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Service Pension Rate Calculation Process
Last amended: 5 March 2013
Service pension calculation – not blind or war widow/widower-pensioner
The following table shows the steps involved in the overall service pension rate calculation process for a person who is:
Determine the person's maximum basic rate of service pension.
Work out the amount of pension supplement
Determine the amount of clean energy supplement
Determine the amount per year (if any) of rent assistance.
Add the amounts from steps 1, 1A, 1B and 2 to give the maximum payment rate.
Calculate any reduction for ordinary income.
Deduct income reduction from the maximum payment rate to give the income reduced rate.
Calculate any reduction for assets.
Deduct assets reduction from the maximum payment rate to give the assets reduced rate.
Compare the income reduced rate and the assets reduced rate: the lower of the two rates is the provisional payment rate. (If the two rates are equal, the income reduced rate is used).
Determine the amount per year (if any) of remote area allowance.
Add any amount obtained in step 10 to the provisional payment rate. The result is the person's rate of service pension.
Note: current rates are found in the Reference Library.
The above rate calculation process is the standard process for service pensioners.
Transitional arrangements – pre 20 September 2009 pensioners
Transitional arrangements protect pensioners who were in payment immediately before 20 September 2009 and whose pension would be reduced under the standard rules. The process for the calculation of pension in these cases is:
- determine the person's maximum basic rate of service pension in accordance with Schedule 5, Part 5 subclause 31 (1), (2), (3) or (4). This is the transitional MBR (which is indexed by CPI only),
- add any amount of energy supplement and/or rent assistance to the transitional MBR to give the maximum payment rate,
- work out the income reduced rate, allowing for additional child income free area (if applicable). There is no work bonus income concession and the 40 cents taper rate applies,
- work out the assets reduction amount (using the standard rules in Module F) and deduct from the maximum payment rate, and
- the lower of the income reduced rate and the assets reduced rate (or the income reduced rate if both rates are equal) is the provisional payment rate.
The provisional payment rate calculated under the transitional arrangements applies until such time as the standard rules provide a higher rate of pension.
Service pension calculation where there are saved children
Where a person has saved children, the steps set out above for service pension calculation are modified, as follows:
- the dependent child add-on (for each dependent child) and guardian allowance (if eligible) are included in the maximum payment rate,
- when calculating any rent assistance payable, the higher rent assistance thresholds and rates of rent assistance payable to pensioners with saved children are to be used,
- if the pensioner is in receipt of disability pension and is eligible for rent assistance, the rent assistance free area may be increased where there are dependent children, and
- the maintenance income test is applied to the maximum payment rate, along with the ordinary income test, to calculate the income reduced rate of pension.
Service pension calculation - non-pensioner partner
Prior to 1 October 1995, if a pensioner's partner was not in receipt of a pension or benefit, the non-partnered maximum basic rate was used to calculate their pension. After that date, the pension of a person with a non-pensioner partner was calculated using the partnered rate.
Savings provision - non-pensioner partner pre 1995 (known as 04 cases)
A savings provision protected those partnered pensioners whose pensions were, immediately before 1 October 1995, calculated using the non-partnered maximum basic rate. The effect on the calculation of pension in these cases is:
- the rate of pension applicable immediately before 1 October 1995 (the saved rate) will be decreased by any reductions in pension resulting from a person's change in circumstances,
- any potential increases in pension as a result of a person's change of circumstances or as the result of indexation or other increases in any component of the person's pension will not increase the saved rate. Rather, these increases will be offset against the excess pension being paid because of the savings provision.
When the saved rate of pension equals the rate that would apply if the pensioner were assessed at the partnered rate, the savings provision cease to apply and the assessment reverts to a normal partnered assessment.
Circumstances where partner not receiving a pension (04 cases)
Circumstances in which the partner would not be receiving a pension are:
- the partner does not have residency,
- the partner is a war widow/widower and their combined income and assets prevents any ISS being paid,
- the partner is working and does not want to claim a pension,
- the partner is under the age at which a pension would be payable,
- the partner is receiving a compensation payment, or
- the pensioner is classified as 'blinded for service pension purposes' and their income and assets prevents the partner from being paid.
