A lump sum preclusion period applies if a person who receives or claims a [glossary:compensation affect:] — [glossary:ed:] [glossary:pension:] [3] [glossary:(:]CAP [4][glossary:):] receives a lump sum payment that is compensation paid wholly or partly in respect of lost earnings or lost capacity to earn. The CAP is not payable to the compensation recipient during the lump sum preclusion period [4].
Lump sum compensation payments are assessable on the basis that people who cannot work because of a compensable injury should not receive income support for the same period from both DVA and from the compensation payer. Pensioners who would otherwise be eligible for a CAP are excluded from payment for the lump sum preclusion period.
VEA ? [5]
If a person who is not a member of a couple:
then the pension is not payable for the lump sum preclusion period [4].
VEA ? [6]
If a person who is a member of a couple:
then the pension is not payable to the person for the lump sum preclusion period. The compensation payment does not affect the CAP payable to the person's partner under the compensation recovery provisions, however, the lump sum may be assessable under the income and assets tests.
VEA ? [7]
If a person who is a member of a couple:
then the pension is not payable to the person for the lump sum preclusion period. If the person's partner is eligible for a CAP the pension will not be payable to the partner for the lump sum preclusion period.
VEA ? [8]
If a person receives a lump sum compensation payment and has received a CAP for any day in the lump sum preclusion period the Commission may determine a recoverable amount to be paid back to DVA. The recoverable amount is the smaller of:
Payments made for economic loss which are made when it has been established that the compensation payer is under no liability to make the payments are treated the same as other lump sum compensation payments. However, recovery can only be sought from the pensioner as there is no person or organisation liable to pay the compensation.
compensation affected pension means:
(a)an invalidity service pension payable to a person who has not reached pension age; or
(b)a partner service pension payable to a person who has not reached pension age; or
(c)income support supplement payable to a person who has not reached qualifying age; or
(d)a veteran payment payable to a person who has not reached pension age (within the meaning of subsections 5QB(2), (3), (4) and (5)); or
(e)an education entry payment payable to a person who:
Note 1: For pension age see sections 5QA and 5QB.
Note 2: For qualifying age see section 5Q.
The lump sum preclusion period is the amount of time that a person or their partner is ineligible to receive the pension after receiving compensation in the form of a lump sum. Refer to Subsections 59Q(3) to 59Q(8) of the VEA to determine the lump sum preclusion period
The lump sum preclusion period is the amount of time that a person or their partner is ineligible to receive the pension after receiving compensation in the form of a lump sum. Refer to Subsections 59Q(3) to 59Q(8) of the VEA to determine the lump sum preclusion period
VEA ? [15]
A pensioner is taken to have received one lump sum if:
In this case, the lump sum preclusion period is calculated by aggregating the lump sum amounts. The aggregated lump sum is taken to have been made on the day on which the last lump sum was received.
If lump sums are received in respect of different compensable events, separate lump sum preclusion periods are calculated in respect of each event. In some cases, preclusion periods can overlap.
Where a person receives both a periodic compensation payment and a lump sum compensation payment, the lump sum preclusion period commences from the day after the periodic compensation payments cease. This is regardless of:
VEA ? [16]
A lump sum payment of arrears of periodic payments is not regarded as a lump sum compensation payment. A preclusion period is not applied in respect of this type of payment. The treatment of arrears of periodic payments paid as a lump sum is detailed below:
If... |
Then... |
the payment is paid in respect of periods during which the person also received a CAP [4] and the person was not, at the time of the event [4] giving rise to the entitlement to compensation [4], receiving a CAP [4] |
|
the person was already in receipt of CAP at the time of the event giving rise to their entitlement to compensation |
the person is taken to have received on each day of the period to which the compensation relates, an amount of ordinary income that is calculated by dividing the amount of the lump sum by the number of days in that period and the amount held in the pension assessment for the period. More ? [17] |
VEA ? [18]
Where a person's entitlement to periodic payments is converted under the law of the State or Territory into a lump sum, and the amount is calculated by reference to a set period, the lump sum is converted to periodic compensation payments for the set period covered by the lump sum. The amount of periodic compensation that the person is taken to have received in each fortnight of the compensation period is equal to:
Lump sum amount
No. of whole fortnights in the period
VEA ? [19]
If a person becomes liable to repay an amount of periodic compensation due to receiving a lump sum compensation payment in respect of the same lost earnings or capacity to earn, then the amount of the lump sum compensation payment is considered equal to the lump sum payment minus the repaid amount of periodic compensation.
