INTRODUCTION
28.1 Disability compensation provided to veterans under the Veterans’ Entitlements Act 1986 (VEA) and previous legislation has been examined in several reviews over the past 30 years. All dealt in some degree with the payment of the disability pension at above the general rate.Those of the Hon Mr Justice P B Toose CBE (Toose 1975) and the Hon Professor Peter Baume AO (Baume 1994) were critical of the structure of these payments, particularly that of the special totally and permanently incapacitated (TPI) rate. This chapter will examine the outcomes of these reviews, focusing particularly on the findings of Toose and Baume.
Senate Standing Committee on Health and Welfare, November 1973
28.2 In September 1970, the Senate referred the issue of ‘all aspects of repatriation, including the operation of the Repatriation Act’ for examination by its Standing Committee on Health and Welfare.
28.3 That committee reported to the Senate in November l973, midway through the independent Toose Enquiry. As Toose would do subsequently, the committee recommended a reformed war (disability) pension structure, with gradations of five per cent leading to the TPI rate at 100 per cent. Controversially, it also recommended the payment of all pensions through the Department of Social Security, with the then Repatriation Department retaining responsibility for policy, claims, reviews and administration. The Senate committee’s recommendations were completely overshadowed by the Toose Report and little or nothing came of its recommendations (Lloyd and Rees 1994, pp. 330–1).
Advisory Committee on Repatriation Legislation Review, November 1983
28.4 In September 1982, the Minister for Repatriation announced that a comprehensive review of the repatriation legislation would be undertaken to provide simplified legislation covering all repatriation entitlements.
28.5 An advisory committee was established to present the views of veterans and dependants, and to provide advice to the Minister on matters arising in the proposed consolidation and review of repatriation legislation.
28.6 That committee reported to the Minister in November 1983. The report (Keys 1983) made substantial detailed recommendations for change to the repatriation legislation. Many were incorporated into the VEA. Particularly relevant to the special rate pension was a recommendation to define a negligible amount of remunerative activity as less than eight hours per week. Previously, the key criterion for the special rate (‘totally and permanently incapacitated to such an extent as to be unable to earn more than a negligible percentage of a living wage’) had been so vague that it resulted in considerable inconsistency between individual grants of pension.
Veterans’ Entitlements Act Monitoring Committee Reports,
May 1988
28.7 In April 1986, during the closing stages of the Senate’s consideration of the Veterans’ Entitlements Bill and its associated legislation, the Minister for Veterans’ Affairs gave an undertaking to establish a committee to monitor the operations of the VEA once it had been in operation for a period of one year.
28.8 The committee was seen as a way to monitor operational experience of the VEA to ensure that, in practice, no greater or other restrictions were imposed on the benefits prescribed by the Act than were intended.
28.9 The committee lodged its report with the Minister in May 1988 (Toose 1988), making 58 recommendations for change. The most important of these was the recommendation to introduce the extreme disablement adjustment (EDA) at 150 per cent of the general rate for frail, aged veterans over 65 who were ineligible for the intermediate or special rates of disability pension.
Senate Standing Committee on Legal and Constitutional Affairs Inquiry into
the Veterans’ Entitlements Amendment
Bill 1992
28.10 In November 1992, the Senate Standing Committee on Legal and Constitutional Affairs considered the Veterans’ Entitlements Amendment Bill 1992, which proposed amendments to the VEA following the High Court’s decision in the Bushell case.
28.11 The standing committee received written submissions and oral evidence at a public hearing. Much of this material was critical of the changes and the lack of consultation about them.
28.12 The committee reported to the Senate in November 1992 and consideration of the Bill was postponed. The Bill expired with the dissolution of the Senate in June 1993. There were no implications for the disability pension structure in anything proposed. Rather, the questions dealt with were entirely concerned with the question of the standard of proof.[177]
The Auditor-General’s Report ANAO No. 8 1992–93: Compensation Pensions to Veterans and War Widows
28.13 This report (Auditor-General 1993) was sharply critical of a number of aspects of the repatriation system, particularly the grant of TPI pensions to veterans well past retirement age.
28.14 Its findings, which led in part to the commissioning of the Baume inquiry, will be considered in more detail below.
THE TOOSE REPORT
Requirements of the Disability Pension Structure
28.15 Justice Toose established the parameters of a reformed disability (then war) pension structure thus:
Clearly any restructuring of the system would need to be capable of accepting present pensions levels without existing pensioners being disadvantaged by the transition. Equally, of course, there should not be significantly higher costs to the Government attributable to the new structure itself. (Toose 1975, p. 311)
28.16 In addition, he considered that the new structure should:
- be comprehensive by providing sufficient levels to accommodate a wide variety of disablement, while maintaining relativity between levels;
- be flexible enough to meet particular and unusual circumstances;
- be easy to understand and administer; and
- ensure a consistent measure of justice to all.
