Disability support pension reforms


Budget Review 2011-12 Index

Budget 2011–12: Disability support pension—reforms

Peter Yeend

The 2011–12 Budget introduces several significant reforms to the Disability Support Pension (DSP) program as a part of the Building Australia’s Future Workforce measures.

The DSP program currently provides income support to in excess of 800 000 recipients and it is estimated to expend $13.8 billion in the 2011–12 year.[1] Over the past 20 years, DSP recipient numbers have grown more than recipient numbers in any other government income support program.

DSP recipient numbers 1990 to 2010

Year

DSP recipients

1990

316 713

2000

602 280

2004

696 742

2005

706 782

2006

712 163

2007

714 156

2008

732 367

2009

757 118

2010

792 581

Note: Years selected track growth over last two decades and show the impact of 2006 reforms.

Source: Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA).[2]

The DSP reforms in this Budget are in part a response to concerns about these burgeoning numbers. While of obvious concern, this increase in numbers needs to be viewed in the context of an overall decline in the proportion of working-age people receiving welfare, population growth, the demographic changes which are the result of an ageing population and the impact on the DSP of the phasing out of other income support payments.[3]

It would therefore appear that the real underlying concern driving these reforms is that many people claiming the payment may have a greater capacity to engage in work. This fits with the Government’s ongoing emphasis on the importance of work participation in relation to broad social outcomes. As the relevant budget factsheet iterates:  ‘working helps boost self-esteem, improves social contact, provides more income and leads to improved health and financial security’.[4]

Welfare to Work DSP reforms

Governments have attempted reforms to income support for people with disability and the DSP program in the past. The most significant reforms in the last decade were the Welfare to Work (WtW) initiatives that took effect from 1 July 2006.[5] The major DSP element in the WtW reforms was the halving of the incapacity to work test (which determines eligibility for DSP) from being unable to work for 30 hours a week to 15 hours a week. This was a radical reform which had some impact on DSP growth, as can be seen in the table above. However, the impact was short-lived and the growth rate has since accelerated.

Proposed DSP reforms

The DSP reforms in this Budget include:[6]

  • allowing recipients who are subject to the 15 hours a week requirements to work for up to 30 hours a week and remain eligible for a part-rate pension
  • introducing participation requirements by way of quarterly interviews for new and existing recipients aged less than 35 years who have some work capacity (from 1 July 2012)
  • improving work capacity assessments for DSP claimants
  • providing personal helpers and mentors specifically to help people with mental illness who are participating in employment services and who are on, or in the process of claiming income support, including the DSP and
  • auditing a sample of DSP claims lodged in 2012–13 to identify assessment deficiencies and inconsistencies and to thereby improve assessment quality.

These initiatives will cost more in increased administrative effort and outlays, but there are potentially some associated savings. Potential savings would arise from an increase in DSP recipients with earned income from employment, a reduction in the number of claimants eligible for the DSP, and support being provided through alternative payments that are paid at a lower rate, such as Newstart Allowance (NSA).[7]

The potential for increased work participation

Allowing for increased work participation by DSP recipients could potentially provide an incentive for further engagement in paid work. As at June 2008, 90.2 per cent of DSP recipients had no employment earnings.[8] Of the 9.8 per cent with some employment income, 4.4 per cent had income less than $200 a fortnight. This is not surprising as there has not been any activity test requirements attached to DSP and it is likely that for many claimants their grant of DSP is seen as a formal decision by government that they are unable to work, and are not expected to work. The other great source of inertia discouraging DSP recipients from working is the perception that work may jeopardise their DSP qualification. The incentive to remain on DSP is high as DSP is paid at a higher rate than NSA, it has more favourable income/assets tests, provides a Pensioner Concession Card (PCC) and has no work activity test requirements.[9]

The vast majority of current DSP recipients were granted their DSP under the 30 hour a week rule that preceded the WtW DSP work test changes. Regardless of whether they have passed the 30 hours a week or the 15 hours a week test, it is hard to know what the actual capacity of individual DSP recipients for work is. Given the nature of the application process and the criteria that they must meet, it is likely that almost all DSP claimants would, when claiming (and when being reviewed), present as significantly work incapacitated, and provide supporting evidence of significant work inability. The process encourages applicants to present their work capacity in terms of what they are incapable of doing. The examination of DSP claimants to identify, encourage and promote their work capacity in a positive way has not been attempted before and it is unclear what the results of this approach might be.

