Mental health experts and legal aid groups are alarmed by a proposal to strip welfare payments for psychiatric patients accused of serious crimes.

The Federal Government has drafted the Social Services Legislation Amendment Bill, which it says would reap $29.5 million in savings over four years.

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Social Services Minister Scott Morrison said the people who would have some Commonwealth support taken away had been charged with "the most violent of crimes".

"What we are doing is ensuring that their payments are treated the same as others who are prevented from being released into the community for similar types of reasons. We think this is a sensible measure," he said.

"We are talking about people who have been charged with heinous crimes in many cases and not continuing benefits for people in those situations, because they are actually living in facilities where they are being cared for and where they are not allowed to leave because they are considered a danger to the community."

Mr Morrison said they would continue to receive support from State Governments in the facilities where they were held.

A Senate committee is examining the proposal and has received several submissions asking for the legislation to be scrapped.

The chief executive of Mental Health Australia, Frank Quinlan, said people who were deemed unfit to plead had no conviction recorded.

"The worst thing that this legislation does is equate people in state care with people who are guilty of very serious offences," Mr Quinlan said.

Hundreds of mentally ill people accused of committing a serious crime are confined in psychiatric wards around Australia and are known as forensic patients.

Many still receive Centrelink payments because they are not guilty of a crime, but deemed unfit to plead or not guilty by reason of mental illness.

At the Senate committee hearing in Canberra, Anina Johnson from the Mental Health Review Tribunal of New South Wales explained that those patients are not prisoners.

"They have never been convicted, and for the most part they are not serving any ... period of detention," Ms Johnson said.

People in psychiatric care 'not culpable' for crimes

A lawyer with the Welfare Rights Centre in Sydney, Matthew Butt, said he was concerned the legislation would affect people who did not have a criminal record.

"The people in psychiatric care are found not to be culpable by the criminal justice system, due to their psychiatric impairment," Mr Butt said.

"We're talking major mental health problems [such as] brain injury."

The Department of Social Services said welfare changes were needed for payments to some psychiatric patients who had committed serious crimes such as murder and rape.

The department's Cath Halbert said forensic patients still received social security because they were classified as being in rehabilitation.

She said the definition of rehabilitation had broadened over the past two decades for mentally ill patients not fit to plead.

"The social security act does not exist for the purposes of providing [those people] with income support for their health needs," Ms Halbert said.

She said those patients would still receive state funding for their place in a psychiatric institution, but not for income support.

Mental health groups are worried the changes will leave vulnerable people with no money when they eventually leave care.