|
Compensation and disability support pensions
Article published on: 27-02-2023
My client was recently involved in a workplace accident and will receive a personal injury compensation payment of approximately $500,000. What impact may the compensation payment have on any entitlement to a disability support pension?
Answer
Where a court awards a lump sum for damages or your client settles on damages, the lump sum will ordinarily result in a ‘preclusion period’. During this period, your client will not be eligible for an income support payment such as a disability support pension. If your client has received a Centrelink benefit for a period for which they are precluded, the benefit received may need to be repaid. If your client is serving a preclusion period, they may still be able to access the Health Care Card or Commonwealth Seniors Health Card. Lump sum compensation for personal injury relating to non-economic loss may be assessed as ordinary income in the fortnight received but ignored for pensions see Social Security Guide 4.13.1.30.
Background
Lump sum personal injury award or settlement for damages
The formula for calculating the length of this preclusion period will vary depending on whether the compensation amount relating to economic loss can be identified. For example, a compensation claim contested through a court, tribunal or arbitrator will ordinarily identify the specific amount awarded for economic loss. For Centrelink purposes, economic loss includes lost wages, lost capacity to earn and lost superannuation contributions. Alternatively, an agreed lump sum through settlement will not typically identify how much relates to economic loss.
The partner of a lump sum compensation payment recipient is not subject to a preclusion period, see Social Security Guide 4.13.2.60.
Compensation economic loss amount specified
Where damages are awarded via a court judgement, tribunal, or arbitrator, the amount awarded for economic loss may be specified.
Where the amount awarded for economic loss is known, the formula for calculating the preclusion period is:
Preclusion period = Amount awarded for economic loss / single income test cut off amount
Where:
-
The income cut-out amount is the amount above which no pension is payable to a single person under the ordinary income test
-
The result is a period of complete weeks, rounded down to the nearest whole week.
The single fortnightly income test cut-out amount is $2,243 and the weekly amount is $1,121.50 at 1 January 2023, as outlined on the Department of Social Services website – income test for pensions. The income cut-out amount that applies is the figure that applied at the time the lump sum is received.
Application of rules – court judgement
If a court judgement specified $200,000 be paid for pain and suffering and $300,000 for loss of earnings, the preclusion period is 267 weeks, or a little over five years. The period is for complete weeks and is rounded down to the nearest whole week. This is calculated as follows:
Preclusion period = $300,000 / $1,121.50 = 267 weeks (rounded down to nearest whole week)
This means the client will not be eligible to claim benefits such as JobSeeker, Disability Support Pension or Age Pension until after this preclusion period is over.
Application of rules - compensation via settlement and economic loss not specified
If the compensation is by way of settlement, the amount relating to economic loss is unlikely to be specified and the 50% rule would apply. Under the 50% rule, it is assumed that half the compensation payment relates to economic loss.
Preclusion period = Settlement amount / single income test cut off amount x 50%
For example, if a client accepts a settlement payment of $500,000 for injuries, $250,000 will be treated as compensation for economic loss. In this instance, the preclusion period will be 222 weeks or a little under four and a half years.
Preclusion period = $250,000 / $1,121.50 = 222 weeks (rounded down)
Centrelink’s compensation estimator can assist to calculate the preclusion period for compensation settlement payments. For more information please see our Social Security Assessment of Compensation and insurance payments article.
|