VEA ? [20]
If a person who has received a lump sum compensation payment has a preclusion period applied that lump sum is not regarded as ordinary income of either the person or the person's partner. However, the lump sum may form part of the person's assets.
If a lump sum compensation payment was previously assessed under the income and assets tests (usually because the lump sum was not subject to the compensation provisions at that time), it is not to be reassessed under the compensation provisions for any later pension claims. It may form part of the person's assets, for example if invested in a financial asset. In this example, any deemed income derived from investment of the lump sum is regarded as income.
Section 5NB(9) [9] VEA
SCH6-E4 [9] VEA
Section 56H(7) [9] VEA
Section 56H(8) [9] VEA
Section 59T [9] VEA
Section 59W [9] VEA
compensation affected pension means:
(a)an invalidity service pension payable to a person who has not reached pension age; or
(b)a partner service pension payable to a person who has not reached pension age; or
(c)income support supplement payable to a person who has not reached qualifying age; or
(d)a veteran payment payable to a person who has not reached pension age (within the meaning of subsections 5QB(2), (3), (4) and (5)); or
(e)an education entry payment payable to a person who:
Note 1: For pension age see sections 5QA and 5QB.
Note 2: For qualifying age see section 5Q.
An event is an incident or change in circumstances that may cause a change in income support entitlement. The 'date of event' is the day on which this event occurs.
A payment to make amends for loss or injury to a person or property, or as a recompense for some deprivation (such as compensation to the owner for compulsory acquisition of their property).
compensation affected pension means:
(a)an invalidity service pension payable to a person who has not reached pension age; or
(b)a partner service pension payable to a person who has not reached pension age; or
(c)income support supplement payable to a person who has not reached qualifying age; or
(d)a veteran payment payable to a person who has not reached pension age (within the meaning of subsections 5QB(2), (3), (4) and (5)); or
(e)an education entry payment payable to a person who:
Note 1: For pension age see sections 5QA and 5QB.
Note 2: For qualifying age see section 5Q.
VEA ? [29]
In order to calculate the lump sum preclusion period for lump sum compensation payments made wholly or partly for economic loss, the 'compensation part of a lump sum compensation payment' must be determined. For personal injury settlements made by agreement or by consent order (either with or without admission of liability), the compensation part of a lump sum compensation payment is always taken to be 50%. This is known as the 50% rule. The policy rationale for this is that settlements of lump sum compensation, particularly in the workers compensation jurisdiction, can be manipulated to obscure the economic loss component and to avoid or minimise the reduction to the compensation recipient's CAP [4].
Medical costs should be included in the calculation of the compensation part of a lump sum compensation payment. That is, the 50% rule is applied to the total lump sum, including medical costs. Where a court order has specified an economic loss component, medical costs should be added to the economic loss component to determine the compensation part of the payment.
A successful plaintiff is entitled to receive costs for the work undertaken in pursuing the action (or, in the case of a successful respondent, in defending the claim). These costs are normally based on statutory scales, and are referred to in the settlement as the party/party costs. These costs should be excluded from calculation of the compensation part of a lump sum compensation payment. Solicitor/client costs are those additional legal costs incurred by a solicitor on behalf of the person and cannot be claimed as party/party costs (that is, those that are not allowed by the courts). Solicitor/client costs should be included in the calculation of the compensation part of a lump sum compensation payment.
