If you are a Veteran claiming compensation from the Department of Veterans Affairs (DVA) you may be faced with a choice between two payment options. The Special rate disability pension (SRDP) or Incapacity Payment.
With some key differences between these payments, it is important to understand the financial considerations linked with each. At National Service Financial, we specialise in supporting veterans to navigate the financial implications of their decision.
Our goal is to facilitate a more secure financial future through tailored advice that helps Veterans meet their financial goals. If you want to understand more about the Special Rate Disability Pension vs Incapacity Payments, we’re here to help.
What Is A Special Rate Disability Pension?
The Special Rate Disability Pension is a form of periodic compensation designed to provide financial assistance to former Australian Defence Force members who can no longer work in a normal capacity. Specifically, it is for those who have been injured or become ill as a result of their time in service.
The SRDP is an option for those who have engaged in military service on or after 1 July 2004 and is offered instead of incapacity payments to qualifying Veterans.
How Much Can You Receive?
As of April 2021, an eligible Veteran receiving the Special Rate Disability Pension will receive a maximum rate of $1,464.70 per fortnight. This is inclusive of an Energy Supplement. By comparison, A Veteran who is eligible for the General Rate of Disability Payment may be paid a lower sum of $520.80 per fortnight.
These amounts are frequently reviewed and adjusted in line with indexation and to account for the increases in costs of living.
As per the Social Security Guide regarding DVA compensation payments:
“The amount of SRDP you can receive is reduced, dollar for dollar, by the number of permanent impairment payments paid under the DRCA and MRCA and VEA Disability Compensation Payment. The amount payable is also reduced, at the rate of 60 cents in the dollar, by the Commonwealth-funded component of any superannuation which accrued whilst they served in the ADF.”
SRDP payments will cease should you no longer meet eligibility requirements, such as in the case of returning to full-time work.
What Are Incapacity Payments?
Similar to SRDP, Incapacity Payments are also intended to compensate for the economic losses incurred by being unable to work due to a service-related illness or injury. The illness or injury must be approved as being service related under the Military Rehabilitation and Compensation Act 2004 (MRCA) or the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA)
Incapacity payments are reviewed annually with the amount often being recalculated to account for any earnings or other payments you may receive. This can see it drop down to the reduced rate of 75% of your normal earnings.
How Is This Payment Calculated?
Incapacity payments are initially paid at 100% of your normal earnings less any actual earnings or payments made by a pension or Commonwealth superannuation fund. While you are still entitled to claim Child Support or Family Tax Benefit, receiving these funds will impact the amount you receive as an incapacity payment.
Major Differences
The two main differences between these payments are:
- The Special Rate Pension is non-taxable and is paid indefinitely.
- Incapacity payments are taxable incapacity payments and usually cease in line with the commencement of the old age pension.
While receiving SRDP payments your ability to also claim other payments including Family Tax Benefit, Child Support or similar can be impacted. This is why it is essential that Veterans take advantage of the subsidised financial advice offered by the DVA prior to making a decision on which compensation to receive.
Once a Veteran has opted for one of these income support payments, the decision is final and cannot be overturned should the individual change their mind.
This is why we recommend reviewing the pros and cons of each with regard to your situation in detail before making a decision.
Other DVA Payments
Disability Compensation Payment
There are 4 ‘categories’ of Disability Compensation Payment payable, the SRDP is one of these. There is also the:
- General Rate, payable in multiples of 10% up to 100%;
- Extreme Disablement Adjustment (for over 65 years of age only);
- Intermediate Rate
Our team can advise how best to utilise any of these payments and ensure you remain compliant with your tax obligations while still affording the life you deserve.
MRCA Permanent Impairment Payments & Lump Sum Compensation
Permanent impairment payments differ from other DVA payments in that they can be converted to a lump sum if desired.
Permanent impairment payments are also individually calculated based on the type of injury or illness you have acquired and how this relates to the total impairment rating on a scale from 0 to 100 points.
It is equally important to seek qualified financial advice when receiving a PI payment or lump sum payout.
Financial Considerations
Special Rate Disability Pensions vs Incapacity Payments represent a complex issue for most people. The financial considerations for both will vary significantly due to a Veteran’s unique and different personal circumstances.
Things you should bear in mind when reviewing each of these payments and how they can influence your financial future are:
The tax laws surrounding the payment in question. - How these payments may influence your eligibility for other valuable income support payments such as a service pension.
- The impact it may have on any dependants you may have. Additional assistance or taxation benefits, including family tax benefits, Child Support payments or similar available through the DVA or Services Australia may no longer be available.
- What will happen to your payment should you undertake rehabilitation or resume full-time or part-time work?
- The fact that Incapacity Payments cease at the recognised Age Pension age while SRDP continues indefinitely.
- How any superannuation offsetting arrangements may impact your MRCA payments.
Aside from the above, you should also think carefully about your existing financial commitments (such as debts and mortgages), your existing assets, the type of lifestyle you hope to maintain and more.
We recommend thinking through these concerns in advance of meeting with a financial planner as this can help you be more prepared for your consultation. By having a clear idea of where you are and hope to be in the future, your advisor can better understand how to assist you to achieve this.
Why Seek Professional Financial Advice?
Whichever invalidity service pension you receive as a Veteran, it is important to consider the financial implications. While the commencement of one of these payments in lieu of your former salary can represent a huge shift financially, it is still possible to meet your financial goals and create financial stability.
Discussing your MRCA payments with an experienced financial planner is one way in which you can alleviate any financial concerns and plan for the future.
Opting to work with a financial planner who is supporting Veterans will benefit you more, as they know what is required for military and ex military.
At National Service Financial we have years of experience supporting Veterans to make the most of their payments and are passionate about helping them create the financially abundant future they desire.
How We Can Help
At National Service Financial we offer comprehensive financial advice. From managing your day-to-day expenses, exploring superannuation offsetting arrangements, DHOAS advice, Defence Force Home Loans, ADF transition services and more.
We adopt a holistic approach when it comes to your finances, that leaves no stone unturned. By establishing a solid starting point, we lay the foundation for you to launch towards financial independence.
The sudden change in your finances as a Veteran does not need to mean living with constant compromise. With our help, you can achieve your goals and enjoy a life free of financial worries.
What To Expect
While we cannot advise or prepare your DVA claims, we are financial experts and are unmatched when it comes to helping you navigate their outcomes.
We recognise that for many people meeting with a financial planner can be a daunting prospect. At National Service Financial, we offer judgement-free, genuine and professional services, aimed at helping you better understand your financial situation.
During your financial discovery appointment, we will take the time to get to know you and hope for your outcomes. We review every aspect of your finances, gaining a clear picture and ideal starting point. We then work closely with you to plan out your goals and look at how to best utilise your payment and grow your wealth.
Should we feel the payment offered by the DVA is not the best choice for you, we will be upfront and honest and offer a suitable alternative. We are motivated by a genuine desire to see Veterans succeed following their departure from service and we work tirelessly towards this.
Experience The National Service Financial Difference
Owned and operated by former ADF members, the team at National Service Financial offer a unique and genuine understanding of the needs of Veterans. We offer a range of services that support Veterans, and former and active members of the ADF to achieve financial security.
By seeking advice from a FASEA Qualified Financial Planner, you can avoid the stress and worrying linked with how to pay for your future needs while affording life’s everyday essentials.
To get started and learn more about the differences between DVA payments and how this can impact your finances, contact the NSF team today at 02 4347 9444