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Program 1.7: Adjustment to the Military Rehabilitation and Compensation Acts Liability Provision - Income Support and Compensation

Objective

Program 1.7 provides an updated actuarial assessment of the movement in the liability for income support and compensation under the Safety Rehabilitation and Compensation Act 1988 (SRCA) and the Military Rehabilitation and Compensation Act 2004 (MRCA).

Overview

This program represents the movement in the long-term liability based on the advice of the Australian Government Actuary. The movement is recognised as an expense in DVA’s financial statements. Due to the nature of the provision there can be significant adjustments between years. Movement for the liability for the past two years is shown in table 19.

Expenses

Administered and Departmental expenses
  2012–13 PBS1($ million) Estimated actual22012–13 ($ million) Outcome 2012–13 ($ million)
Administered 140.8 210.7 -157.3
Departmental 0 0 0
Total resources 140.8 210.7 -157.3

1 PBS in performance reporting tables means Portfolio Budget Statements.

2Estimated actual means the estimated expense or total for 2012–13 provided in the 2013–14 Portfolio Budget Statements. As the Budget is released in May each year but the financial year does not close off until 30 June, the current year numbers in the Budget can only be estimates.

Report on performance

In 2012-13, the Department’s provision for military compensation marginally decreased across Programs 1.7 and 2.7, from $4.8 billion to $4.7 billion.

This provision recognises the present obligations that the Department has for veterans and current serving military personnel in relation to benefit payments that will occur in the future.

It is important to note that the provision has significant inherent uncertainty as it is estimating the cost (of both claims received and yet to be received) of providing personal benefits and health care to beneficiaries over the next 80 years. Allied to this, after a long period of predominantly peacetime service, the Australian Defence Force (ADF) has undertaken a range of extensive and intensive operations since 1999 that has seen significant numbers of soldiers, sailors and airmen and women deployed. These deployments of both permanent and reserve forces have exposed an increasing number of ADF personnel to risks of injury and death and the government to an increasing liability for future costs of rehabilitation, health care and compensation.

Historically there have been significant changes to the estimate year on year and these are recognised as adjustments in the year the adjustment occurs. It is expected that adjustments will continue to be made on a year to year basis as claims are received and additional information about claims likely to be made improves.

Additionally, the small decrease that was recognised in 2012–13 has occurred due to a number of factors, including a change in the calculation methodology of the provision. In 2011–12, the provision was calculated utilising the Government’s 10-year bond rate (3.1 per cent) but for 2012–13, to more accurately reflect the long-term nature of the provision, the Department used a yield curve derived from the yields of Government bonds of various durations over the expected period of future payments.

Table 19: Movement in SRCA and MRCA liability
  2011–12 2012–13
  SRCA (million) MRCA (million) Total (million) SRCA (million) MRCA (million) Total (million)
Opening balance adjustment $22.8 $52.8 $75.6 $236.0 $43.7 $279.7
Permanent impairment -$20.4 $48.3 $27.9 -$23.8 $35.5 $11.7
Benefits for eligible dependants -$4.0 $3.7 -$0.3 -$11.8 $3.8 -$8.0
Income maintenance payments $0.0 $134.1 $134.1 $0.0 $201.5 $201.5
Incapacity payments -$25.6 $0.0 -$25.6 -$38.3 $0.0 -$38.3
Medical exams -$1.0 $11.2 $10.2 -$2.2 $15.1 $12.9
Other -$0.7 $3.0 $2.3 -$1.5 $3.3 $1.8
Interest rate $377.4 $641.9 $1019.3 -$196.9 -$421.7 -$618.6
Total expense $348.5 $895.0 $1243.5 -$38.5 -$118.8 -$157.3
Average: 1.7 (3 votes)