What happens if you receive a compensation payment

This page explains how compensation payments are assessed under the income and assets tests and how compensation can affect your rate of Service Pension, Income Support Supplement or Veteran Payment.

What is compensation?

Compensation is money paid to you, usually as a result of:

• a work-related injury or illness, including incapacity payments made under the Military Rehabilitation and Compensation Act 2004 (MRCA)
• injuries received in a car accident
• injuries received because of the negligence or fault of another person.

Compensation can include an amount of damages awarded by a court or as a result of an out-of-court settlement.

If I receive compensation, will it affect my pension or payment?

If you receive compensation, either as periodic payments or a lump sum, the compensation may reduce the amount of income support pension or payment paid to you. How your pension will be affected, depends on a number of factors, including:

• your age
• what the compensation is for — for example, whether it is for loss of earnings or damage to property
• when the compensation was paid or began to be paid
• whether you receive an income support pension or payment that is a compensation affected pension
• when you were granted the income support pension or payment
• if you have contributed to an insurance policy under which the compensation is paid, how the compensation amount is calculated.

The following income support pension and payments are compensation affected pensions or payments if payable to a person who is below pension age:

• Service Pension Invalidity
• Service Pension Partner
• Income Support Supplement
• Veteran Payment

What is compensation recovery?

Compensation payments are paid to give you money to live on because you are unable to work. Income support pension or payments are paid to give you money to live on if you have limited means.

Under the compensation recovery rules, you may not be payable Service Pension, Income Support Supplement or Veteran Payment, or you may receive a reduced amount, if you are already being compensated for not being able to work. The compensation recovery rules determine how much pension or payment you can receive while you are also being paid compensation.

Recipients of Service Pension, Income Support Supplement or Veteran Payment who are below pension age (refer to the section titled 'Pension age') may have their pension or payment reduced or cancelled for a specified period if they receive payments of worker’s compensation, sickness benefits or accident insurance.

Who is affected by compensation recovery?

You will only be affected by the compensation recovery rules if you meet all of the following:

• you are below pension age (see the section ‘Pension age’ below)
• you are paid periodic payments or a lump sum of compensation
• that compensation is paid wholly or partly in respect of lost earnings or lost earning capacity
• the event for which you are paid compensation occurred before you were receiving a compensation affected payment.

You are not affected by the compensation recovery rules if you received the compensation before 1 January 1995, or you claimed your compensation affected pension before 1 May 1987.

Pension age

If you are a veteran who receives a Service Pension or a war widow(er) who receives Income Support Supplement, you may be subject to compensation recovery if you are under 60 years of age.

If you receive Veteran Payment or are a partner of a veteran who receives Service Pension, you may be subject to compensation recovery if you are under age pension age as per the table below:

What will happen to my payment if I am affected?

If you are affected by the compensation recovery rules your payment will be calculated in one of the following ways:

• if you receive regular or periodic payments of compensation, your pension or payment will be reduced by one dollar for every one dollar of compensation received
• if you receive a lump sum payment of compensation we will calculate a preclusion period during which your pension or payment will not be paid.

The preclusion period takes into account compensation paid for future loss of earnings.

If you are paid a backdated lump sum payment, you may have to pay back your pension or payment paid to you during the period the lump sum covers.

How does compensation affect my partner’s and my payment?

Depending on your circumstances, if you receive a regular or periodic compensation payment it may affect only your pension or payment, or it may affect your partner's pension or payment as well. The same applies if it is your partner who receives a compensation payment; that is, it may affect only your partner’s pension or payment or yours also.

If the compensation is paid as a lump sum, the preclusion period will only apply to the member of the couple who is paid the compensation.

What if I receive compensation, but am not affected by the compensation recovery?

You are not affected by the compensation recovery if any of the following applies:

• you are over pension age
• your compensation is not for loss of earnings
• you were already receiving a compensation affected payment at the time of the event for which you are being paid compensation.

Your compensation will be assessed under the normal income test rules. Refer to Income Test for more information.

There are also a number of types of compensation which are exempt from being counted under the compensation recovery rules.