Criticisms of Existing Disability Pension Structure
28.17 Submissions to the Toose Enquiry relating to the pension structure centred on the fact of there being two basic but seemingly unrelated rates — the general rate and the special rate.
28.18 Toose noted that a relativity of 2:1 between the special and general rates was mostly maintained until 1950 and that subsequently a gap had developed. A number of submissions from 100 per cent general rate recipients requested the restoration of the parity to the original 2:1.
Leaving aside the questions whether the relativity established in 1920 was valid at that time, and whether subsequent developments in the general employment field would have indicated a change of relativity, it seems to me that to do no more than raise the general rate pension in money values would not resolve the more fundamental question to be answered. It has been suggested that relativity in the complete sense is unattainable so long as there are the two rates, each with its own separate entry criteria, within which persons must be accommodated. (Toose 1975, p. 311)
28.19 It was submitted that the requirement in the special rate for total and permanent incapacity indicated an economic — as distinct from disablement — component. The converse argument was that the parenthetic definition merely established the measure of disablement necessary to attract the special rate pension. In support of this, reference was made to the guidelines of the Repatriation Commission in 1920 that the special rate pension should only be granted ‘in extreme cases where there is no possible doubt as to a pensioner’s helplessness and the permanency of that state’ (Toose 1975, p. 312). Over time, the helplessness requirement was eased to a point where a veteran qualified merely if unable to engage in some regular employment. Toose concurred, stating that:
In my view the definition was intended to establish the measure of disablement and not to cover an economic component. Clearly, its application has over the years been eased to the extent claimed. (Toose 1975, p. 313)
28.20 It was further argued by Toose that the 1920 definition established a measure of disablement — TPI — and that difficulties arose only with the easing of the helplessness requirement. The Commission, in interpreting the negligible percentage clause, developed guidelines that permitted some work to be undertaken. Toose considered that the system as he found it ‘may have been appropriate in 1920 when the basis for assessment was incapacity for work’ but was now ‘unsuitable as a vehicle for compensation of disablement which for many years now has taken account of other factors’ (Toose 1975, p. 314).
Recommended Disability Pension Structure
28.21 Toose considered that there were two broad categories of damage: those of disablement and economic loss. A key question was whether these categories should be reflected separately or continue to be unidentified components in a single payment.
28.22 With respect to disablement, Toose argued that ‘generally disease or injury suffered by a member would bear on the capacity for employment in proportion to the loss or diminution of functional capacity, and therefore does not warrant separate assessment’. This assumption was tempered, however, by the reality that a veteran unable to engage in any remunerative employment, must, of necessity, be worse off than one who, though seriously disabled, was still able to work full time. Therefore, if the compensation payment was to reflect the veteran’s economic loss, the inability to earn must be recognised ‘by the provision of significantly increased payment at the point where the member cannot, or ought not to, engage in full-time employment’ (Toose 1975, pp. 329–330).
28.23 Toose buttressed his reasoning with reference to civil actions for damages in respect of injury. In these, where the victim is assessed as having no capacity for employment, a higher sum is awarded to reflect actual and prospective loss of income. For Toose, ‘the critical defect in a single pensions structure with regular progression of rates throughout would be its inability to cope with this situation’ (Toose 1975, p. 320). Accordingly, it was recommended that two separate elements be clearly identified in the war pensions structure: disablement pension and economic loss compensation.
Pain and Suffering, Loss of the Amenities of Life and Extreme Disablement — the ‘Disablement Pension’
28.24 A rating table for disablement was proposed, with the highest level equating to rating 100. The term ‘rating’ was proposed to distinguish between disablement and impairment, with the latter being expressed as a percentage in the standard guide for the assessment of impairment. The Toose model would have equated an impairment rating of 85 per cent with 100 per cent disablement.
28.25 Within the disablement component itself, Toose considered that there were three particular features:
- pain and suffering;
- loss of amenities of life; and
- exceptional disablement.
28.26 Up to an impairment rating of 85 per cent, the payment would reflect the first two elements. Rating beyond that point would be considered extreme disablement and attract a higher level of compensation. This was to be known as the exceptional disablement allowance and would have been paid at two levels ‘with monetary values appropriate to the extreme level of disablement’. There was to be no test of employability associated with disablement pension (Toose 1975, pp. 320–321).
Supplement for Economic Loss — the ‘Income Supplement’
28.27 The income supplement was intended to compensate the veteran for economic loss resulting from service-related conditions in cases where he could not, or ought not to, engage in ‘regular remunerative employment’. As to the quantum of payment, Toose thought it ‘inconceivable that a disabled member should be required to accept a standard significantly lower than that which obtains in the community generally’ (Toose 1975, p. 323).
