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13.09 Invalidity Service Pension
Last updated 9 September 2022
Former members who are eligible for SRDP are also taken to satisfy the permanent incapacity for work eligibility criterion for invalidity service pension.More ?
SRDP is exempt from the income test when assessing how much invalidity service pension can be paid. In contrast, incapacity payments are assessable.
Invalidity service pension is an income support payment that can be made to veterans and former members with qualifying service who are permanently incapacitated for work. Qualifying service includes service that is determined to be warlike service by the Minister for Defence.
A person is automatically accepted as being permanently incapacitated for work if they:
- are permanently blind in both eyes;
- are receiving* or eligible for the special rate (T&PI) of Disability Compensation Payment under the Veterans' Entitlements Act 1986; or
- are receiving* or eligible for SRDP.
* Receiving includes where the amount received is nil due to receipt of compensation from another source or withholding of the payment to recover an overpayment.
Where none of the conditions for automatic acceptance are satisfied, a person is regarded as being permanently incapacitated for work if they:
- have an impairment, including non-service related impairments, that would result in a combined impairment rating of 40 or more under GARP, and
- solely because of the impairment, the person is permanently unable to work for periods adding up to more than 8 hours per week, and
- the impairment is accepted as being permanent.
Invalidity service pension cannot be paid until a person has lodged a proper claim. Once a male veteran or former member reaches age 65, and once a female veteran or former member reaches Age Pension age, they are no longer able to claim invalidity service pension*. However, if the person is already receiving invalidity service pension, and reaches age 65 or Age Pension age, the payment can continue. Invalidity service pension is not taxable when the recipient is under age 65 or Age Pension age. Once an invalidity service pensioner reaches age 65 or Age Pension age, then the pension becomes subject to income tax.
*This apparent anomaly is currently under review.More ?
Invalidity service pension is subject to an income and assets test. The amount of pension that can be paid is therefore dependent on the income that a former member, and if applicable, his or her partner receives. It is also dependent on the value of assets that the member, or the member and his or her partner own. In assessing eligibility for invalidity service pension, the income and assets tests are applied and the test resulting in the lower rate is used in the pension rate calculation. If both test results are the same, the income reduced rate is used. For the purpose of the income and assets test, if two people are members of a couple, they are treated as pooling their income and assets and sharing those resources equally.
In applying the income test, a person's gross income whether from within or outside Australia, less any permissible reductions for business income, is taken into account. A person can receive income up to a specified income free area, and still receive the maximum payment rate, as long as their assets do not exceed an assets value limit. Any assessable income of the person or the person's partner, in excess of the income free area, will reduce the maximum payment rate of invalidity service pension by 50 cents in the dollar. This 50 cent in the dollar reduction is called the income test taper rate. The resulting rate of pension that can be paid is the income reduced rate. If a person receives more income than the income limit at which service pension ceases, then invalidity service pension cannot be paid.More ?
If the former member is receiving Commonwealth superannuation then the remaining SRDP is offset at 60 cents in the dollar (ie each dollar of superannuation reduces the SRDP by 60 cents) for every dollar that is calculated (refer to Chapter 6: Incapacity Payments for further information). The amount of superannuation that is used in reducing the SRDP is not counted as income for income testing purposes for invalidity service pension or Centrelink disability support pension. However, any excess superannuation that remains after the SRDP is reduced to nil is regarded as income and is assessable under the income test.
If a person receives compensation payments for economic loss, such as incapacity payments, then the compensation recovery rules may apply. This has the effect of reducing the amount of invalidity service pension that can be paid to the former member, or if a lump sum is received, preventing payment of invalidity service pension for a specified period of time known as the lump sum preclusion period.More ?
Invalidity service pension will be assets tested when the:
- value of assessable assets exceeds the relevant assets value limit, and
- the rate of invalidity service pension, assessed under the assets test, is lower than the one determined under the income test.
A person can have assets up to and including the assets value limit and still receive the maximum rate of invalidity service pension, provided that their income does not exceed the income free area. If the value of their assets exceeds the assets value limit, the maximum payment rate is reduced by 37.5 cents for every $250 over the limit. The result is the assets reduced rate. This rate is then compared to the income reduced rate and the lower rate, plus any remote area allowance payable, is the rate of invalidity service pension that will be paid. If a person's assets are of a greater value than the specified asset level at which service pension ceases, then invalidity service pension can not be paidMore ?
If two people are partnered, they are treated as pooling their assets and sharing those assets equally. The assets value limit (AVL) of each member of a couple is lower than the limit for a person who is not a member of a couple. A person's assets value limit is also affected by whether they are considered to be a property owner, that is, they have a right or interest in their principal home which provides them with reasonable security of tenure. A person or couple who are property owners have a lower assets value limit than a person or couple who are not property owners.More ?
The current income free area, income limits at which invalidity service pension ceases, and assets value limits can be found in the Pension rates charts in the Comp and Support reference library in CLIK.More ?
Invalidity service pension has similar eligibility criteria to a disability support pension from Centrelink.
In order to be qualified for disability support pension, a person must have a medical condition which attracts an impairment rating of 20 points or more under the impairment tables which form part of the disability support pension legislation. A claimant who has an impairment rating of at least 20 points, must also have a continuous inability to work in order to be eligible for disability support pension. Like invalidity service pension, disability support pension is subject to an income and assets test. This means that the income and assets of the former member, and if applicable, their partner, are taken into account when determining whether disability support pension can be paid, and if so, the rate at which it can be paid.More ?
It is important to note that the amount of Commonwealth superannuation that is used to offset SRDP is exempt from the income test for the calculation of invalidity service pension. This is because of the action of sections 5H(8)(zr) and 5I of the VEA. These sections require that the following formula be used to determine the amount of assessable superannuation income that remains, after SRDP is offset by Commonwealth superannuation amounts that a person receives:
Special Rate Disability Pension reduction amount X 10 / 6
Special Rate Disability Pension reduction amount means the amount by which the SRDP is reduced by reference to amounts of Commonwealth superannuation that the person has received or is receiving.
For example, where a person receives a Class A MSBS pension at the rate of $1,100 per week, and they have received permanent impairment compensation equal to $292.08 per week, the SRDP calculation is as follows:
$ per week
Current SRDP rate
Less permanent impairment weekly equivalent
Only $404.28 of the Commonwealth superannuation is offset to bring the SRDP amount back to $0. ($242.57 x 10 ?6 = $404.28)
$0 (tax free)
In this example the remainder of the Commonwealth superannuation, after SRDP is totally offset, is used in the income test for calculation of invalidity service pension, $1,100 - $404.28 = $695.72.
It is also important to note that the amount of permanent impairment compensation is offset prior to offsetting any Commonwealth superannuation.
The same offsetting for Commonwealth superannuation rules apply to disability support pension. Therefore, the amount of Commonwealth superannuation that is used to offset SRDP is exempt from the income test for the calculation of disability support pension. The example above would therefore apply equally to both disability support pension and invalidity service pension.
Guide to Social Security Law
Guide to Social Security Law