Types of compensation not counted

The following types of compensation are not counted under the compensation recovery rules and are not counted as income under the income test for recipients of Service Pension and Veteran Payment:

• Disability Compensation Payments or similar compensation payments made to compensate for war caused incapacity, whether paid by Australia or a foreign country
• War Widow(er)’s Pension or similar compensation payments made to a dependant of a veteran whose death was war-related, whether paid by Australia or a foreign country
• bereavement payments paid by DVA or Centrelink
• compensation payments which are for a recognised war-related condition or injury and have already been taken into account to reduce a Disability Compensation Payment or MRCA payment
• compensation payments made by the ‘Mark Fitzpatrick Trust’ and ‘NSW Medically Acquired HIV Trust’
• payments made in respect of National Socialist (NAZI) persecution
• compensation paid for loss or damage to property such as buildings, plant or personal effects.

The same exclusions stated above are applied to the recipients of Income Support Supplement except that the following types are counted under the income test:

• Disability Compensation Payment or similar compensation payment made to compensate for war-caused incapacity paid either by Australia or by a foreign country
• War Widow(er)’s Pension or similar compensation payment made to a dependant for a veteran whose death was war-related, whether paid by Australia or a foreign country.

The following types of compensation are not counted under the compensation recovery rules but are counted as ordinary income under the income test:

• criminal injuries compensation
• payments made in respect of unlawful dismissal, racial discrimination or similar payments
• compensation payments you have contributed to, for example by paying an insurance premium (provided an offset clause¹ is not in operation).

¹Offset clauses, in relation to insurance policies, operate to reduce the payment under the insurance policy by the amount of any DVA payment received. If the offset clause is invoked, the insurance payments are assessed as compensation, not as ordinary income. In addition, the full amount of the payment provided for by the policy is assessed, as though the offset clause has not been invoked.

Will compensation affect my Disability Compensation Payment or MRCA payment?

You may be affected by compensation if you are receiving or applying to receive a Disability Compensation Payment or MRCA payment by DVA. This will happen if any of the following apply:

• The compensation is being paid for the same incapacity from any injury or illness for which the Disability Compensation Payment is being paid
• The compensation is being paid for the same injury or illness for which the MRCA payment is being paid
• A claim or application you lodge on or after 1 July 2004 results in the payment of an earnings-related Disability Compensation Payment or allowance, and you have received a lump sum permanent impairment payment under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA). This applies to lump sum compensation for any incapacity, irrespective of whether the incapacity is included in the Disability Compensation Payment or MRCA assessment.

If a compensation payment affects your Disability Compensation Payment or MRCA payment, compensation recovery rules will not be applied to the amount of the compensation payment that affects your Disability Compensation Payment or MRCA payment.

For more information on compensation refer to Disability Compensation Payment and Compensation Offsetting

If you are being paid or you are applying for permanent impairment compensation under the MRCA refer to How to Make a Claim under the MRCA

Do I have to claim compensation if I am entitled to it?

If you are entitled to compensation, or think you may be entitled to it, you must take reasonable action to obtain compensation or attempt to claim it. You have taken reasonable action if any of the following apply:

• lodge a claim with the compensation payer, employer or insurer
• engage a solicitor to commence legal proceedings
• seek legal advice about the likelihood of your claim being successful.

If you do not take reasonable action your pension rate may be calculated as if you were receiving the compensation.

There may be reasons that you are unable to pursue a claim for compensation. You may be physically or mentally unable to do so, or because for legal reasons there is little or no chance the claim would succeed.

Obligations

When you are granted an income support pension or payment and periodically after that, you will be notified of your obligations. You will be required to tell us within 14 days (28 days if you live overseas or receive remote area allowance) of changes to your circumstances that might affect the rate of income support pension you receive or your eligibility to receive that pension. These obligations apply equally to trustees. In relation to compensation the sorts of things you would need to tell us about within 14 days (28 days if you live overseas or receive remote area allowance) depend on your circumstances at the time.

If you are receiving a pension or veteran payment you need to tell us within 14 days (28 days if applicable) of whichever event occurs first:

• the day you receive a compensation payment
• the day you first become aware you are going to receive a payment.

If you are already receiving periodic payments which affect your pension, you need to tell us within 14 days (28 days if you live overseas or receive remote area allowance) of whichever even occurs first:

• the amount of your periodic payment increases
• you become aware it is going to increase.

More Information

The way compensation affects your pension can be quite complicated. This page can only give general information and cannot tell you exactly what will happen in your individual situation.

For more information about your particular circumstances contact DVA. If you have a solicitor helping you with your compensation case you might want to ask your solicitor to help you find out more information.