28.28 Accordingly, the income supplement would be set at a level that would bring the combined payment of it and the disablement pension to the equivalent of the then ‘average industrial wage’. Such income supplement would take into account ‘regular personal exertion income, any superannuation payments, means-tested or means-test free service or social security pension, and payments of pension under the defence force retirement and death benefits legislation’. Income from savings and investments would be exempted. After the age of 65, the veteran would cease to receive the income supplement and thenceforth be reliant on the support available to the general community by way of earnings, age pension or superannuation. However, payment of the disablement pension would continue for life (Toose 1975, p. 323).
THE BAUME REPORT
Precursor: The Auditor-General’s Report No. 8 1992–93
28.29 A major focus of the Auditor-General’s Report was on grants of the special or TPI rate pension to veterans well past normal retirement age.
28.30 Specifically, the Auditor-General’s Report found that, in virtually all grants to World War II veterans, the individual had had most or all of a full working life. The report also found that grants of the special rate pension to veterans over 65 years of age were generally to professional people, such as those engaged in the legal or medical professions, farmers and self-employed tradesmen, who ceased work after 65 years. Moreover, the relationships between many disabilities and war service were described as ‘weak and … indirect’, and the extent of the disability was not in accord with the public’s perception of ‘totally and permanently incapacitated’ (Auditor-General 1993, pp. xv–xvi).
28.31 The Auditor-General referred to the second reading speech on the Veterans’ Entitlements Bill 1985of the then Minister for Veterans’ Affairs. In that speech, the Minister stated emphatically that the TPI was intended for relatively young veterans so disabled as never to be able to earn a living and save for the future.
28.32 A number of illustrative examples of concern were quoted by the Auditor-General:
- A veteran retired at 60, stating that he had stopped work because of his age, and was granted the service pension on the grounds of old age. He subsequently applied for and was granted an increase in the disability pension to TPI effective at age 65, driven by generalised osteoarthritis.
- The TPI pension was granted to a veteran who held a quasijudicial post for several years and who did not finally retire until age 68. He had a full working life, was financially independent and entitled to superannuation.
- A farmer was granted TPI at age 73, three years after selling his farm.
28.33 The Auditor-General was critical of the cost involved, considering that ‘the current arrangements also raise considerable issues of equity’, particularly favouring professional and self-employed veterans over 65 compared to former wage earners of the same age.
28.34 The report also paid attention to structural issues, specifically the constituent elements of the TPI. The Auditor-General considered it arguable that the proportion of the TPI over 70 per cent of the general rate (the lowest point of entry for the TPI) could be considered to be income support. He also considered it arguable that the proportion of the TPI over 100 per cent of the general rate could be considered to be income support. Some 90 per cent of TPI pensioners also received the service pension. The Auditor-General argued that, as a consequence, the vast majority of TPIs received two income support payments.
28.35 In order to overcome this perceived difficulty, the Auditor-General’s Report recommended a restructuring of the disability pension structure similar to that recommended by Toose, with clearly defined disablement pension and income support components.
The ANAO considers that a revised pension structure along these lines
would remove the inconsistencies noted above and represent a clearer and more coherent strategy for income support for TPI veterans.
(Auditor-General 1993, p. 43)
28.36 It was formally recommended that:
… a review be undertaken … of how operations of the legislation might better articulate the stated purpose of the TPI pension. The review should consider … whether an alternative TPI pension structure would better reflect the fact that the TPI pension could be considered to provide an untaxed and non means-tested income support element. (Auditor-General 1993, p. 44)
Baume: Requirements of the Disability Pension Structure
28.37 The report by the Hon Professor Peter Baume took up the concerns about the special rate pension raised in the Auditor-General’s Report. Baume’s principal stated concern was to afford justice to TPI veterans by guaranteeing a standard of living at least equivalent to that of an ‘average’ Australian, while at the same time ensuring that veterans’ entitlements were within general community standards and expectations (Baume 1994, pp. 65–6).
28.38 However, Baume was critical of the TPI structure on a number of grounds and generally endorsed those recommendations made in the Auditor-General’s Report.
Over time the number of TPI grants has increased. Progressively wider legal interpretation by the Courts, advances in the understanding of medical aetiology and reduced employment opportunities for veterans with disabilities, have contributed to the growth.
In recent years the Courts have interpreted the qualification for TPI pension far more generously than was intended in 1920. Emphasis has been placed on the inability to work rather than the degree of disablement. Over the years the award of TPI pension has come to reflect the reality that incapacity to work may be related to an employment-specific disability rather than total incapacity.
