Last amended: 5 March 2013

Compensation affected pensions (CAP)

The following DVA income support payments may be affected by the compensation recovery provisions in Part IIIC:

• invalidity service pension, granted on or after 1 May 1987
• partner service pension, granted on or after 1 May 1987
• carer service pension (saved cases), granted on or after 1 January 1993
• [glossary:income support supplement:] [glossary:(:] [4][glossary:ISS:][glossary:):] [4], granted on or after 20 March 1995, including people who were subject to Centrelink's compensation recovery provisions and transferred to DVA ISS.

Payments that are affected by compensation are called compensation affected pensions [5] [glossary:(:]CAP [5][glossary:):].

Components of a compensation affected pension

A compensation affected pension (CAP) includes those regular components that make up the rate of payment based on the Rate Calculator. This includes pension supplement, energy supplement [5] and rent assistance. Irregular payments not going towards the calculation of the rate of service pension (eg education entry payment) are not part of the CAP calculation.

Compensation recipient must be under pension age/qualifying age

The income support payments listed above are only CAPs where the compensation recipient is under pension age [5] or qualifying age [5] in the case of ISS [5]. Once a person turns pension age/qualifying age, the income support payment is no longer a CAP and the compensation recovery rules cease to apply.

The rationale for excluding persons above pension age/qualifying age is that the person may have ceased to be a member of the workforce. It is therefore unlikely that a compensation settlement will include a component for lost capacity to earn. However, it should be noted that social security age pensions can be CAPs under the SSA compensation recovery provisions.

What happens when pension age is reached?

The compensation recovery rules no longer apply when a person reaches pension age/qualifying age and is no longer receiving a CAP. Once pension age/qualifying age is reached, the normal income test rules apply to compensation payments received.

When a person's compensation is reduced or cancelled by an insurer in recognition of the person also receiving a VEA payment, the Part IIIC compensation recovery rules require that recovery is to proceed as if the full amount of compensation payment (before the offset is applied) is received. However, there is no equivalent provision within the income test rules that apply on the person attaining pension age. The amount by which the compensation payment is offset is not received by the pensioner, and so does not meet the definition of income. The income test is limited to the actual compensation amount received by the pensioner.

Savings provisions

The compensation recovery provisions will only apply if:

• the CAP is claimed on or after 1 May 1987, and
• the compensation payment is received on or after 1 January 1995.

Event that gives rise to a person's entitlement to compensation

An event that gives rise to a person's entitlement to compensation for a disease, injury or condition is:

• the accident if the disease, injury or condition was caused by an accident, or

• in any other case, the disease, injury or condition first becoming apparent.

The event is not the decision or settlement under which the compensation is payable.

Effect of compensation recovery provisions on concessions

If a CAP is reduced to nil by a periodic compensation payment or a lump sum preclusion period applies, the person is not entitled to:

• a Pensioner Concession Card (PCC) and associated benefits*, or
• treatment at departmental expense (unless the person has some other entitlement to treatment).

*This does not apply to people who received a reinstated PCC because their income support pension was cancelled on 1 January 2017 due to changes to the assets test. There is no requirement for people in this category to be receiving an income support pension.

Effect of compensation recovery provision on blind pensioners

Blind pensioners are paid income support pension free of the income and assets tests. This exemption does not extend to the Part IIIC compensation recovery provisions. A blind service pensioner or ISS recipient may be affected by the Part IIIC compensation recovery provisions if the person is:

• under pension age (or qualifying age in the case of ISS), and
• receiving a CAP, and
• receiving or is entitled to receive compensation that is paid wholly or partly in respect of economic loss.

Compensation assessable when not received

If a State or Territory law includes a provision to the effect that a person's compensation may be reduced or cancelled if the person is eligible to receive payments under the VEA, Part IIIC compensation recovery provisions will apply as if the full amount of compensation is received. The full amount of compensation is also assessed where a compensation payment payable under an agreement has been reduced or cancelled because the person is eligible for payments under the VEA.