Other service pension calculations process
The table below lists service pension rate calculation processes used for other pensioners, and provides a link to the relevant calculators in the VEA.
To calculate the rate of service pension for a person who is...
click on the corresponding icon below.
A person may be regarded as permanently blind in both eyes where:
- there is a total loss of sight; or
- visual acuity after correction with suitable lenses is less than 6/60 in both eyes on the Snellen Scale; or
- where, in the written opinion of an ophthalmologist, the visual field deficits and/or combination of deficits results in a visual impairment which is the equivalent of a corrected visual acuity measure of less than 6/60 in both eyes.
The Commission Guideline CM5829: Determining 'permanently blind', 'no useful sight' and 'blinded in both eyes' may be instructive in making a blinded/blindness determination.
War widow/widower — pensioner means a person who is receiving a war widow's/widower's pension from the Australian Government.
The energy supplement is an ongoing, regular payment designed to help recipients meet the cost of living impact of the carbon price.
The ordinary income of a person for a period means, as described in section 46 of VEA, the gross ordinary income from all sources for that period without any reduction, other than a reduction of business income.
Remote area allowance is a supplementary payment added to the rate of income support pension where the pensioner's usual place of residence is situated in a remote area, and where the pensioner is physically present in the remote area.
Rules introduced as part of the Secure and Sustainable Pension Reforms that came into effect on 20 September 2009. For income and assets test purposes the changes include:
- an increase to the income test taper rate from 40 cents to 50 cents in the dollar,
- the abolition of the additional child income free area,
- the introduction of a fortnightly pension supplement to replace telephone allowance, utilities allowance, pharmaceutical allowance and the GST supplement, and
- the introduction of a work bonus, whereby only 50% of the first $500 per fortnight of employment earnings is assessable for eligible pensioners.
From 1 January 1998 responsibility for administration of most income support child related payments was transferred to Centrelink. However, saving provisions allow any person in receipt of service pension or income support supplement on 31 December 1997 who would be or is financially disadvantaged by the transfer to continue having their child related payments paid by DVA. Saved children are assessed under the rules contained in the VEA as at 31 December 1997.
Section 5F(1) of the VEA defines dependent child as having the same meaning as in the Social Security Act 1991. For income support purposes, dependent child is defined as:
Child under 16 years
- the pensioner has legal responsibility either alone or jointly with another person for the day to day care, welfare and development of the young person AND the young person is in the pensioner's care, or
- the young person is not a dependent child of someone else AND the young person is wholly or substantially in the pensioner's care.
A child under 16 years cannot be considered a dependent child if:
- they are not a full-time student, and
- their weekly income from any source is more than the amount specified in section 5(3)(c) of the Social Security Act.
Child 16 years or older
A young person who has turned 16 years but is under 22 years can still be a dependent child of the pensioner if:
- they are wholly or substantially dependent on the pensioner, and
- their income in the financial year will not exceed the personal income limit, and
- they are receiving full-time education at a school, college or university.
A child over 16 years cannot be considered a dependent child if:
- they receive a social security pension or benefit such as youth allowance, or
- their personal income is more than the amount specified in section 5(4)(b) of the Social Security Act.
Income includes earning from casual, part-time or full-time earnings.
Note: the meaning of a dependent child for DVA income support pension purposes is not the same as the meaning for Family Tax Benefit purposes.
Rent Assistance is an allowance, which may be paid to a service pensioner or income support supplement (ISS) recipient to assist in meeting the cost of rental accommodation.
To receive rent assistance, a pensioner must be paying rent (other than Government rent) for accommodation in Australia, and the amount paid must exceed a certain threshold.
Disability pension, for the purposes of service pension and income support supplement, means:
- a pension paid for incapacity from war caused conditions, or peacetime, peacekeeping or hazardous service caused conditions (other than a war widow's or orphan's pension); or
- temporary incapacity allowance; or
- any other payment in respect of incapacity or death resulting from war or war-like operations in which the Crown has been engaged [usually paid by another Commonwealth country].
Indexation is the action of adjusting pension and allowance rates, limits and thresholds to maintain their value against increases in the cost of living and average earnings.
ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.