If your clients receive or are about to receive a compensation payment for a personal injury, they should be aware that it may affect any income support payments they currently receive.

Regular compensation payments can reduce a person’s Centrelink payments by $1 for every dollar of compensation.

For example, Bill receives a fortnightly compensation payment of $600 and his Centrelink payment is $400 a fortnight. His pension reduces by $1 for each dollar of compensation, until it cancels out.

This would mean Bill isn’t eligible for any pension because the compensation payment is greater than his pension rate.

The way compensation is paid, whether as a lump sum or a regular payment, can also affect an individual’s Centrelink payments. They may be further affected if their partner is receiving Centrelink income support.

When someone receives or is about to receive a lump sum payment, you can work out the period of time where they’re expected to use part of this payment to support themselves.

This is called the preclusion period and during this time, they can’t receive any Centrelink payment. The preclusion period does not apply to a partner’s Centrelink payments.

As preclusion periods can often last for several years, it’s important your client firstly acquires an estimate of their preclusion period before they agree to accept a compensation lump sum payment.

Using the compensation estimator on the Department of Human Services website, financial planners, finance professionals, solicitors and even injured individuals, can use this service to seek advice about the effect of lump sum compensation payments on their Centrelink payments. Simply search for ‘compensation estimator’ on the humanservices.gov.au website.

People can still apply for Centrelink income support payments while they are waiting for their compensation claim to be finalised. However, they must tell the Department of Human Services about the claim, so it can determine if their Centrelink payments will need to be repaid once any arrears of compensation is paid.

The intent behind it is that you can’t be compensated twice for the same period, for instance, through paid compensation and Centrelink income support payments.

Compensation affects most types of Centrelink income support payments, though it doesn’t apply to Carer Allowance, Mobility Allowance or the Australian Government Disaster Recovery Payment.

For queries about the effects of compensation, lump sum preclusion periods, and decisions about recovery, call the Compensation Recovery Team on 1800 777 653.

More information is available at humanservices.gov.au/centrelinkcompensationrecovery