9.10.2 Compensation Offsetting and Award of Compensation or Damages

Last Amended: 11 July 2022

Who is affected by compensation offsetting under the VEA?

Any person who is seeking or who receives a pension payable under Part II or Part IV of the Veterans' Entitlements Act 1986 (VEA) who:

• has received a benefit from another source for the same incapacity (or death), or
• is eligible to claim a benefit from another source for the same incapacity (or death), or
• has received a lump sum compensation payment under the Safety, Rehabilitation and Compensation (Defence-related claims) Act 1988 (DRCA) and is assessed as eligible for any of the following earnings-related payments:
  • Special Rate
  • Temporary Special Rate
  • Intermediate Rate; or
  • Loss of Earnings Allowance

What does compensation or damages not include?

Compensation or damages does not include:

• any expenses incurred in medical or hospital treatment,
• payments under an insurance policy owned by a veteran or dependant (for example, life insurance, travel insurance claims, loss of income protection or salary continuance insurance),
• a Severe Injury Adjustment or Additional Death Benefit which may be paid under the Defence Act 1903,
• legal expenses specified by a Court as having been incurred in obtaining compensation from another party, or
• superannuation payments, including those arising through invalidity as a result of a compensable event. Superannuation benefits are based on a person's equity in a superannuation fund and length of contributory service, rather than being related to the losses arising though a compensable event. These characteristics mean that they are not payments 'in the nature of compensation'.

Note:  payments received under an insurance policy, such as loss of income protection or salary continuance payments, are excluded as they are regarded as representing the return to the insured of their own funds, under a private insurance arrangement, rather than payments made through a compensation scheme.  As such, they do not satisfy the test of being a payment 'in the nature of compensation'.  There is no requirement (as there is in compensation recovery cases) to find that the recipient of the payment has made a contribution to the payment.

Lump sum compensation payments

Where the other compensation is paid as a lump sum amount, the VEA requires that a fortnightly equivalent amount be calculated and a resulting reduction applied to a person's fortnightly rate of pension.  A fortnightly equivalent is intended to represent a fortnightly return that a person could reasonably expect to receive for the rest of their life by investing that lump sum in a pension scheme.

The specific formula and life tables that are used to calculate the fortnightly equivalent are provided by the Australian Government Actuary (AGA).  The AGA apply the same principles that underpin lifetime annuities.  These products are paid for the duration of a person's life in exchange for an initial up front lump sum contribution.  The return from an annuity is based on the rate of interest to be earned as well as the person's life expectancy.  As interest will be earned on an invested annuity, the total amount paid over a person's lifetime is expected to be more than the initial lump sum invested – hence the total amount offset against a veteran's or war widow(er)'s pension over their lifetime will more likely than not exceed the amount of lump sum compensation they received from the other source.  These features are designed to create an offset that is comparable to the expected benefits of the lump sum payment over a person's lifetime.  The fact of whether a person decides to invest the lump sum or not does not affect the Actuary assumptions and does not affect the offset applied.

Compensation offsetting affects the part of Disability Compensation Payment that is paid for the same incapacity for which other compensation is paid.  Therefore, the offset amount is either the amount calculated using the AGA's formula or the actual amount of the assessed Disability Compensation Payment for that incapacity – whichever is less.

The initial fortnightly equivalent amounts are subject to indexation and are adjusted in line with CPI. This adjustment occurs at the same time as Disability Compensation Payment and war widow(er)'s pension are increased.

Compensation offsetting applies where lump sum compensation has been paid to the following clients who also receive benefits paid under Part II VEA and Part IV VEA for the same incapacity or death:

• Disability Compensation Payment
• war widow(er)s pension
• orphans pension (single and double)
• specific disability allowance; and
• for section 25A VEA only: loss of earnings allowance.

Periodic compensation payments

If other compensation is paid on a regular basis (for example, weekly or fortnightly), the Disability Compensation Payment or war widow(er)'s pension is offset on a dollar for dollar basis by the amount of periodic payment paid in respect of the same incapacity or death. Periodic compensation payments may be received from a number of sources including Comcare, State Workers' Compensation Boards, private insurance companies, the Dust Diseases Board, overseas compensation or incapacity payments under the DRCA.

