The Income Replacement Benefit (IRB) is a taxable, monthly financial benefit available as part of the Pension for Life (PFL) package released in 2019. The benefit recognizes and compensates Veterans for the economic impact that health problem(s), resulting primarily from service, have on their ability to earn income and save for retirement. Survivors and orphans may also be eligible for IRB.
The IRB ensures that Veterans will receive a total income of at least 90 per cent of their gross pre-release military salary until they reach the age of 65, for as long as they are taking part in the Rehabilitation Services and Vocational Assistance Program, or if they have a Diminished Earnings Capacity (DECFootnote2). It is calculated by taking 90 per cent of a Veteran’s salary at the time they were released from the military (indexed annually to the present day to account for inflation), less offsets.
A Veteran who is participating in VAC’s Rehabilitation Program will be evaluated before turning 65 or after the completion of the rehabilitation or vocational assistance program. If the permanent physical or mental health problem results in a DEC, then the benefit will be extended for the Veteran’s lifetime or until they no longer have a DEC. If a Veteran has a DEC and has reached 65, their benefit will be reduced and they will receive 70 per cent of the IRB amount payable prior to age 65 (minus offsets).
Veterans must apply for the IRB before age 65. A member of the Canadian Armed Forces (CAF) may apply for the IRB before their release, however the IRB will not be payable until the day following their date of release.Footnote3
The IRB is a substantial program, with 26,697 clients in receipt of the benefit as of 31 March 2022, and total expenditures of $962.9MFootnote4 for 2021-22. This represents approximately 22 per cent of VAC’s annual grants and contributions expenditures for the 2021-22 fiscal year. IRB recipients and expenditures have consistently grown since the program began in 2019 and are forecasted to continue to grow. This is the first internal audit of the IRB.
Figure 1
2021-22 Grants and Contributions Expenditures (in $ millions)
Source: Data extracted from Public Accounts of Canada 2022, Volume II
Application
An application for the IRB must include information about the Veteran’s eligibility for the IRB, as well as information for the purposes of the calculation of the monthly IRB amount.Footnote5 A VAC Case Manager determines IRB eligibility in conjunction with their decision regarding the Rehabilitation Program, as generally, eligibility for the IRB is dependent upon eligibility for the Rehabilitation Program (unless the Veteran has a DEC).
Following a favourable eligibility decision, a Benefits Program Officer (BPO) reviews the application. If the application does not include all information required to calculate the benefit, the BPO contacts the Case Manager and/or Veteran to obtain the missing information. Once all information is obtained, the BPO calculates the IRB payment and advises the Veteran in writing of the IRB decision. This process is internally known as the First Application.
Calculation
For simplicity, there are two figures that are used in the calculation of the monthly IRB amount: the imputed income and income offsets (see Appendix D for definitions). To calculate imputed income, the value of the monthly military salary (MMS) must be known. Once the imputed income is calculated, amounts payable to the Veteran for a month (as defined in the Veterans Well-being Regulations (income offsets)), are deducted to arrive at the monthly IRB payment amount. These income offsets include income such as military pension, long-term disability insurance, employment income, plus numerous other items listed in the regulations. Employment income is only deducted once a Veteran has earned more than $20,000 in a calendar year.
Monitoring, communication and subsequent recalculations
Once IRB payments are calculated, an eligible Veteran continues to receive the monthly payment (provided their income sources do not exceed their maximum monthly entitlement). The amount is recalculated when there is an adjustment to the MMS, annual indexation or income offsets. Section 25(1)(b) of The Veterans Well-being Regulations states that a person entitled to the IRB shall notify the Minister of any changes to their income offsets.Footnote6
VAC relies on Veterans to inform them of any such changes. This can result in a larger workload for VAC employees, who must remind IRB recipients of their obligations to submit documentation for the benefit. Regular monitoring of responses and performing recalculations means VAC employees may be continuously involved with each IRB recipient’s file. The continuous nature of this involvement is depicted in the figure below.
Figure 2
IRB Recalculation Cycle
Source: AED Analysis based on interviews and a review of documentation