COMPENSATION PAYMENTS: WILL THEY LAST FOREVER?

This article is authored by Simon Jasprizza of Wheelie Motivated Enterprises (WME). WME was founded in 2005 by Simon Jasprizza, the company's Managing Director. Simon is a T7/8 Paraplegic as a result of an accident in 1997. Simon is a Chartered Accountant (CA), and has been involved in the accounting and finance industry since 1992, having worked for an international accounting firm, as well as high net worth individuals. Simon provides advice re management of compensation received for motor accidents, workers compensation or public liability claims. There are not many industries or businesses that Simon has not been exposed to throughout his career.

The day you might be so lucky as to receive a compensation settlement, is the day the government turns its back on you.

You become ‘precluded’ from most government benefits, both financial and non-financial dependant upon your unique circumstances, for up to 96 years (on average 25–30 years).

The following are benefits you can no longer access:-

1) Disability Support Pension;
2) Carers Payment;
3) Mobility Allowance;
4) Rent Assistance;
5) PADP Benefits – Equipment & Supplies.

Also in most cases prior to receiving your lump sum compensation payment there are deductions that need to be taken out, such as:-

1) Medicare Benefits – for services used;
2) Hospital Expenses – up to $1,500/day for acute care;
3) Rehabilitation Costs – up to $850/day for specialized care;
4) Equipment Costs – Wheelchairs, hoists etc;
5) Advance Payments – in some rare cases, insurance companies will provide the claimant with upfront payments;
6) Legal Costs – quite substantial in most cases.

Most clients usually live on credit cards, loans from parents & friends and even bank loans (where the bank allows) and hence all of these liabilities need to be re-paid from settlement funds.

In addition, clients feel obliged to make payments to family members for the ‘pain & suffering’ they endured and also for personal care provided.

So a settlement (in or out of court), can suddenly become halved in the hand of the client due to the above costs that have to be paid.

But money can by no means buy happiness or our health, and if it is not properly and professionally managed, can result in erratic spending, diminishing net wealth and ultimately depression and in some cases suicide attempts.

The whole settlement process is distressing and time consuming. Once the 3-5 year ordeal is over, the client needs new challenges to avoid boredom & in some cases mental illness, which I believe affects 80-95% of Australians, not 60% (3 in 5) as published regularly.

Investing Funds

Success is attributable to 50% Information, 40% Planning & only 10% Execution.

By failing to plan, you are planning to fail.

The funds need to be protected and invested in a tax-effective manner; responsibilities need to be delegated so that the client lives a stress-free and happy lifestyle without a worry in the world, except for the odd UTI.

At the moment you can only earn up to 3.5% on your money in a dedicated on-line savings account or fixed term deposit with most banks & financial institutions. But with an average tax rate of 25% and Medicare levy of 1.5%, that return of 3.5% is reduced to 2.57%. But what also needs to be taken into account is inflation. Assuming that inflation runs at say 3%, in 12 months time when we clients receive interest on their funds (assuming a 12 month term for a fixed term deposit), general prices have increased by 3%, so the 2.57% in real terms is reduced to a negative 0.42%. So in actual terms the client is worse off in 12 months time. This is a common investment problem.

Hence, clients need to review other asset classes, such as direct property (residential, commercial, industrial, rural), indirect property (listed & unlisted property trusts), domestic shares (Australian Stock Exchange – ASX), international shares, fixed interest investments (both domestic & international) and private equity investments. A diversified portfolio will reduce risk, and this requires a properly qualified investment adviser.

Growth assets such as shares & property will historically speaking increase over time (where investment horizon is a minimum of 7-8 years) as well as paying income along the way, hence are much more attractive and tax-effective then putting your money in a high interest earning bank account. And with the 50% capital gains tax exemption on investments held longer then 12 months, these growth assets are an essential part of a client’s portfolio of investments.

The final key to the equation is the investment vehicles, such as family trusts, self-managed superannuation funds (SMSF’s) & investment companies. Theses vehicles provide asset protection to the client, as well as being much more tax effective then investing funds directly in the clients individual name.

Depending on individual circumstances, a client maybe able to invest their compensation payment into superannuation fund, a withdrawal a tax-effective pension for life.

Trust, Superannuation & Taxation Laws (both State & Federal) change more regularly then we change our underwear, hence you need to employ specialists to ensure you are receiving the best possible advice.


This article only provides general information. Before making any decision or taking any action that may affect your personal lifestyle or financial situation, you should consult a professional qualified adviser.

This article is also published at http://www.injuryadvicenow.com.au/