Allowing claimants to work up to 30 hours a week (for those subject to the 15 hour a week work incapacity rule) will help encourage participation by removing one disincentive to work. It should be noted that DSP recipients have had the benefit of easier two year re-entry rules for some time. These allow the recipients to attempt work and go off DSP for up to two years and re-qualify without having to be re-assessed if the work attempt is not successful.[10] Not many DSP recipients have taken advantage of this opportunity. Perhaps this has been because work participation has not been actively promoted and because participating in work has been viewed by many as a threat to their DSP qualification.

The reform that targets participation requirements to those under age 35 is also new. On the surface, targeting work participation at younger DSP recipients is understandable, but it may only reveal that a high proportion of the younger DSP population are on this benefit because they have significant congenital impairment or have acquired a significant impairment at a young age.

Significance of the reforms

Past experience suggests that measures to improve the quality of DSP and work capacity assessments are likely to have only a limited impact on DSP numbers; the impetus for a working age person to qualify for DSP, as opposed to NSA, where most DSP claimants transition from, continues to be strong. The radical WtW halving of the incapacity to work test in 2006 had a limited, short-term impact, with many new DSP claimants still managing to meet the new criteria. The concerns about the DSP program numbers are not new. Population growth and ageing and increases in the age pension age mean that DSP recipient numbers will continue to grow.[11] Limiting the impact of this growth on government outlays will require a continued policy focus on increasing the participation and employment earnings of those on DSP. The reforms outlined in this Budget are of limited significance but are a step in the right direction. Their effectiveness in removing some of the current disincentives to work and ensuring assistance is being directed at those who need it most remains to be seen.



[1].       Australian Government, Portfolio budget statements 2011–12: budget related paper no. 1.7: Families, Housing, Community Services and Indigenous Affairs Portfolio, Commonwealth of Australia, Canberra, 2011, p.  96, viewed 12 May 2011, http://www.fahcsia.gov.au/about/publicationsarticles/corp/BudgetPAES/budget11_12/Pages/default.aspx,

[2].       Department of Families, Housing, Community Services and Indigenous Affairs (FaHSCIA), , Canberra, 2010, p. 9, viewed 11 May 2011, http://www.fahcsia.gov.au/about/publicationsarticles/research/statistical/Pages/stp_8.aspx ; FaHCSIA, Annual Report 2009–10, Canberra, 2010, p. 93, viewed 17 May 2011, http://www.fahcsia.gov.au/about/publicationsarticles/corp/Documents/2010_Annual_Report/default.htm

[3].       P Whiteford, ‘Will the budget slow the growth of disability support pension numbers?’, Inside Story, 12 May 2011, viewed 13 May 2011, http://inside.org.au/growth-of-disability-support-pension-numbers/

[4].       Australian Government, Building Australia’s future workforce: supporting Australians with disability into work, budget factsheet, Commonwealth of Australia, Canberra, 2011, viewed 16 May 2011, http://www.fahcsia.gov.au/about/publicationsarticles/corp/BudgetPAES/
budget11_12/Pages/FaHCSIA_DSP_web.aspx

[5].      D Daniels and P Yeend, Employment and Workplace Relations Legislation Amendment (Welfare to Work and Other Measures) Bill 2005, Bills digest, no. 70, 2005–06, Parliamentary Library, Canberra, 2005, viewed 12 May 2011, http://www.aph.gov.au/library/pubs/bd/2005-06/06bd070.pdf

[6].       Australian Government, Budget measures: budget paper no. 2: 2011–12, Commonwealth of Australia, 2011, pp. 179–192, viewed 12 May 2011, http://www.aph.gov.au/budget/2011-12/content/bp2/html/index.htm

[7].       Newstart Allowance is more commonly known as the unemployment benefit.

[8].       Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Characteristics of Disability Support Pension recipients, FaHCSIA, Canberra, 2008, p. 18, viewed 11 May 2011, http://www.fahcsia.gov.au/sa/disability/pubs/policy/DSP_rpt_2008/
Documents/DSP_character_rtp_2008.pdf

[9].       As at May 2011, the single rate of DSP is $670.90 per fortnight (pf) (including pension supplement) – NSA is $474.90pf.

[10].     Section 97B of the Social Security (Administration) Act 1999.

[11].     Whiteford, op. cit.


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