The following table demonstrates the application of the 50% rule in various circumstances:
If... |
Then... |
a lump sum includes past periodic payments which have to be repaid |
the compensation part of a lump sum compensation payment is 50% of the lump sum after the amounts repaid for periodic payments are deducted. |
a court order or judgment identifies an economic loss component of the lump sum compensation awarded |
the 50% rule does not apply and the compensation part of a lump sum compensation payment will be the economic loss component as characterised by the court. |
the terms of the settlement specify the lump sum is inclusive of any medical costs |
the compensation part of a lump sum compensation payment is 50% of the total payment. |
the terms specify an amount for medical costs, in addition to a lump sum, eg '$xxx exclusive medical costs' |
the compensation part of a lump sum compensation payment is 50% of the total payment including medical costs. |
legal costs are specified as a separate amount in a settlement or court judgement, eg $xxx plus costs (either a set amount or a reference to costs including, for example, party/party costs) |
those legal costs (either specified of the amount subsequently agreed or ordered to be paid by the unsuccessful party) are excluded from the calculation of the compensation part of the lump sum. |
the settlement amount or judgement states '$xxx including costs' |
it is necessary to ascertain the amount of costs which are paid by the unsuccessful party prior to determining the preclusion period. The amount of costs is excluded from the calculation of the compensation part of the lump sum. |
additional legal costs, such as solicitor/person costs are not specified or referred to in the settlement judgment |
those legal costs remain part of the calculation of the compensation part of a lump sum compensation payment. |
any interest is included in the settlement |
the compensation part of a lump sum compensation payment is 50% of the total payment including interest. |
VEA ? [30]
Where a court has made an order after a contested hearing specifying the economic loss component of a lump sum payment the 50% rule is generally not applied. In such cases the compensation part of a lump sum compensation payment will be the economic loss component as characterised by the court. Where this is not specifically stated, it may be necessary to interpret the terms of the court order to ascertain the amount awarded in respect of lost earnings or lost capacity to earn. If a court order does not set out fully the basis of the award, more information should be sought about the nature of the award and a decision made on the basis of all the available information. If no information is available then the 50% rule should be applied.
When a case is finalised after a contested hearing, the compensation part of the lump sum is made up of the amounts awarded specifically for economic loss. In particular the delegate should have regard to amounts awarded for:
compensation affected pension means:
(a)an invalidity service pension payable to a person who has not reached pension age; or
(b)a partner service pension payable to a person who has not reached pension age; or
(c)income support supplement payable to a person who has not reached qualifying age; or
(d)a veteran payment payable to a person who has not reached pension age (within the meaning of subsections 5QB(2), (3), (4) and (5)); or
(e)an education entry payment payable to a person who:
Note 1: For pension age see sections 5QA and 5QB.
Note 2: For qualifying age see section 5Q.
Last amended: Commencement of the preclusion period
VEA → [34]
The following table shows when the lump sum preclusion period commences under various conditions:
If... | Then the lump sum preclusion period begins on the day... |
both periodic compensation payments and compensation in the form of a lump sum are received for lost earnings or lost capacity to earn | after the last day of the periodic payments period, regardless of any breaks in the receipt of the periodic payments. |
a person chooses to receive part of an entitlement to periodic compensation payments in the form of a lump sum | on which the person's periodic compensation payment is a reduced payment due to receipt of the lump sum. |
none of the above applies | on which the loss of earnings or loss of earning capacity began. |
Lost earnings or lost capacity to earn would usually commence on the day of the compensable event. However, some situations are not so clear cut, such as where the pensioner continues working with no loss of income following the injury. Delegates should adopt a commonsense approach to making an informed, factual decision based on the impact the compensable injury has had on the individual's earnings and earning capacity.
The following situations are examples of preclusion period start dates:
VEA → [35]
If periodic payments are paid for an indefinite length of time, and a pensioner receives a lump sum compensation payment, the start date of the preclusion period cannot be determined. In these cases the pensioner is advised that a preclusion period will be applied in the future when periodic payments:
Preclusion period for compensation received before 20 March 1997
VEA ? [36]
Section 59Q(7) (a) [9] VEA
VEA ? (go back) [37]
If the person or the person's partner received the lump sum compensation payment before 20 March 1997 the number of weeks in the lump sum preclusion period in relation to a person and the person's partner is:
Compensation part of lump sum/Average weekly earnings
where:
Average weekly earnings is the amount:
estimated as the average total weekly earnings, during a particular month, of all employees (all persons) in Australia, and
last published by the Australian Statistician before the lump sum compensation payment became payable.