Last amended: 17 September 2013

Compensation payments directly impacting on Part II or IV pensions or MRCA payments

Any portion of a lump sum or periodic compensation payment that has been taken into account to limit a person's disability pension, war widow(er)s pension, or Military Rehabilitation and Compensation Act 2004 (MRCA) payment, is excluded from the Part IIIC compensation recovery provisions. Any portion of the compensation payment that does not affect the rate of disability pension, war widow(er)s pension or MRCA payment will be assessed under Part IIIC, if the compensation payment is for economic loss.

If compensation affects a person's service pension or income support supplement [5] [glossary:(:]ISS [5][glossary:):] under the Part IIIC compensation recovery rules, and the veteran subsequently applies and has the disability for which the compensation is paid accepted, the effect of the compensation payment under Part IIIC on the pension is adjusted. This may involve recalculating the lump sum preclusion period to account for the reduced compensation amount or adjusting the amount assessed as a periodic payment. Where a person receives a compensation payment and the offsetting of the disability pension, war widow(er)s pension or MRCA payment is less than the amount of compensation paid, then the excess of compensation paid is taken into account under Part IIIC.    

Compensation recipient contributions

Part IIIC does not apply to a compensation payment if:

• the compensation recipient has made contributions towards the payment (for example by way of insurance premiums), and
• the agreement under which the contributions are made does not provide that the amounts that would otherwise be payable under the agreement are to be reduced or are not payable because the recipient is eligible for or receives the [glossary:compensation affected pension:] [glossary:(:] [21][glossary:CAP:][glossary:):] [21], or
• the agreement does provide for the amounts to be reduced but the compensation has been calculated without reference to that provision of the agreement.

In determining whether the compensation recipient has made contributions towards the payment, it is not necessary that the compensation recipient makes the payment, for example insurance premiums, directly to the insurer.  Where an employer-employee agreement (collectively or individually) provides, as part of an overall package of benefits, for the employer to make payments of income insurance or salary continuance premiums to the insurer on behalf of the employee, that can be accepted as representing a contribution by the employee.

Payments in respect of criminal injury

Part IIIC does not apply to compensation payments made for a personal injury or disease or condition suffered as a result of the commission of an offence.

Compensation paid on death

The compensation recovery provisions only apply to living persons, not estates. Compensation recovery notices can only be served on living persons, or insurers or compensation payers who are liable to pay people, not estates. Therefore while a recovery notice cannot be issued after death, a recovery notice issued prior to the death of the compensation recipient is valid.

In some jurisdictions, compensation payments are paid to the surviving spouse of a deceased worker by the workers' compensation authority (for example the Dust Diseases Board). If the compensation payment is made for non-economic loss, the payment should be assessed as ordinary income. That is, they are not assessed under Part IIIC. If they are made wholly or partly for economic loss the compensation recovery provisions apply.

Compensation paid under the Defence Act 1903

Payments of Severe Injury Adjustment (SIA) or Additional Death Benefit (ADB) under the Defence Act 1903 are excluded from the compensation recovery provisions, as they do not include payments which are wholly or partly in respect of lost earnings or lost capacity to earn.

Compensation as a result of Australian Defence Force Reserve activity

Compensation as a result of Australian Defence Force activity (other than compensation on respect of continuous full-time service) is exempt from the compensation recovery provisions.  This is irrespective of whether or not the compensation recipient, or their partner, was in receipt of a CAP at the time of the compensable event.  It is also exempt income for the purposes of the ordinary income test.

The available discretion to treat the whole or part of a compensation payment as not having made for the purposes of the compensation recovery provisions should be exercised, where compensation is paid in respect of ADF Reserve activity other than for continuous full-time service.

However, any compensation payments made in respect of an inability to attend the usual (civilian) workplace (including any such payments paid by the Defence Force) are not exempt and should be treated as compensation.

Assessment under income and assets tests

Any compensation payments that are not assessable under the recovery provisions will be assessed as ordinary income, unless specifically exempted under subsection 5H(8).

