An increasing proportion of younger people with psychological conditions on the disability support pension could see recipients remain on the payment for 20 years, twice the current average, the parliamentary budget office has warned.
In a report released on Tuesday the PBO found the disability support pension will cost $4.8bn less in 2027-28 than projected because of a drop in the number of recipients after the Gillard government changed the rules.
The PBO found a significant decline in the number of people claiming the pension for physical impairments, with musculoskeletal conditions down from 40% of new recipients in 2001 to 11% in 2017.
Over the same period the share of new recipients with psychological conditions increased from 25% to 33%, and those with intellectual conditions from 6% to 17%.
The shift is contributing to a decrease in the age of recipients, because the average age for a person gaining the disability support pension for musculoskeletal conditions is 57 compared with 48 for psychological and and 37 for intellectual conditions.
People under 40 made up 28% of new recipients in 2001, which increased to 40% in 2017, mainly driven by the entry of men with psychological or intellectual conditions.
In 2016-17 men under 40 with these conditions accounted for three times as many new recipients than women under 40 with the same conditions.
The PBO warned that although the number of new recipients had fallen, the change in composition meant an increasing proportion were likely to stay on the payment for longer.
The younger cohort with intellectual and psychological conditions “could remain on the payment for over 20 years”, it said, compared with the average of about 10 years a decade ago.
“This structural change will contribute to growth in [disability support pension] expenditure over the longer term as the total number of recipients will remain larger than would otherwise have been the case.”
The PBO found that growth in disability support pension expenditure averaged 8.7% between 2008 and 2012 during the global financial crisis but fell to just 0.2% a year between 2012 and 2017 due to “significant changes to assessment processes” in 2011 and 2012.
Changes to assessments, to focus on ability to perform certain activities rather than relying on medical diagnoses of conditions, contributed to a shift from 63% of applicants being granted the pension from 2001 to 2011 down to 43% from 2011 to 2015.
After increasing for two decades, the number of recipients fell from 2013 to 2016, with recipients as a share of the working age population down to 4.7%.
The PBO said that Coalition government crackdowns in 2014 and 2015 contributed “to a lesser extent” to the declines.
The PBO projected that expenditure on the disability support pension will continue to grow by 1% a year, increasing from $16.3bn in 2016-17 to $23.6bn in 2027-28. That represents a $4.8bn reduction in the projected expenditure in 2027-28 compared with the PBO projection in the 2017 budget.
The most common reasons for people to stop receiving the pension are shifting to the age pension (49%) and death (24%).
The PBO said that each year about 70,000 people on the disability support pension have compliance with income, assets and medical criteria assessed.
Only a “small proportion” of those recipients are found ineligible, accounting for just 5% of recipients leaving in 2016-17. Most were deemed ineligible for non-medical reasons.
In 2016 the Coalition announced a further 90,000 medical reviews of existing recipients over three years in the budget, and in the midyear economic update further fraud prevention through more use of data-matching.
The Greens welfare spokeswoman, Rachel Siewert, said the report showed a “sharp slowdown in expenditure for the DSP [which] should not be seen as a positive thing by the Turnbull government”.
She said the slowdown was the result of the Abbott government reviews of DSP recipients and Labor’s changes to eligibility criteria “forcing people to prove they can’t find work for 18 months … to access the support”.
