Under s.68, 71 and 75 of the MRCA, compensation is generally payable once a determination has been made that a person is eligible for that compensation (having regard to the requirements of s.77). Other than the ‘choice’ under s.78 there is no further positive action required on the part of the person for the compensation to be required to be paid.
Part 2 of Chapter 4 of the MRCA provides for the payment of compensation for Permanent Impairment. Section 68 provides an entitlement to compensation for permanent impairment (i.e. an original condition) and Section 71 provides for ‘additional compensation’ in circumstances where there is an increase in impairment ratings (i.e. either a deterioration in the original condition/s or additional compensation from another condition/s). Section 74 specifies the maximum amount of weekly compensation (indexed) to a person under the Part and Section 77 of the MRCA provides when weekly compensation becomes payable (Section 75 provides for interim compensation payments to be made). Section 78 is titled ‘Choice to take lump sum’ and specifies the circumstances around the choice to convert an entitlement of a weekly amount of compensation into a lump sum.
When s.68, 74, 77 and 78 are read together, the only statutory ‘choice’ available under s.78 is to take a lump sum payment and in certain circumstances, a combination of a lump sum and a weekly payments.
A person does not need to make any choice under the MRCA to receive weekly payments of compensation for permanent impairment – that is a self-executing mechanism by which that form of compensation is paid. While a person may have to turn his or her mind to whether or not they want to receive weekly permanent impairment payments the MRCA does not require them to do anything if they make the decision that is how they wish to proceed. It is reasonably apparent that no statutory ‘choice’ is required under s.78 if a person decides they wish to receive weekly permanent impairment payments.
From a practical perspective, that would mean that, if in the six month period permitted under s.78 (3) a person first notified the MRCC that they had ‘chosen’ to continue to receive weekly payments of permanent impairment, it would arguably be still open to them to make a statutory choice under s.78 (1) to receive a lump sum instead so long as the six month period had not expired, or the Commission decided that special circumstances permitted the extension of the period.
Therefore in summary, no ‘choice’ is required under s.78 of the MRCA for a person to continue to receive weekly payments of permanent impairment compensation. A ‘choice’ is only required to be made under that section if a person wishes to receive a lump sum of permanent impairment compensation.
Depending upon the weekly amount of compensation payable, claimants may be entitled to take all of their PI as a lump sum, or part as a lump sum and part as a periodic payment. A person's payment options are as follows:
Percentage of Maximum Weekly Compensation to which the Claimant is Entitled |
Payment Options |
Under 10% |
None, either 100% lump sum or periodic payments. |
10% to 20% |
50% lump sum, 50% periodic payments or either 100% lump sum or periodic payments. |
Above 20% |
25% lump sum, 75% periodic payments or 50% lump sum, 50% periodic payments or 75% lump sum, 25% periodic payments or either 100% lump sum or periodic payments. |
Calculation of a Lump Sum Payment
The conversion of the weekly amount to a lump sum is based on a life expectancy table provided by the Australian Government Actuary. Adapted tables using data from the life expectancy tables are listed in the Military Compensation MRCA Manuals and Resources Library/Actuary Tables Used For Age Adjusting Lump Sum Payments. [4]
Age adjustments are made for males over age 30 at their next birthday and females over age 35 at their next birthday, as at the date of notification of the choice between a periodic payment and a lump sum. This age difference is due to the fact that women live longer than men on a total population basis.
It is important to remember to use the claimant's age at their next birthday, not their current age, to calculate their lump sum entitlement. Using the example of a weekly PI payment of $330.12 (max Permanent Impairment rate valid to 30 June 2016) for a male or a female aged 35 at their next birthday, the following rates are obtained from the actuarial table:
34 year old male: $330.12 x 1,288.6 = $425,392.63
34 year old female: $330.12 x 1,337.3 = $441,469.45
The amount paid as periodic payments prior to the claimant choosing their option is deducted from the lump sum payment if the 100% option is taken. Should only a percentage of the weekly PI compensation be converted to a lump sum, only the equivalent percentage of the payments made prior to the choice is deducted from the lump sum.
The table that contains factors for converting a weekly amount (under s68, 71 or 75(2)) to a lump sum under s78(5) of the MRCA where the election is made on or after 4 May 2015 can be found via the following link [4].
In order to elect a lump sum, section 78 [6] requires that:
Note: the 6 month period in which the claimant must make the election does not begin until any review through the Administrative Appeals Tribunal, Veterans' Review Board or by internal reconsideration is finalised.
Section 78(2) of the MRCA states 'a person who makes the choice cannot change it'. Whilst s78(3) and 78(4) provides for a six month period to make the choice and the extension of that period in special circumstances, it does not override the specific statutory direction that a choice cannot be changed. Therefore once an option is selected the decision cannot be altered, this includes circumstances where a client elects to convert only part of their periodic payment into a lump sum. Any remaining weekly periodic payment cannot be subsequently converted to a lump sum amount after the first choice is formally advised.