As the understanding of aetiology has advanced, connection of diseases with war service has become increasingly common irrespective of the time of life in which manifestation occurs. This has led to grants much later in life than originally envisaged. Advances in medical treatment have meant that veterans, who in one generation would have been left with a reduced life-span and poor quality of life, now can enjoy a better quality of life for longer despite a serious medical condition.The employment market has changed through increased availability of social welfare and superannuation. Employers are less willing, or even unable, to carry employees with a limited capacity to work. Automation and computerisation have removed many of the jobs that disabled veterans could undertake.
Clearly, the eligibility criteria for a TPI payment have changed fundamentally. While a disability preventing employment must be permanent, it no longer needs to be total. The public perception of TPI, however, seems to have remained in accord with the original intentions of the grant. This disparity between perception and reality leads to misunderstanding of the real nature of this category within the Special Rate Pension (its correct statutory title) and to consequent accusations of ‘rorting the system’. We believe that this inaccurate perception has led to the situation where the Act now allows many veterans to be overcompensated for their disabilities. Furthermore, use of the word ‘pension’ to embrace both compensation and income support has led to unsoundly based attempts to exact taxation and apply income and asset testing to the compensation component. (Baume 1994, pp. 67–8)
Recommended Disability Pension Structure
28.39 Baume thought that the problems associated with the special rate could be overcome by clearly defining the constituent elements of the total package. He contended that the VEA contained two separate eligibility tests for the TPI rate:
- a GARP (Guide to the Assessment of Rates of Veterans’ Pensions) assessment to measure the level of compensation payable for the degree of impairment and loss of lifestyle that results in eligibility for a disability pension of at least 70 per cent of the general rate; and
- a work test under s.24 of the VEA to establish that the veteran is unable to work more than eight hours per week and that this results in a loss of salary, wages or earnings.
28.40 According to Baume, these tests suggested two purposes: to compensate and to supplement income (Baume 1994, p. 73).
28.41 Rather than the existing structure composed of a service pension (income support) and a disability pension (compensation for pain and suffering, and loss of lifestyle), Baume proposed instead a compensation element and an income support element. The TPI (set at 263 per cent of the general rate) was considered too generous as compensation for pain and suffering. It was therefore recommended that the new compensation element be paid at 150 per cent of the general rate. In addition to this, a means-tested income support element in combination with the compensation element would bring the total payment to the equivalent of average weekly earnings after tax (Baume 1994, pp. 79–81).
28.42 Holding the view that veterans should be treated generously but within community expectations, Baume proposed that the income support element would cease to be payable at age 65, and would be replaced by the normal age or service pension. This would ensure a reduction in the veteran’s income at the same time, in accord with the same principles as those applied to the community at large (Baume 1994, pp. 84–6).
TOOSE AND BAUME: A COMPARISON
28.43 Both Toose and Baume recognised the essential duality of the TPI pension, and they formulated similar models to address the perceived deficiencies. Each had a component compensating for non-economic loss: disablement according to Toose, pain and suffering by Baume’s definition. Equally, both proposed an economic element: income supplement in the Toose model, income support in Baume’s. In addition, it was proposed in each case that the combination of the two elements should be equivalent to a measure of average earnings: the ‘average industrial wage’ in the former instance and ‘average weekly earnings’ in the latter.
28.44 Each held to the belief that the non-economic loss component should be payable for life. Furthermore, both regarded it as being in accord with community norms for the economic component to be reduced at age 65 and be replaced by the age or service pension, or such other means of retirement income as the veteran might have access to. Indeed, it can be reasonably argued that Toose and Baume were similar in their intent, their principal difference being the relativity between the economic and non-economic elements within their respective models.
28.45 Ultimately, neither option was taken up by the government of the day. There remain, however, elements in both proposals that the Committee finds attractive, namely:
- the explicit delineation between compensation for pain and suffering, and income substitution for the loss of the ability to work related to service;
- the concept of a total package of compensation and income substitution equating broadly to community norms;
- the different treatment of the two elements in the package in terms of taxation and means testing as appropriate to their intended purpose; and
- the concept that compensation for pain and suffering is a lifetime benefit, while income substitution for loss of ability to work should cease upon normal retirement age and be replaced by superannuation or an income support pension.
28.46 Both Toose and Baume developed approaches based on the premise of a uniform level of compensation for all veterans based on their degree of disablement. The ‘uniform’ approach does not permit differences reflective of past or future earning capacities. The payment of the same rate to all with like degree of disablement is a practical approach, bearing in mind the wide range of veterans’ capacities and the affordability of the compensation arrangements. The Committee regards the uniform approach as the only feasible one for the VEA.
CONCLUSIONS
28.47 The Toose, Baume and Auditor-General’s reports illuminate some `logically sound principles and approaches to the disability pension rate structure. The Committee has noted certain of these that it considers constitute a fair basis for the restructuring of the disability pension rate structure, as discussed in Chapter 30.
[177] Australia, Senate, Debates 1992, vol. S. 156, pp. 2967–70.
© Commonwealth of Australia 2003