Duration of preclusion period for compensation payment received between 20 March 1997 and 19 September 2009
VEA ? [38]
Section 59Q(7) (b) [9] VEA
VEA ? (go back) [39]
If the person receives the lump sum compensation payment on or after 20 March 1997 and before 20 September 2009 the number of weeks in the lump sum preclusion period in relation to a person is:
52 x Compensation part of lump sum/OIFA + 2.5(MBR + PA)
where:
OIFA means annual ordinary income free area for a person who is not a member of a couple.
MBR means the annual maximum basic rate [4] of service pension for a pensioner who is not a member of a couple.
PA means the annual rate of pharmaceutical allowance (PA) for a pensioner who is not a member of a couple [4].
The OIFA, MBR and PA used are those that were current immediately before the lump sum payment became payable.
If the number worked out is not a whole number, the number is to be rounded down to the nearest whole number.
Duration of preclusion period for compensation payment received between 20 september 2009 and 27 June 2013
VEA ? [38]
Section 59Q(7) (b) [9] VEA
VEA ? (go back) [39]
If the person receives the lump sum compensation payment on or after 20 September 2009 and before 28 June 2013 the number of weeks in the lump sum preclusion period in relation to a person is:
52 x Compensation part of lump sum/OIFA + 2(MBR + PS)
where:
OIFA means annual ordinary income free area for a person who is not a member of a couple.
MBR means the annual maximum basic rate [4] of service pension for a pensioner who is not a member of a couple.
PS means the annual rate of pension supplement [4] (PS) for a pensioner who is not a member of a couple [4].
The OIFA, MBR and PS used are those that were current immediately before the lump sum payment became payable.
If the number worked out is not a whole number, the number is to be rounded down to the nearest whole number.
Duration of preclusion period for compensation payment received on or after 28 June 2013
VEA ? [38]
Section 59Q(7) (b) [9] VEA
VEA ? (go back) [39]
If the person receives the lump sum compensation payment on or after 28 june 2013 the number of weeks in the lump sum preclusion period in relation to a person is:
52 x Compensation part of lump sum/OIFA + 2(MBR + PS + ES)
where:
OIFA means annual ordinary income free area for a person who is not a member of a couple.
MBR means the annual maximum basic rate [4] of service pension for a pensioner who is not a member of a couple.
PS means the annual rate of pension supplement [4] (PS) for a pensioner who is not a member of a couple [4].
ES means the annual rate of clean energy supplement [4] (ES) for a pensioner who is not a member of a couple
The OIFA, MBR and ES used are those that were current immediately before the lump sum payment became payable.
If the number worked out is not a whole number, the number is to be rounded down to the nearest whole number.
The lump sum preclusion period must be a continuous period, not adjusted for periods:
The following table details the circumstances when a preclusion period ceases:
If... | Then... |
the preclusion period expires
| the CAP is restored and reassessed. If pension payments were cancelled because a nil rate would have been payable for six months or more, the person will need to reapply for pension. |
the compensation recipient attains pension age | the compensation recovery provisions cease to apply and pension payments are re-assessed under the income and assets tests. If the compensation was received prior to 20/3/97 and the recipient is a member of a couple the compensation recovery provisions may continue to apply to the partner. |
A person who has received a lump sum of incapacity payment but then elects to receive MRCA [4] Special Rate Disability Pension (SRDP) will, if his or her lump sump preclusion period has not already finished, have his or her lump sum preclusion period changed to cease the day before the SRDP becomes payable.
According to Schedule 6-B1 of the VEA [44] a MBR is the person's maximum rate as ascertained at the date of grant of the designated pension, and is the maximum annual pension rate payable at the date of grant (excluding allowances).