The only basis in which the MRCC could allow for a 'new' choice to be made would be if it was satisfied that the original choice was a nullity or void, so that no choice had previously been made. It is important that the delegate appropriately informs the client of the implications and finality of their choice before the client formally makes a lump sum conversion choice.
The Commission may, either before or after the end of the 6 month time limit, extend the period within which the choice must be made if it considers there are “special circumstances” for doing so. The delegation to extend this time limit is at the APS 5 level or above. A delegate must decide, using the following guidelines, if a claim for an extension satisfies the criteria for there being special circumstances.
5.11.3.1 Special Circumstances Guidelines
What constitutes Special Circumstances for the purposes of ss78(4)?
The Military Rehabilitation and Compensation Commission (MRCC) is of the view that the phrase special circumstances for the purposes of ss78(4) is to be considered in a non-restrictive manner, i.e. the Commission will take a broad view on what constitutes special.
By way of illustration, the following list provides some examples of circumstances that are special:
This list is not exhaustive and the delegate should take a non-restrictive view of ‘special’ when considering such a claim. The discretionary nature of special circumstances makes it impossible to give a precise list of when the provisions would apply.
The important point is that each case be assessed on its own merits, taking into account the particulars of the individual's case. Where a delegate is unsure if a particular case would constitute special circumstances, the Benefits and Payments Policy Section (B&PP) should be consulted via the MRCA Advice Line.
Is the client required to provide the delegate with a reason for requesting an extension under ss78(4)?
Yes. The legislation makes it clear that an extension may only be granted if the circumstances are special and this entails that a reason must be provided. This is required even though the phrase ‘special’ is being interpreted in a very broad sense.
Is there a time limit on an extension granted under ss78(4)?
A person granted an extension under ss78(4) is to be reviewed after 6 months to establish if they are still considering their payment choice. The delegate should provide the client with updated lump sum conversion amounts (adjusted for periodic payments already made) and remind them about the availability of reimbursement for financial/legal advice, if such compensation has not yet been claimed.
A client may request a further extension, which should then be considered in accordance with these guidelines. However, an extension may not be granted indefinitely. Each 6-month period of extension will require a reason and should be assessed by the delegate on its merits.
If the client elects to receive a lump sum, the Commission has 30 days from the date it becomes aware of the client's choice in which to pay, otherwise interest is payable under subsection 79 (2) from the day the 30 day period elapses. The interest rate payable is the “weighted average yield of 90 day bank-accepted bills, as published by the Reserve Bank of Australia, settled immediately prior to the last day of the thirty day settlement period”. This rate is available from the Reserve Bank's website via the following link –
http://www.rba.gov.au/statistics/tables/index.html#interest-rates [8]
This is the easiest way to access the applicable interest rate on any day - once in the spreadsheet, scroll down to the latest daily rate and look across under "Bank Accepted Bills" to 90 day - this gives you the weighted average yield of 90 day bank-accepted bills.
If the link above does not work, go to http://www.rba.gov.au [9]. Once there, click onto “Statistics” located along the top of the screen. Click on ‘Economic and Financial Statistics”, and then "Statistical Tables" then scroll down to "Interest Rate" and click on "Interest Rates and Yields - Money Mark - Daily - F1".
Example of calculating an interest payment
1. RBA interest rate ÷ 100 = interest rate percentage
2. Interest rate percentage x section 78 Lump Sum amount = yearly amount
3. Yearly amount ÷ 365 = daily amount
4. Daily amount x number of days late = amount payable
Example:
Interest rate: 4.75%
Section 78 Lump Sum amount: $12,706.00
Days late: 168
Lump Sum election and Death
Claimants who have a terminal illness, or who have a high probability of a reduced lifespan should be made aware that while periodic payments will cease upon death, if they did elect to take a lump sum, then no proportion of their lump sum would be recovered as a result of their death.
If no election is made, then after the member/former member's death, the legal personal representative of a deceased person is not entitled to choose to convert any percentage of a weekly amount that was payable to the deceased person to a lump sum.
Links
[1] https://clik.dva.gov.au/user/login?destination=comment/reply/19347%23comment-form
[2] https://clik.dva.gov.au/user/login?destination=comment/reply/19390%23comment-form
[3] https://clik.dva.gov.au/user/login?destination=comment/reply/19393%23comment-form
[4] https://clik.dva.gov.au/military-compensation-mrca-manuals-and-resources-library/actuary-tables-used-age-adjusting-lump-sum-payments/conversion-factors-permanent-impairment-periodic-payments-lump-sums-where-election-lump-sum-made-or-after-4-may-2015
[5] https://clik.dva.gov.au/user/login?destination=comment/reply/19365%23comment-form
[6] http://www.comlaw.gov.au/Series/C2004A01285
[7] https://clik.dva.gov.au/user/login?destination=comment/reply/19394%23comment-form
[8] http://www.rba.gov.au/statistics/tables/index.html#interest-rates
[9] http://www.rba.gov.au