9.11.1 Overview of Compensation Recovery

Last Amended: 29 June 2005

Impact of compensation

The compensation recovery assessment rules may apply to payments of compensation if:

• the compensation is regarded as wholly or partly for economic loss, and
• the compensation recipient is receiving a [glossary:compensation affected pension:] [glossary:(:][glossary:CAP:][glossary:):].

Different assessment rules apply to payments of compensation if:

• the compensation is regarded as solely for non-economic loss, that is, there is no component for lost wages /salary (Part IIIB), or
• the compensation is paid to a person who is not receiving a CAP. That is, the person has reached pension age and therefore Part IIIC rules do not apply (ordinary income).

The focus of this chapter is the Part IIIC rules.

Definition of compensation for Part IIIC

Section 5NB of the VEA defines, for the purposes of Part IIIC of the VEA, compensation as:

• a payment of damages or compensation, or
• a payment under a scheme of insurance, or
• a payment in settlement of a claim for damages.

The compensation payment must be made wholly or partly in respect of lost earnings or lost capacity to earn for the Part IIIC compensation recovery rules to apply (sometimes this is referred to as compensation for economic loss).

Compensation can be in the form of:

• lump-sum payment, or
• periodic payments, and
• includes payments made outside Australia.

Pensions affected by compensation recovery provisions

If a person is entitled to, or receives compensation made wholly or partly in respect of economic loss and has not reached pension age (or qualifying age in the case of income support supplement [glossary:(:]ISS[glossary:):]), then the following pensions payable to a person may be affected:

• invalidity service pension,
• partner service pension,
• income support supplement, and
• veteran payment.

These pensions are described as compensation affected pensions [glossary:(:]CAP[glossary:).:]    

Lump sum compensation

If a person receives compensation made wholly or partly in respect of economic loss in the form of one or more lump sum payments then the person may not be able to receive their CAP for the lump sum preclusion period.    

Periodic compensation payments

If a person receives compensation made wholly or partly in respect of economic loss in the form of a series of periodic payments their CAP may be reduced for the period for which the payments are received. The CAP payable to the compensation recipient is reduced on a dollar for dollar basis by the periodic compensation payments.