Person required to take reasonable action to obtain compensation

If a person:

• is receiving, or eligible for a [glossary:compensation affected pension:] [glossary:(:] [21][glossary:CAP:][glossary:):] [21], and

• the person or the person's partner:

• is entitled to claim compensation for economic loss, and
• has not taken reasonable action to claim or obtain the compensation,

then the Commission may require the person or the person's partner to take action to claim the compensation. If the Commission does require the person or the person's partner to take reasonable action to claim or obtain the compensation then the pension is not payable to the person until they meet these requirements.

Reasonable action

The person is considered to have taken reasonable action if they:

• lodge a claim with the employer or insurer,
• engage a solicitor to commence legal proceedings, or
• seek legal advice as to whether a claim for compensation can be successfully pursued.

Acceptable reasons for not claiming compensation

Even if a person may, in the Commission's opinion, be entitled to compensation, the Commission may not require a person to claim or receive compensation. Depending on the full circumstances of each case, acceptable reasons for a person not claiming compensation are:

• there is no enforceable claim for compensation,
• the veteran uses their statutory right contained in subsection 43(1) of the Safety, Rehabilitation and Compensation Act 1988 (SRCA) to apply to Comcare to request that a future amount of Military Compensation & Rehabilitation Scheme (MCRS) payment be forgone in favour of a payment under Part II [10] VEA or Part IV [10] VEA,
• the accident occurred many years ago and is now statute barred,
• legal proceedings are required but the veteran or partner cannot afford to engage a solicitor and is not qualified for legal aid,
• the injuries sustained will not result in the person or partner suffering a loss of wages, salary or loss of earning capacity, or
• there is a question of significant contributory negligence. This may occur where the person or partner caused their own injury, for example the person was intoxicated whilst on duty.

In any of these situations, the pensioner's claims must be verified before the Commission's discretion to require the person to pursue compensation is not applied.

Effect of the special circumstances provisions

The special circumstances provisions apply to treat the whole or part of a compensation payment as not having been made or not liable to be made for the purposes of Part IIIC. Generally, the provisions are applied to a lump sum compensation payment with the result that all, or part, of a preclusion period is reduced. All or part of a periodic compensation payment can also be disregarded. This may also reduce, or negate altogether, any associated pension overpayment.

When a specific amount cannot be determined

The decision to apply the special circumstances provisions may be made in terms of a reduction in the actual duration of the preclusion period. This would be relevant where there are a number of mitigating factors in the decision and it is not possible to determine any specific amount to be disregarded.

Disregarding part of a compensation lump sum

The special circumstances provisions can also be applied to treat a specific amount of the compensation payment as having not been made. This would be relevant where it is reasonable to disregard part of a compensation lump sum, but not all of it. In this case, the amount specified is deducted from the original compensation lump sum and the 50% rule applied to the amended amount to give the new compensation part of the lump sum.

Applying special circumstances to reduce a periodic payment

The special circumstances provisions may also be applied to reduce all or part of a periodic payment of compensation.

When to apply special circumstances

The decision to apply the special circumstances provisions should be based on a holistic view of an individual's circumstances, ie the decision would not usually be based on just one factor but a combination of factors. The special circumstances provisions should only be applied in unusual, unforeseen and exceptional circumstances. This means in situations where the compensation provisions could lead, or have led to extreme hardship or created an inequitable, unjust or unreasonable situation.

When special circumstances should generally not be applied

Each case must be examined on its own merits but as a general rule, special circumstances would not usually be applied where:

• the person has sufficient liquid assets to support themselves, and their family if applicable, for the duration of the preclusion period, or
• the person acquired realisable assets after the person was advised of the preclusion period, and there is no impediment to the realisation of those assets, or
• the person's periodic compensation payments are reduced due to the effects of taxation laws, and this is the only grounds for consideration.

When special circumstances should never be applied

Special circumstances should never be applied in the following situation if the:

• delegate does not agree with the legislation. This is contrary to the intention of Parliament and is illegal, or
• sole factor is that the person or their partner's reason for receiving a compensation affected pension [5] was different to the reason the compensation was paid.