13.07 Offsets

13.07 Offsets

Section 204 [2] of the MRCA [3] requires that the maximum weekly amount of SRDP that is payable or paid to a person be reduced by the sum of:

• any weekly amounts that are being paid to the person under Part 2; and

• if the person has chosen to convert all or part of one or more weekly amounts that were payable to the person under that Part to lump sums – those weekly amounts or those parts of those weekly amounts.

• If the person is in receipt of Commonwealth Superannuation, an amount equal to 60% of the Commonwealth-funded portion of their weekly superannuation entitlement (lump sum and/or pension).

  Note that any payment received for eligible young persons or for financial advice under Part 2 does not reduce the maximum amount of SRDP that could be payable to the person.

  Section 14 of the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004 [4] provides that any SRDP is reduced by:

• any Disability Compensation Payment, including above general rate pension, paid under the VEA; and

• the current weekly equivalent of any lump sum compensation paid under the DRCA.

  Offsetting PI Compensation

  SRDP is offset dollar for dollar by the weekly value of any permanent impairment (PI) compensation that has or is being paid to the former member.  All DRCA PI compensation is paid as a lump sum and MRCA PI compensation may be paid as a weekly amount or, all or part of the weekly amount, can be converted to a lump sum. If the PI compensation has been paid as a lump sum the compensation must be converted to a weekly equivalent to offset from the SRDP. The method to convert a PI lump sum payment to a weekly amount is different under the MRCA and DRCA.

  Offsetting MRCA PI Compensation

  MRCA PI compensation is originally paid as a weekly amount. If all or part of this compensation has been converted to a lump sum, SRDP is offset dollar for dollar by all or part of the total amount of periodic payment the person was receiving at the time they made the choice to convert to a lump sum. To calculate the weekly amount of PI compensation the person would be receiving, regardless of whether all or part of this payment was converted to a lump sum, the person’s compensation factor is multiplied by the maximum PI payment at the date the choice to receive a lump sum was made (this is a weekly amount).

 Note: while the maximum MRCA PI payment amount is indexed annually on 1 July, the weekly amount that is offset from SRDP is not indexed where the person chose to convert some or all of their entitlement to a lump sum - it is always equal to the weekly amount at the time they chose to convert. 

For the purposes of offsetting SRDP, DRCA Lump Sum PI is treated differently from MRCA lump sum PI. DRCA lump sums are converted to the current weekly amount (which has been indexed) as per the regulations prescribed under paragraph 14(2) of the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004.

Converting Previous DRCA Lump Sums into Current Weekly Amounts

• The Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Regulations 2020 item 6, sets out the method for converting lump sum payments under the DRCA into weekly amounts:

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The aged based number is provided by the Australian Government Actuary by reference to the age of the person on the day on which the lump sum amount under the DRCA was paid to the former member and the gender of the former member.

The current lump sum amount means the amount worked out using the following formula:

'Maximum amount' means the maximum amount specified in subsection 24(9) of the DRCA as indexed in accordance with section 13.

'Previous lump sum' amount means the sum of any amounts previously:

(a) assessed as payable to the person under sections 24, 25 and 27 of the DRCA; and

(b) paid as a lump sum or lump sums. 

Note: Care should be taken to ensure the amount determined is used, not the amount paid, This is because the amount paid may be different (less than) the amount determined. 

'Relevant financial year' means the financial year in which an amount of compensation was paid to the former member under sections 24, 25 or 27 of the DRCA.

The amount to be reduced from SRDP for DRCA PI payment increases on 1 July annually, when the statutory increase in the maximum rate of PI occurs. 

Offsetting Commonwealth Superannuation Payments

If the former member is receiving Commonwealth superannuation then the remaining SRDP is offset at 60 cents in the dollar (i.e. each dollar of Commonwealth-funded superannuation reduces the SRDP by 60 cents) for every dollar that is calculated. 

• Establishing the Commonwealth-funded portion of a superannuation payment is determined by the fund and benefit type the person receives. For example, if the person is receiving a MSBS invalidity pension the whole amount is considered Commonwealth-funded, whereas for a DFRDB invalidity pension (A or B) only 80% of the original pension amount is considered commonwealth-funded. 
• Incapacity Policy Manual Ch 9.4 provides guidance on establishing the employer (Commonwealth-funded) benefit, and detailed information on the various superannuation funds can be found at Ch 9.5 (DFRDB), Ch 9.6 (MSBS) and Ch 9.7 (ADF Super and ADF Cover).

• The calculation of the offset amount should be reviewed in January and July each year when the Commonwealth Superannuation Corporation adjust pension payments.

• *Note: A written determination is not required under the MRCA where the rate of SRDP is adjusted in line with statutory increases to the Special Rate Disability Compensation Payment, or the amount of offset is changed. The indexation of MRCA SRDP and changes to offsetting amounts occur 'automatically' (by virtue of s198 of the VEA, and s204 of the MRCA respectively) and no decision is required under the Act. However, Departmental correspondence referring to the adjustments is required. Incapacity Procedures Manual Chapter on Increases and adjustments provides further information. 

  The amount of superannuation that is used in reducing the SRDP is not counted as income for income testing purposes for VEA or social security income support purposes.

  The combined effects of these two offsetting provisions mean that the amount of SRDP payable to a former member may be less than their normal entitlement to incapacity payments.  However, whereas incapacity payments are generally only payable until Age Pension age [5], SRDP is payable indefinitely.  Additionally, the SRDP is exempt from income tax.

When SRDP is NOT offset by Commonwealth-funded Superannuation Payments

When a persons incapacity payments have not been offset by superannuation, their SRDP payment must not be offset either.  There are two situations in which this will be the case:  

• the person has received superannuation on the grounds of severe financial hardship/specified compassionate grounds and not because of retirement (Incapacity Policy Manual Chapter 9.1.5); or
• the person had multiple periods of service and the incapacity payments are not derived from the same period of service as the superannuation payment (Incapacity Policy Manual Chapter 9.11).

There is no need for the SRDP delegate to undertake any investigation other than to establish whether incapacity payments were offset by superannuation.  The SRDP delegate must rely on the expertise of the incapacity delegate who made the decision. 

Overpayment of lump sum incapacity payment where a person elects to receive SRDP

Section 204A requires that if a former member elects to receive SRDP after accepting a lump sum incapacity payment, all or part of the lump sum will be considered an overpayment.

The amount of overpayment is calculated through a formula established through legislative instrument.

More ? [6]

The overpayment amount is the original lump sum amount calculated under section 138 minus the lump sum amount calculated in the legislative instrument. The lump sum calculated in the legislative instrument represents the amount of incapacity payment paid for the period from the day the former member advised the Commission of his or her choice to accept the original lump sum to the day before the SRDP becomes payable.

The overpayment is a recoverable amount under section 415. The recovery of the overpayment may have implications for a former member's VEA or social security income support entitlements.