Overview of Compensation Offsetting

What is compensation offsetting?

The general principle behind compensation offsetting is that a person should not be compensated twice for the same incapacity or in the case of war widow's/widower's pension twice for a veteran's death. Nor should a person receive more compensation than an equivalent person would receive for the injury or disease if they were only eligible for compensation from the one source.

What is an award of compensation or damages?

Compensation includes:    

• any payment that is in the nature of compensation,
• any damages recoverable at law from a government or any other person (whether within or outside of Australia), in respect of injury to, or the death of, a person, or
• any amount paid under a compromise or settlement of a claim for damages.

Payments under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA) are considered compensation.    

Most payments under the DRCA that attract compensation offsetting under the VEA are due to the veteran or dependant having dual eligibility to claim the injury or death under both Acts.

This dual eligibility dates back to 1972, when ADF members on peacetime service became eligible to claim under two separate compensation schemes (the VEA and the DRCA antecedent Act). At the same time, the Compensation (Commonwealth Government Employees) Act 1971 continued to cover peacetime service, hence the dual entitlement.

Defence Force members were not entitled to receive benefits under both Acts for the same injury or illness. They could, however, elect to receive the benefit most beneficial to them. As noted earlier, a key principle of offsetting is that dual eligibility should not result in claimants receiving benefits greater in value than the more generous of the benefits available under either the DRCA or the VEA individually for the same incapacity.

Defence Abuse Reparation Scheme payments are not compensation

Reparation Payments made by the Defence Abuse Response Taskforce (DART) under the Defence Abuse Reparation Scheme are not compensation payments and therefore will not affect DVA compensation payments through compensation offsetting. Further information about the Defence Abuse Reparation Scheme is provided in Chapter 9.12.　

Superannuation fund Total and Permanent Disability (TPD) payments are not compensation

Total and Permanent Disability payments derived from their Superannuation fund are not defined as ‘compensation’ under the VEA and will therefore not have an offsetting impact on Special Rate Disability Compensation Payments under the VEA.

This is because these payments are derived from contributions the client makes to their Superannuation fund across their working life. It is a payment more in the nature of an insurance payout rather than “compensation” attributable to an incapacity.

VEA payments affected by compensation offsetting

Compensation offsetting applies to the following benefits paid under Part II VEA and Part IV VEA:

• Disability Compensation Payment
• war widow(er)'s pension
• orphan's pension (single and double)
• specific disability allowance; and
• for section 25A VEA only: loss of earnings allowance
• Note: Some service pensions paid under Part III of the VEA, are also affected by compensation payments from another source, however, different rules apply under that part of the VEA.

How does compensation or damages affect Disability Compensation Payment?

The amount of Disability Compensation Payment payable in a fortnight must be reduced (or offset) to take account of any other periodic (for example, weekly or fortnightly) compensation payments that are made in the same period for the same incapacity, or offset by a fortnightly equivalent amount, when the compensation has been received as a lump sum. The fortnightly equivalent is calculated using formulas and instructions from the Australian Government Actuary and is then offset against the pension for life, or as long as the person receives that pension.

If a veteran has a number of disabilities accepted under the VEA, but the other compensation is only for some of these, DVA will make a separate pension assessment just for those disabilities affected.  This is known as a notional assessment. In most cases, offsetting only affects that part of a Disability Compensation Payment paid for the same incapacity for which the other compensation is paid. The amount of the reduction or offset is the lesser amount of the assessed disability or the other compensation paid for the same incapacity.    

Additionally, all claims and applications for increase to an existing rate of pension that are lodged on or after 1 July 2004 and result in the payment of an earnings-related pension or allowance (special rate, temporary special rate, intermediate rate or loss of earnings allowance) will be reduced or offset by any lump sum payment received for permanent impairment under the DRCA. This applies to lump sum compensation for any incapacity, irrespective of whether the incapacity is included in the pension assessment. The authority for this is contained in section 25A VEA.

The operation of Chapter 19 of GARP V

Chapter 19 of GARP requires a delegate to 'apportion off' any relative contribution of the incapacity that is not entirely due to the effects of a person's accepted condition/s. This action is performed by a delegate during the initial claim process or if an application for increase is lodged. Essentially, if a veteran is suffering the same incapacity from more than one condition and a portion of that incapacity is the result of a non-accepted condition, the removal of that partially-contributing impairment also removes the requirement to offset any compensation that may have been received for that condition.

Chapter 20 of GARP is designed to specifically cover apportionment of the impairment when it is necessary for a given accepted condition, to compare an impairment from one table with an impairment derived from another table, and when two or more accepted conditions contribute to the impairment ratings from either table.

Although both Chapters 19 and 20 refer to apportionment, Chapter 19 should be used to identify partially contributing impairment in offsetting cases (as would be applied for impairment from a non-accepted condition).

Compensation offsetting and war widow(er)'s pension, orphan's pension and ISS

The war widow(er)'s pension and orphan's pension paid under the VEA are compensation for a veteran's death. If a person receives any award of compensation or damages from another source for the veteran's death (either in Australia or overseas) there must be a corresponding reduction or offset to the amount of pension paid under the VEA to preclude double compensation.

This compensation can include compensation for the death of a veteran received under section 17 of the DRCA. Any compensation payment offset against a war widow(er)'s pension is not counted again for offsetting an income support supplement(ISS).