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7.12 The Disability Support Pension

The Disability Support Pension provides income support to those who are unable to work, or have limited capacity to work, due to a physical or mental disability. The ongoing provision of the Disability Support Pension is consistent with the Commission’s guiding principles, especially that the government should help the truly disadvantaged.

As shown in Chart 7.18, the number of Disability Support Pension recipients has more than doubled over the last 20 years. Expenditure on this programme is now $15.8 billion per year.

In recent years, reforms have attempted to increase the workforce participation of people on this pension and improve the eligibility criteria used to assess level of disability. Building on these reforms, the Commission considers further changes should be made to the Disability Support Pension to improve targeting to those recipients with limited capacity to work.

Chart 7.18: Disability Support Pension recipients

This chart shows the growth in the number of DSP recipients over the period 1977 to 2013. Recipient numbers have grown from around 200 million to around 800 million over this period.

Source: National Commission of Audit, based on Department of Social Services data .

New disability assessment and participation criteria were introduced in 2012. However, these criteria only apply to new entrants to the scheme, creating an anomaly between new and existing recipients.

Revised impairment tables used for assessing the level of disability of applicants were introduced which are consistent with contemporary medical and rehabilitation practice and support a greater focus on functional ability. They consider what people are able to do, rather than what they cannot do and are a more appropriate mechanism for assessing capacity to work.

New participation requirements were also introduced in 2012 for Disability Support Pension recipients under age 35 who are assessed as having a partial capacity work. These recipients are required to attend regular participation interviews and to develop participation plans. Interviews are scheduled at least every six months and are to identify suitable activities for the Disability Support Pension recipient, that takes into account their individual circumstances and barriers to participation.

As only new entrants are assessed under the newer methodology there have been inequalities created between recent Disability Support Pension entrants and the existing group of people receiving this pension (that is, grandfathered recipients). The Commission considers that this anomaly should be addressed by applying the new methodology in a targeted way to some recipients of the Disability Support Pension who are currently grandfathered.

A risk management approach should be taken where application of the new criteria is applied to cohorts of grandfathered recipients who have the greatest potential for work. Examples could include younger people under the age of 35 and recipients who currently earn some employment income.

The payment parameters for the Disability Support Pension are currently equal to those for the Age Pension. It is appropriate to maintain the linkages between the Age Pension and other pension types including the Disability Support Pension. The pension class of payments represents the social living wage paid to those who are not expected to support themselves through paid employment.

Recommendations relating to changes in the Age Pension benchmark and eligibility parameters outlined in Section 7.1 will flow through to the Disability Support Pension. In particular, transitioning the Disability Support Pension to the new benchmark of 28 per cent of Average Weekly Earnings should apply at the same time as implementation of those changes to the Age Pension benchmark.

It would be a matter for Government to decide when the eligibility changes should apply to Disability Support Pension recipients (recognising that for the Age Pension these eligibility requirements apply prospectively to new recipients from 2027-28). These changes include a more comprehensive means test; and an increase in the income test taper rate from 50 per cent to 75 per cent. The Commission notes however that only a small number of recipients of the Disability Support Pension (less than 10 per cent) would likely be affected by changes to the means test.

Recommendation 29: The Disability Support Pension

The Disability Support Pension provides support to those who are unable to work, or have limited capacity to work.

The Commission recommends the Disability Support Pension be maintained as an essential part of Australia's social safety net but that changes be made to ensure it remains targeted to those in genuine need by:

  1. moving to gradually apply the new disability assessment and participation criteria, introduced in January 2012, to targeted groups of grandfathered Disability Support Pension recipients such as those under the age of 35 and those with some work capacity; and
  2. changing Disability Support Pension arrangements to align with the Commission's recommended changes to the Age Pension by:
    1. transitioning to a new benchmark of 28 per cent of Average Weekly Earnings at the same time as implementation of the Age Pension benchmark changes; and
    2. the Government considering when further changes should be made to the eligibility requirements for the Disability Support Pension, including replacing the current income and assets tests with a single comprehensive means test; including the value of the principal residence above thresholds of $750,000 for coupled pensioners and $500,000 for single pensioners in the new means test; and increasing the income test withdrawal (taper) rate from 50 per cent to 75 per cent.