The Australian Government Actuary issues instructions to DVA [3] for the purpose of Section 30C, 74 and 25A of the VEA. The instructions are based on data contained within Australian Life Tables that is compiled following the most recently completed census. These tables contain formulas that enable delegates to calculate an initial fortnightly equivalent (FE) of the lump sum compensation being assessed for offsetting purposes. These Tables allow a FE calculation which is equivalent to a lump sum of $10,000 for a person's age and gender. This is then used to compare and multiply against the actual lump sum received, equalling a final FE offset amount.
The model that is used for compensation offsetting purposes is known as an 'actuarial model'. The actuarial model is prospective in nature. This means that for any claimant, at the time of the commencement of the offsetting process the actuarial present value of future offset amounts equals the value of the lump sum which is being offset. Therefore any future offset amounts resulting from lump sum compensation paid previously, is subject to 'current' actuarial values (latest instruction) and not the historical tables applicable to the date the lump sum compensation was received.
Selecting a person's “age next birthday” to determine the commencement date according to the AGA Tables will vary depending on the relevant section of the VEA the lump sum compensation is affected by. The lump sum compensation payments including SRCA [3] payments are payable in various categories and recognising the specific lump sum type will inform the delegate of which VEA section to apply. The following table and examples illustrate this;
| VEA - Lump Sum affected by: | Then the 'age next birthday' in line with the AGA instructions is the; |
1 | Sect 30C(1), or Sect 74(3) Any lump sum compensation for the same incapacity or death as another pension is being paid. | Age the person would have been, or would be after the lump sum is paid or the pension becomes payable, whichever is earlier. |
2 | Sect 30C(2), Sect 30C(3), Sect 74(3A), or Sect 74(3B) Lump Sum Payments under Sect 137 DRCA or Sect 30 DRCA in respect of the same incapacity as another pension is being paid. | Age the person would have been, or would be after the lump sum is paid or the pension becomes payable, whichever is later. |
3 | Sect 25A Lump Sum payment under Sect 24, Sect 25 or Sect 27 DRCA for any incapacity. | Age the person would have been, or would be on the next birthday after the lump sum payment date. |
The Department of Veterans' Affairs.
Safety, Rehabilitation and Compensation Act 1988
The amounts calculated from these tables represent the starting point of a fortnightly equivalent, which is payable for life and indexed at the CPI rate at the same time as Disability Compensation Payments are increased.
Excel templates for conversion of a lump sum are available on the DVA [3] share drive.
The Department of Veterans' Affairs.
It is important that the following two concepts are clearly explained to veterans or dependants before they accept a lump sum or proceed with a claim or application which is effected by Section 25A:
In providing the instructions, the AGA has adopted the same principles that underpin lifetime annuities. That is, a life insurance company will pay an annuity for life, in exchange for an up-front lump sum premium. A lifetime annuity is payable for the rest of a person's life. The amount of the periodic annuity depends on certain assumptions, particularly the life expectancy of the person and the rate of interest to be earned on the invested lump sum. Life expectancy is based on Australian Life Tables which are published every five years following the national census. Because interest is earned on the invested lump sum, the total of annuity payments over the lifetime of the person is expected to be more than the initial lump sum premium. Hence the total dollar amount offset against a veteran's Disability Compensation Payment over their lifetime is expected to exceed the amount of the lump sum of other compensation received. The situation of exceeding the initial lump sum amount is compounded for a person who lives beyond their life expectancy.
The offsetting of Disability Compensation Payment resulting from other compensation is not based on repaying the lump sum. A report by the Senate Foreign Affairs, Defence and Trade Committee into aspects of the VEA and Military Compensation Scheme was tabled on 18 September 2003. The Senate Committee did not find that the offsetting provisions deliver an unjust outcome for ex-ADF [3] members who claim under both the VEA [3] and the SRCA [3] (now DRCA). The Committee did not recommend any changes to the way offsets are calculated. The report from this Committee is available at www.aph.gov.au/senate_fadt [9] under completed inquiries.
Similarly, Chapter 19 of the 'Review Of Military Compensation Arrangements' 2011 examined alternative models to the actuarial model. It was recommended that existing offsetting arrangements be maintained and lump sums be converted to a fortnightly equivalent using the actuary calculations. The perceived inequities of repaying amounts in excess of the initial lump sum needs to be addressed during the communication process. Communicating more effectively and clearly with claimants regarding the offset applied to their specific circumstances is required before any final decisions are made.
Australian Defence Force.
Veterans' Entitlements Act 1986.
Safety, Rehabilitation and Compensation Act 1988
Links
[1] https://clik.dva.gov.au/user/login?destination=comment/reply/24503%23comment-form
[2] https://clik.dva.gov.au/user/login?destination=comment/reply/24500%23comment-form
[3] https://clik.dva.gov.au/%23
[4] https://clik.dva.gov.au/user/login?destination=comment/reply/24425%23comment-form
[5] https://clik.dva.gov.au/user/login?destination=comment/reply/24488%23comment-form
[6] https://clik.dva.gov.au/user/login?destination=comment/reply/24491%23comment-form
[7] https://clik.dva.gov.au/user/login?destination=comment/reply/24460%23comment-form
[8] https://clik.dva.gov.au/user/login?destination=comment/reply/24435%23comment-form
[9] http://www.aph.gov.au/senate_fadt