Disability pension and compensation offsetting

Last updated: 
14 January 2020

This page provides an overview of how a disability pension under the Veterans’ Entitlements Act 1986 (VEA) may be affected by payments of compensation from another source.

Compensation offsetting can be complex. If this process will affect you, before making any decisions you are strongly encouraged to contact the Department of Veterans’ Affairs (DVA) to receive advice that is specific to your circumstances. You may also wish to obtain financial advice as compensation offsetting in most cases affects a disability pension for life.

What is compensation offsetting?

Offsetting is the process of reducing one compensation payment in recognition of another compensation payment for the same incapacity or death of a veteran. The principle behind compensation offsetting is that a person should not be compensated twice for a veteran's incapacity or death, irrespective of whether they have eligibility from more than one source.

If a person receives any award of compensation or damages from another source for the same incapacity, whether this be other statutory compensation or common law damages etc, there must be a corresponding reduction or offset applied to the amount of pension paid under the VEA to preclude double compensation.

Essentially, a person eligible for compensation from more than one source should not receive more than a person only eligible for the one source of compensation.

Additionally, claims and applications for an increase in disability pension that are lodged on or after 1 July 2004 which result in the payment of an applicable Above General Rate pension (an earnings-related pension) or allowance, will be reduced or offset by any lump sum payment received for permanent impairment under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA). This applies to lump sum compensation for any incapacity, irrespective of whether the incapacity included in the disability pension assessment is the same or different.

How does DVA decide whether compensation payments are for the same incapacity as my disability pension?

Under the VEA, incapacity is defined as the effects of an injury or disease, and not the injury or disease itself. Therefore, DVA looks at the particular effects of the two (or more) injuries or diseases for which compensation has been paid, and considers whether they are the same. For instance, you may have two distinct injuries to your right knee, one accepted under the VEA and the other arising after a motor vehicle accident. If the medical evidence is that effect of one injury cannot be distinguished from the effect of the other, then DVA will offset, despite the second injury being medically described in a different way when compensation or damages were claimed and paid from another source. Offsetting can also apply to later, non-service-related aggravations of service-related conditions.

What is an award of compensation or damages?

Compensation is a defined term in the VEA and includes:

  • any payment in the nature of compensation; or
  • any damages recoverable at law from a government or any other person (whether within or outside Australia), in respect of injury to, or the death of, a person; or
  • any amount paid under a compromise or settlement of a claim for damages.

Payments under the DRCA or the Military Rehabilitation Compensation Act 2004 (MRCA) also administered by DVA are compensation.

Compensation or damages does not include:

  • any expenses incurred in medical or hospital treatment;
  • payments under an insurance policy owned by a veteran or dependent (for example, life insurance, travel injury or death insurance, loss of income protection);
  • superannuation payments; or
  • a Severe Injury Adjustment and the Additional Death Benefit which may be paid under the Defence Act 1903.

However, insurance policies owned by an employer to provide worker’s compensation cover for a veteran or dependant are considered to be compensation.

Any money that is received for the effects of the incapacity caused by an injury, disease or death (that isn’t excluded above) will be treated as compensation. Please contact DVA if you are unsure about what is considered compensation for the purposes of offsetting.

Who does this affect?

Any person who is seeking or who receives a pension payable under the VEA who:

  • has received a benefit from another source for the same incapacity; or
  • is eligible to claim a benefit from another source for the same incapacity; or
  • has received a lump sum compensation payment for permanent impairment under the DRCA and is assessed as eligible for any of the following earnings-related payments: Special Rate, Temporary Special Rate, Intermediate Rate, Loss of Earnings allowance or Temporary Incapacity allowance.

For how long will I be offset?

Offsetting usually affects the payment of a disability pension for the rest of your life.

How will my compensation payment affect my disability pension?

The exact offsetting process will depend both on the kind of disability pension you receive and the nature of the compensation payment you receive. Compensation payments can either be:

  • periodic (i.e. paid in regular instalments); or
  • in a lump sum.

How periodic compensation payments affect disability pension

The VEA requires that the amount of disability pension payable in a fortnight must be reduced (or offset) to take account of any other periodic (e.g. weekly or fortnightly) compensation payment that is made in the same period for the same incapacity. The offset is applied on a dollar for dollar basis with the reduction or offset being the lesser amount of the assessed disability pension, or other compensation paid, for the same incapacity. If the offset is equal to, or greater than, the disability pension payable, no payment of disability pension will be received.

