At Andersons, we often work closely with clients who feel that after a long legal battle they have finally succeeded in securing compensation for their personal injury, only to have a large portion of that compensation taken away by Centrelink.
Under Australia's Centrelink laws, compensation is defined as a payment for personal injury, illness or disease that replaces lost income or earning capacity. This compensation can relate to:
- Workers compensation payments including redemptions of income maintenance;
- Motor vehicle accidents;
- Slip and falls; and
- Injuries resulting from the negligence of another party, for example medical negligence.
Unfortunately, if you and/or your spouse or de facto partner (including a same-sex partner) has been in receipt of Centrelink payments following your personal injury, and you are subsequently awarded compensation for that injury, Centrelink will seek to recover an amount from your settlement funds. Most Centrelink payments are affected by personal injury compensation.
Centrelink has a right to recover from settlement funds before any funds are paid to the injured person. In other words, once settlement is reached, the employer or insurance company has to make contact with Centrelink to work out the amount of the recovery, then send this amount to Centrelink before the balance is forwarded to the injured person or their solicitor. This is a primary reason why payment of settlement monies can often be delayed for weeks, if not months, after a settlement agreement is reached.
Almost all types of Centrelink income maintenance payments are recoverable following a compensation payout including unemployment benefits (NewStart), Parenting Allowances and the Disability Support Pension.
It is not a simple task to work out exactly how a lump-sum of compensation will impact on your Centrelink benefits. It is equally difficult to work out how much Centrelink will want to take from your settlement funds. At Andersons, we can perform calculations to determine whether you need to repay money as a result of an overpayment from Centrelink following a compensation payment, or whether your Centrelink payments will cease for a period of time following the compensation payment.
However, lawyers can only estimate the amounts owing to Centrelink, and we do not know an exact figure until after settlement. This can make it difficult for clients to decide whether to settle their matter for a specific sum, because they are unaware of the exact amount that Centrelink will take. In other words, clients do not know the exact amount of money that will be left in their pocket at the end of their law suit.
The basic rationale behind Centrelink recoveries is that social security should be reserved for people who are in dire financial straits and need a helping hand from the Government; but if you have just received a large lump-sum payment into your bank account, you are deemed not to be reliant on social security, at least for a period of time.
If your compensation payout consists entirely of arrears of income, and you have been in receipt of Centrelink benefits for that entire time, Centrelink will likely want to recover the full amount they paid you during that period.
For example, assume a worker is employed in a job earning $1,000 per week, and then they injure themselves on 1 January 2014 which forces them to cease work. They apply for Centrelink and start receiving benefits of $500 per fortnight from 1 January 2014. On 31 March 2014 they are awarded compensation from an insurance company for their past income losses, namely 13 weeks pay at $1,000 per week, or around $13,000. However, during those 13 weeks, they earned $3,250 from Centrelink ($250 per week multiplied by 13). Centrelink will recover $3,250 from the settlement amount and the worker should then receive the balance of $9,750.
The above is a very simple example, and Centrelink recoveries can be quite complex, particularly when settlements are made up of compensation for past income, future income losses, pain and suffering, medical expenses, etc.
The number of weeks that your Centrelink payments will be affected due to your compensation payment is called a 'preclusion period'. In other words, due to your compensation, you are precluded from obtaining Centrelink for a certain amount of weeks.
In some cases, you may not have even been on Centrelink for the length of the preclusion period. For example, if your preclusion period is calculated by Centrelink as 26 weeks, but you had only been on Centrelink for 20 weeks when you were awarded the compensation, there are still another 6 weeks of the preclusion period remaining. This means that following settlement, you will be prohibited from claiming Centrelink benefits for the following 6 weeks. Once those remaining 6 weeks lapse, you can start receiving Centrelink payments again. Centrelink has a complex system for calculating your preclusion period and we can only advise on this in relation to each individual case.
There is an online calculator provided by Centrelink to help injured people and their solicitors work out the preclusion period and the amount of money owing to Centrelink. But this calculator only provides a very rough estimate, and usually shows a 'worse case' scenario. There is often a huge discrepancy from the amount shown when using the online calculator, and the actual amount owing to Centrelink.
It is important that you speak with your solicitor about any Centrelink ramifications flowing from your personal injury compensation claim. As mentioned, Centrelink recovery is a very tricky area, and you should seek immediate legal advice if you encounter issues involving Centrelink. Centrelink may also make errors, and it is important to have their calculations checked. Centrelink decisions regarding recovery can also be appealed/disputed if you disagree with the amount or the preclusion period.