The effect overseas compensation has on payments under Part II & Part IV of the VEA

Compensation type payments made by a foreign country can also trigger an offset.  If a veteran receives an overseas compensation payment (either periodic or lump sum), these payments are considered compensation for the purpose of offsetting.  This situation is unique in that there is no requirement for the overseas compensation to be for the same incapacity for offsetting to occur.  Section 26 of the VEA states that compensation received from a foreign country can be for any incapacity, irrespective of whether the incapacity is included in the assessment of the Disability Compensation Payment for the offsetting provisions to apply.  An examples of an overseas compensation payment is the Empire Air Training Scheme.

Veterans that receive compensation from the British Government in recognition of their service related incapacities with the Royal Air Force (RAF) and are paid Disability Compensation Payment under the VEA, will be offset on a dollar for dollar basis.

Similarly, a person assessed as receiving an overseas payment that is similar in character to the Australian war widow(er) pension, for the death of the same veteran, has their war widow(er) pension offset on a dollar for dollar basis.  These cases are known as 'composite' cases.  To be similar in character to a war widow(er) pension, the overseas payment is required to represent compensation for the same death of the person's partner due to war-caused or war-related injury or disease arising from their service in connection with a war or warlike operation in which the Crown has been engaged.

Fortnightly payments redeemed under section 30 of the DRCA

There is a specific exception in the VEA for a lump sum payment that is made under the provision of section 30 in the DRCA. A lump sum under this section consists of redeemed fortnightly payments that otherwise would have ceased at Age Pension age. In such cases offsetting ceases when the veteran attains Age Pension age.*

*Note: The relevant section of the VEA (30C) refers to age 65, whereas section 30 of DRCA refers to Age Pension age. This apparent anomaly is currently under review.     

Obligation to notify

Veterans and war widow(er)s or other dependants who are informed that they are likely to receive an award, payment or settlement of a compensation claim should contact DVA to determine how this payment might affect their pension. A veteran or war widow(er) who receives a Disability Compensation Payment or war widow(er)'s pension or has any treatment entitlement must inform DVA within 21 days if compensation or damages is received.

Right of reconsideration and review

The offsetting provisions are “self-executing”, that is, they don't require a decision to be made by a DVA delegate.  Therefore, there is no decision made, other than the actual rate of pension, which can be reviewed.  This means there is no avenue of appeal to either the Veterans' Review Board (VRB) or the Administrative Review Tribunal (ART) in respect of compensation offsetting.

A veteran may ask for a re-examination of any compensation offsetting matter by a senior DVA officer who will consider any additional information provided.

A compensation offset is an administrative decision for the purposes of the Administrative Decisions (Judicial Review) Act 1977 and can be appealed to the Federal Court under the provision of that Act.

Settlement Payments paid without admission of liability

Where a settlement payment has resolved a claim and liability has not been admitted as part of the settlement, offsetting and compensation recovery provisions across the three Acts will still apply.

Provided that an employee recovered an amount for an incapacity/injury/cause of action under a settlement arrangement, we do not consider the terms on which the settlement is prepared, including whether or not there is an admission of liability will impact on the application of the relevant sections of the VEA, MRCA or DRCA. Further, neither the VEA, MRCA or DRCA require an admission of liability in order to take an amount paid into account in relation to the application of the relevant offsetting/compensation reduction provisions. In relation to VEA specifically, the VEA regards a compromise or settlement of a claim for damages to be compensation (see s30B(c) of the VEA).

It can be difficult to ascertain the specific incapacitates that are referable to a vaguely-worded settlement deed, but where claims for damages have been made at common law, we would expect:

• The relevant incapacities to be described in a Statement of Claim prepared to commence court proceedings; or
• If a matter was to settle before a Statement of Claim was issued, the relevant details to be described in correspondence provided by the claimant in order to justify the payment of a settlement sum.