If a veteran has a number of disabilities accepted under the VEA but the other compensation is only for one or some of these, DVA separately apportions off those disabilities affected. Therefore, offsetting will only affect that part of the disability pension paid for the same incapacity for which the other compensation is paid.

How lump sum compensation payments are handled

If the other compensation is made as a lump sum payment, an equivalent indexed fortnightly amount applied for life has to be calculated so it can be offset on an equal basis to a disability pension. This offset is applied under either section 30C or section 74 of the VEA.

The Australian Government Actuary provides instructions and a table so that DVA can make this calculation. Explanation of how this calculation is determined and applied, including an example, is available in Pension offsetting using Actuarial Tables

How a compensation lump sum affects disability pension already paid

Where a disability pension is in payment and a lump sum of compensation is later paid for the same incapacity, the VEA deems the fortnightly equivalent pension to have started when the disability pension started.

This means that compensation offsetting operates retrospectively and that some or all of the disability pension already paid becomes an amount not payable to the veteran and, therefore, an overpayment that must be recovered. Where the Department becomes aware of another compensation claim, recovery by a deduction from the lump sum is arranged through the veteran’s solicitor or DVA.

Earnings related payments

Disability pension claims lodged on or after 1 July 2004 that result in the payment of an earnings-related pension or allowance (i.e. a disability pension at the Special Rate, Intermediate Rate, or Temporary Special Rate, or a Loss of Earnings Allowance) will be reduced or offset by the fortnightly equivalent of any lump sum payment received for permanent impairment under the DRCA. The fortnightly equivalent is calculated using instructions from the Australian Government Actuary. This offset is applied under section 25A of the VEA.

Treatment Entitlements - the White or Veteran Gold Card

Compensation offsetting under the VEA does not affect your entitlement to treatment as a whole. Generally, you will retain your Veteran White Card or Veteran Gold Card.

However, if you recover common law damages related to that incapacity, your eligibility to receive ongoing treatment, related to the circumstances the damages were awarded for, may be affected. You may also be required to repay the cost of past treatment received. Refer to Treatment costs after you receive compensation for further information.

Exceptions to general rules

There is a specific exception in the VEA for a lump sum payment that is made under section 30 of the DRCA. A section 30 lump sum consists of redeemed fortnightly payments that otherwise would have ceased at the age of 65. In such cases offsetting ceases at 65.

Compensation offsetting does not affect your entitlement to the Energy Supplement

Will my Loss of Earnings allowance paid by DVA be affected?

Loss of Earnings allowance may be affected if periodic compensation payments are related to your normal weekly earnings. Loss of Earnings allowance will be offset by any lump sum compensation payment under the DRCA.

Do compensation payments affect my service pension?

Any periodic compensation payment offset against a disability pension is not counted again for service pension under either the compensation recovery provisions or the income test unless there is excess periodic compensation income after disability pension has been offset.

Where a lump sum compensation amount is received and results in an offset against disability pension, there is no legislative provision to allow a reduction by the same amount to a person’s assessable asset value for service pension purposes.

Lump sum compensation payments are subject to the deeming provisions if this money is invested, see Deeming and Financial Assets for further details on deeming. The continuing compensation offset amount is intended to represent the fortnightly return that the pensioner could reasonably expect to receive by investing the lump sum payment.

Any other compensation or damages paid (including any residual amount of compensation not used for offsetting against disability pension) may affect service pension payments. You should contact DVA via the general enquiries number to receive advice specific to your circumstances. Further information is also provided in What happens if you receive a compensation payment.

Review and legal advice

The VEA does not contain any capacity for review of offsetting decisions to the Veterans’ Review Board, or the Administrative Appeals Tribunal, as the offsetting provisions are “self-executing”. That is, they don’t require a decision to be made by a DVA delegate and therefore, only the actual rate of pension can be reviewed. If you are not satisfied with the decision in relation to the offset amount, your options are:

  • to seek a review of the decision by another Delegate noting that the decision will not result in any right of review under the VEA; or
  • to seek legal advice about an appeal to the Federal Court for the purposes of the Administrative Decisions (Judicial Review) Act 1977; or
  • to contact the Commonwealth Ombudsman on phone number 1300 362 072 and request an independent investigation into the way the offset has been administered.

Obligation to notify

If you receive a disability pension, service pension or have any treatment entitlement you must tell DVA within 21 days if compensation or damages are claimed or received.