Editors --- "Compensation preclusion period: s.1184K discretion exercised to allow a modest income" [2010] SocSecRpr 53; (2010) 12(4) Social Security Reporter, Article 8

• WALKER and SECRETARY TO THE DEEWR
• Background
• Issues
• The law
• Financial status
• Were there special circumstances?
• Walker received less than 40% of the gross lump sum
• Significant impairment
• Lack of understanding
• Current financial circumstances
• Consideration
• Formal decision

---

Compensation preclusion period: s.1184K discretion exercised to allow a modest income

WALKER and SECRETARY TO THE DEEWR

(2010/609)

Decided: 17th August 2010 by A. K. Britton

Background

Walker was seriously injured at work in 2005 and he remained permanently incapacitated. He received weekly workers’ compensation payments until November 2007, and then the age pension. On 25 September 2008 Centrelink informed Walker that, because he had received lump sum payments of $153,000 (net), his age pension would be cancelled from 19 September 2008, he was required to repay Centrelink $12,128.42 for age pension already received and he would be subject to a preclusion period until 7 May 2011.

Issues

The issue was whether ‘special circumstances’ existed and whether the discretionary power conferred by

s.1184K of the Social Security Act 1991 (the Act), to treat some or all of Walker’s compensation payments as not having been made, should be exercised to reduce the preclusion period.

The law

Section 1169 of the Act decrees that if a person is in receipt of age pension (a compensation affected payment) and receives a lump sum compensation payment, then the age pension is not payable for a period – the preclusion period. The statutory formula is set out in ss.17 and 1170 of the Act. The AAT was satisfied that the preclusion period from 25 November 2007 to 7 May 2011 was correctly calculated. The AAT went on to consider ‘special circumstances’.

Financial status

At the time of the injury Walker was receiving a net income of approximately $1400 per fortnight and he had no savings, assets or debts. He received $128,000 (net) in September 2008 and $25,000 (net) in February 2007. His lump sum compensation was more than $350,000 gross.

Walker spent around $36,400 on a car and gifts, including a gift of $25,000 for his landlady because she had supported him in the past. He estimated his current regular fortnightly commitments, including medicals, board, car and phone to be $360. He also spent around $400 per fortnight on cigarettes, alcohol and gambling. In March 2009, at the time of the SSAT hearing, he had approximately $75,000 in the bank: by August 2010 he had just $10,000. The average spending had been $835 per week since March 2009.

Were there special circumstances?

Walker was represented by his daughter, Ms de Percy, who contended that there were four factors which separately and in combination amounted to ‘special circumstances’:

• firstly, the relatively small proportion of the lump sum settlement actually received by Walker;

• secondly, Walker’s permanent inability to work and significant impairment;

• thirdly, Walker’s lack of understanding of the operation of, and rationale for, the preclusion period;

• fourthly, Walker’s financial circumstances.

Walker received less than 40% of the gross lump sum

The lump sum settlement was $350,000

Repayment to Centrelink $12,128.42

Repayment to Worker’s Comp $115,455.43

Solicitor’s & Counsel’s fees $93,194.59

Solicitor’s reimbursement $1,140.00

Ms de Percy cited Moran and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 951 and Adams and Secretary, Department of Education Employment and Workplace Relations [2007] AATA 2114 as authority that receiving less than half the gross amount of the compensation lump sum constitutes a ‘special circumstance’.

Significant impairment

Walker had intended to work beyond retirement age but, as a result of his injuries, he could not work and could no longer even play golf. He was socially isolated, had little contact with friends and family and his daughter argued that his drinking and gambling should be seen in the context of a marginalised and isolated existence.

Lack of understanding

Walker had been told that his preclusion period would be approximately 2 years. If he had known it was to be 5 years he would have wanted a larger settlement figure. It was argued he had no understanding of why there was a preclusion period.

Current financial circumstances

Walker was boarding with a frail, elderly lady and his tenure was dependent upon her health and ability to live independently. The remaining $10,000 was his sole asset.

Consideration

The AAT was satisfied that there were special circumstances. The amount of money left for the 8 months remainder of the preclusion period was only $248 per week and less than the age pension. Walker's financial situation was perilous; he had no assets and no prospect of family assistance. His living expenses were modest but his expenditure on cigarettes, alcohol and gambling was profligate. Before the accident he was able to live within his means but he had no experience in dealing with large sums of money and that, together with his social isolation and drinking and gambling problems, led him to almost exhausting the lump sum payments.

The AAT considered the Guide to Social Security Law (see ss. 4.13,4.20) and the factors to consider when determining whether special circumstances exist, and the instructions concerning whether the ‘the person deliberately deprived themselves of their means of support or recklessly or inappropriately spent their lump sum’. The AAT stated that there was no medical evidence to suggest that Walker had a cognitive impairment or that his drinking and gambling problems were of a psychiatric nature. However, Walker seemed to be genuinely at a loss to explain where the money had gone; he had not fully appreciated how much he had spent on gambling and drinking and this led the AAT to conclude that he was financially illiterate.

The AAT did not accept the argument about the unfairness of the 50% divisor (that was a matter for Parliament), nor the argument that the legal fees were excessive. The AAT did not accept the allegedly incorrect advice from Walker’s lawyers about the length of the preclusion period - a higher settlement figure would have resulted in a longer preclusion period.

The AAT did not accept that the incapacity for employment and restricted daily activities and inability to work constituted special circumstances because that was the trigger for the compensation payment.

The AAT decided it was appropriate to treat a small part of the compensation payment received as not having been made. The $10,000 that he had on term deposit, divided by the current rate of age pension for a single person, resulted in 31.32 weeks. Walker would have the equivalent of age pension to live on and be entitled to be paid age pension from 26 March 2011. It would be inappropriate to reduce the preclusion further because his present financial situation was at least partly self-inflicted.

Formal decision

The decision under review was set aside, and a decision substituted that so much of the compensation payment received by Walker be treated as not having been made, so as to entitle him to be paid the age pension from 26 March 2011.

[M.R.]