veterans may also have access to other assistance including:
the Energy Supplement – to provide financial assistance with energy costs;
a vehicle assistance scheme – to provide financial assistance towards the purchase of a motor vehicle, motorcycle or parts;
GST exemptions for purchases of motor vehicles and motorcycles;
financial assistance for housing and loans;
access to a range of insurance products;
counselling for veterans and their families; and
assistance for their children’s education.
1.36
DVA also noted that state, territory and local governments offer Veteran Card holders a range of concessions on the services they provide such as utility rates, public transport and some taxes.
1.37
The service pension and other benefits are subject to varying eligibility criteria, and are generally available to all eligible veterans rather than exclusively to TPI recipients.
Characteristics of TPI veterans
1.38
DVA submitted that as at January 2021, a total of 27,405 veterans were receiving one of the VEA Special Rate payments, or the equivalent under the Military Rehabilitation and Compensation Act 2004 (MRCA), including 27,217 receiving the Special Rate (TPI).
1.39
The VEA covers veterans who served in conflicts abroad prior to 2004, with approximately 70 per cent of TPI recipients serving in the Vietnam War. Most TPI veterans are aged in their mid-60s to mid-70s, with about 90 per cent over the age of 60. Approximately 98 per cent of TPI veterans are male.
1.40
Over 70 per cent of current TPI veterans were aged 50 or above at the time they started receiving the TPI payment, and more than 90 per cent of TPI veterans were granted the payment from 1994 onwards.
Compensation payments under other veterans legislation
1.41
In addition to the VEA, compensation payments and other supports for veterans who served more recently (generally, after 2004) are available under the Safety, Rehabilitation and Compensation Act (Defence-Related Claims) Act 1988 (DRCA) and the MRCA.
1.42
DVA outlined some of the key differences in the compensation arrangements under these Acts:
Compensation for service-related incapacity is provided as fortnightly payments under the VEA (i.e. the effects of the service-related injuries, illness or diseases). Under the DRCA, permanent impairment compensation is payable as a lump sum amount. In the case of the MRCA, permanent impairment compensation is payable as either periodic payments, a lump sum or a combination of the two in some instances.
Under both the DRCA and MRCA, incapacity payments, which are designed to compensate for the inability to work and loss of earnings, is payable as a fortnightly amount.
… All three Acts also provide medical treatment, rehabilitation services and other allowances and benefits.
Eligibility under the Acts is primarily determined by when an individual’s service occurred, the type of service rendered and/or the date of onset of an injury or illness.
Previous reviews and reports examining TPI benefits
1.43
A number of reviews of veterans' benefits have been conducted. The three most recent, which look at this particular issue, are detailed below. In summary, however, the three reviews found there is insufficient evidence to support a broad increase in the TPI payment.
KPMG Review
1.44
In January 2018, the DVA commissioned KPMG to examine the TPI Federation's campaign for an increase in the TPI Payment. As noted by DVA:
KPMG analysed the arguments put forward by the TPI Federation in support of their campaign against the legislative and policy basis for the current TPI payment rate. The same analysis was also conducted on an alternative payment structure proposed by the Disabled Veterans of Australia Network. This included investigation of the overall levels of support available for TPI veterans and consideration of whether any cohorts of the TPI population need greater assistance than others.
1.45
KPMG used three benchmarks to assess the TPI benefits: Average Weekly Earnings; erosion; and veterans' benefits under other acts.
1.46
The review found that 'there is not strong evidence for increasing the TPI payment to all TPI veterans'. However, the report noted that the 'targeting analysis undertaken within this report suggests that some TPI Veterans may be relatively worse off when compared to the average TPI Veteran' and therefore:
there may be a case to consider increasing the TPI benefit for Veterans that were disabled at young ages;
there may be a case to consider increasing the TPI benefit for Veterans that were first granted a TPI Pension before 1983; and
there may be a case to consider increasing the TPI benefit for Veterans that are renting.
Productivity Commission inquiry
1.47
In March 2018 the Productivity Commission (PC) was tasked with an inquiry into Compensation and Rehabilitation for Veterans. The final report was tabled in Parliament on 4 July 2019, and outlined a comprehensive reform program to be delivered over a five to six-year timeframe, proposing numerous improvements needed to the veterans’ support system.
