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.

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.

read more: http://www.abc.net.au/news/2015-05-21/proposed-stripping-of-welfare-payments-for-psychiatric-patients/6488184