Disability Support Pension Problems – A Case Study

Disability Support Pension Problems – A Case Study

If your client receives a personal injury compensation payment of around $500,000 after a workplace accident, it may affect their eligibility for a disability support pension.

Read on to find out how disability support pensions can impact compensation.

When a court awards a lump sum for damages, or your client settles on damages, this lump sum can result in a preclusion period. During this time, your client will not be eligible for income support payments like the disability support pension. If your client has previously received a Centrelink benefit during this preclusion period, they may need to repay the benefit received. However, your client may still be able to access the Health Care Card or Commonwealth Seniors Health Card during this time.

The length of the preclusion period will vary depending on whether the compensation amount related to economic loss can be identified. For example, if a compensation claim is contested through a court, tribunal, or arbitrator, the specific amount awarded for economic loss will be identified. This economic loss includes lost wages, lost capacity to earn, and lost superannuation contributions. On the other hand, an agreed lump sum through settlement will not typically identify how much relates to economic loss.

If 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

The income cut-out amount is the amount above which no pension is payable to a single person under the ordinary income test. The single fortnightly income test cut-out amount is $2,243, and the weekly amount is $1,121.50 as of 1 January 2023. The preclusion period is the result of this formula, which is then rounded down to the nearest whole week. The income cut-out amount that applies is the figure that applied at the time the lump sum is received.

For example, if a court judgment specified that $200,000 be paid for pain and suffering and $300,000 for loss of earnings, the preclusion period is 267 weeks, or just over five years. This means the client will not be eligible for benefits such as JobSeeker, Disability Support Pension, or Age Pension until after this preclusion period is over.

If the compensation is via settlement and the economic loss amount is not specified, the 50% rule would apply. Under this 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 just under four and a half years.

Centrelink’s compensation estimator can help to calculate the preclusion period for compensation settlement payments. For more information, please refer to the Income Test Info and Social Security Guide here.