According to Section 5E(2) [44]of the VEA [44]a person is a member of a couple, if they are:
The term “partnered” is also commonly used.
According to Schedule 6-B1 of the VEA [44] a MBR is the person's maximum rate as ascertained at the date of grant of the designated pension, and is the maximum annual pension rate payable at the date of grant (excluding allowances).
The pension supplement is added to a person's maximum basic rate [4]. The pension supplement is calculated as a 'combined couple' rate. The 'not a member of a couple' rate is 66.33% of the 'combined couple' rate. The member of a couple rate is 50% of the combined couple rate. From 1 July 2010, the minimum pension supplement amount [4] will be able to be claimed on a quarterly basis rather than on a fortnightly basis.
According to Section 5E(2) [44]of the VEA [44]a person is a member of a couple, if they are:
The term “partnered” is also commonly used.
According to Schedule 6-B1 of the VEA [44] a MBR is the person's maximum rate as ascertained at the date of grant of the designated pension, and is the maximum annual pension rate payable at the date of grant (excluding allowances).
The pension supplement is added to a person's maximum basic rate [4]. The pension supplement is calculated as a 'combined couple' rate. The 'not a member of a couple' rate is 66.33% of the 'combined couple' rate. The member of a couple rate is 50% of the combined couple rate. From 1 July 2010, the minimum pension supplement amount [4] will be able to be claimed on a quarterly basis rather than on a fortnightly basis.
According to Section 5E(2) [44]of the VEA [44]a person is a member of a couple, if they are:
The term “partnered” is also commonly used.
The energy supplement is a fortnightly or quarterly payment designed to help recipients meet the cost of electricity and gas bills.
Military Rehabilitation and Compensation Act 2004
Under workers' compensation legislation in most States, the employer's liability to pay weekly compensation (periodic payments) for total or partial incapacity for work can be redeemed in certain circumstances by the payment of a lump sum.
Where a permanent disability results from an accident, State legislation may make 'schedule payments'. Schedules or tables of specified injuries and losses of faculties can be useful where it is necessary to identify what portion of a lump sum is in respect of lost earnings or lost capacity to earn.
More ? [46]
Some States also have provision for 'pain and suffering' payments within the statutory scheme. These payments are:
VEA ? [47]
Where an employer is alleged to have been negligent, a person may also seek damages at common law as well as pursue his or her rights to workers' compensation. If the common law case is settled in the claimant's favour, the amount of compensation to be assessed under the compensation recovery provisions is the amount of the damages payment, less any repaid periodic workers' compensation payments.
Links
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[6] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn674
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[8] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn676
[9] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[10] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn673
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[21] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn677
[22] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn678
[23] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/911-compensation-recovery/9114-periodic-compensation-payments
[24] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn679
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[29] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn683
[30] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn684
[31] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn683
[32] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn684
[33] https://clik.dva.gov.au/user/login?destination=node/16089%23comment-form
[34] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn685
[35] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn686
[36] https://clik.dva.gov.au/#tgt-cspol_part9_ftn687
[37] https://clik.dva.gov.au/#ref-cspol_part9_ftn687
[38] https://clik.dva.gov.au/#tgt-cspol_part9_ftn688
[39] https://clik.dva.gov.au/#ref-cspol_part9_ftn688
[40] clik://LEGIS/VEA/section 59Q(3)
[41] clik://LEGIS/VEA/section 59Q(6)
[42] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn685
[43] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn686
[44] http://www.comlaw.gov.au/Series/C2004A03268
[45] https://clik.dva.gov.au/user/login?destination=node/15985%23comment-form
[46] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn689
[47] https://clik.dva.gov.au/book/export/html/15993#tgt-cspol_part9_ftn690
[48] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/911-compensation-recovery/9113-lump-sum-compensation-payments/assessment-lump-sum-compensation-payments
[49] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn689
[50] https://clik.dva.gov.au/book/export/html/15993#ref-cspol_part9_ftn690