1.48
In relation to the TPI Payment, the PC indicated that 'in general the level of payments in the VEA is relatively comparable to those provided through the MRCA and DRCA'. However, it also noted that some stakeholders had suggested there is a case for an increase in the VEA SRDP on the basis that the level of the SDRP has decreased over time in comparison to the minimum wage and average weekly earnings. The PC looked at this but cautioned that 'it is important to look at the whole package of compensation when making judgements about adequacy, rather than the individual components'. The PC ultimately concluded that there 'is no compelling case for an increase in the SRDP'.
The Tune Review
1.49
On 2 April 2019, the Prime Minister directed the Secretary of the Department of Prime Minister and Cabinet to commission and oversee an evaluation of the view of TPI veterans advocating for an increase in the payment to restore economic loss. The evaluation was led by Mr David Tune AO PSM, and the evaluation report was provided to the government on 31 August 2019.
1.50
The Tune review noted that earlier reviews, such as the 2003 Clarke review of veterans entitlements, the 1994 Baume Report on compensation for veterans and war widows, and the 1975 Toose independent inquiry into the repatriation system, proposed new payment structures for the TPI payment but none of these were agreed by the governments of the day.
1.51
The Tune Review did not recommend a structural change to the TPI Payment or a broad-based increase. The review made four targeted recommendations:
Defence Force Income Support Allowance (DFISA) should be abolished and adjusted disability pension – including the Special Rate and Permanent Impairment (PI) 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 Special Rate veterans who are renting to receive Commonwealth Rent Assistance.
Indexation of Special Rate be changed to index the whole payment at once, rather than in two components.
Change the terminology and language in legislation, guidelines and policy documents to no longer refer to the Special Rate as a ‘pension’ – but as a ‘payment’. This is in response to some stakeholders’ concerns 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 Special Rate veterans and links with mainstream services. Existing data on financial resources and Government payments provided to Special Rate veterans does not provide a complete picture of the needs of TPI veterans, or their overall wellbeing.
1.52
It was noted that if the recommendations were endorsed it would result in a total increase in administered expenditure of about $9 million in the first year and $79 million over 10 years. There would also be a cost shift of some income support payment expenditure from DVA to DSS.
Government response to the Tune Review and other recommendations
1.53
The government agreed to all the recommendations in the Tune Review report. As part of the 2020-21 Budget, on 6 October 2020 the government announced measures implementing these recommendations as well as some from the Productivity Commission report:
Payment arrangements will be simplified by removing the need for the Defence Force Income Support Allowance (DFISA), exempting adjusted disability pension from the social security income test and abolishing the disability income rent test.
The way pensions are calculated will be simplified to index the payment in a single process, rather than the previous arrangement that involved two components indexed separately.
The Disability Pension will be renamed the Disability Compensation Payment.
A feasibility study will be conducted to determine whether Government agencies can share data to promote better outcomes for Totally and Permanent Impaired and other disability compensation recipients.
1.54
These measures require legislative changes and were announced with the intention for them to take effect from September 2022, pending the passage of legislation.
1.55
In releasing the government response to the Tune Review, the Hon Darren Chester MP, Minister for Veterans' Affairs stated:
[The Productivity Commission, the KPMG Review and the Tune Review] have consistently found that there is insufficient evidence to support a broad increase in the TPI payment.
The Government has accepted the recommendations in the report by Mr Tune, as well as announcing in the Budget that Recommendation 15.1 from the Productivity Commission’s report will be implemented, which provides $25.9 million in additional support to disabled veterans.
While I can appreciate this is not the outcome the TPI Federation had hoped for, the Government has exhaustively investigated their claims and responded positively to all the recommendations put forward by Mr Tune.
2021-22 Budget announcements
1.56
As part of the 2021-22 Budget, the government announced on 11 May 2021 that it would bring forward the commencement date of several measures from September 2022 to 1 January 2022. These are the measures to remove the disability income rent test, exempt the disability pension from the Social Security Act income test and abolish DFISA, and rename the Disability Pension to the Disability Compensation Payment.