In General Compensation, Medical Negligence Claims, Public Liability, TAC Talk: Road Crashes
Investing your personal injury lump sum payment

Compensation payouts for personal injury are generally one-off payments made for long term injuries and losses. With often large sums of money being involved, it’s important that recipients seek reputable financial advice.

While there aren’t usually rules about how a person spends their compensation, it is important that the compensation lasts to support an injured person for as long as they continue to suffer the effects of their injuries.

As personal injury experts, the team at Polaris don’t provide advice to clients about how to invest and manage their compensation, however we always recommend that they get advice from an expert financial advisor.

With that in mind, we recently took the time to sit down with financial adviser David Pero of ICG Financial Planning to ask him some common questions about financial planning after a compensation payout.

Polaris: Why is it important for people who have received compensation to get financial advice?

David: Seeking financial advice can make a significant difference to a claimant’s future financial position. The use of a tax-exempt pension is usually the preferred strategy for personal injury claimants whose care and other costs throughout their life will be significant.

A tax rate of 0% applies to Retirement Phase investments and will help prolong the life of the capital compared to investing outside of super where income will be taxed at normal ‘adult’ marginal tax rates.

Polaris: Are there time limits for investing compensation payments?

David: Compensation payments are typically a once off occurrence and there is a small window of opportunity for the claimant to consider their options. For instance, if they want to utilise certain benefits in super without affecting contribution caps and the Transfer Balance Cap (TBC), they must do so within 90 days of receipt of the compensation.

Transfer Balance Cap is a limit on how much superannuation can be transferred from your accumulation superannuation account to a tax-free ‘retirement phase’ account.

Polaris: Can you give us an example of how financial planning and advice can make a difference for an injured person?

David:  Imagine Brenda, aged 61, seriously injured in an accident at the factory where she worked. Due to the nature of her injuries she is unable to work again. Brenda has no other sources of income, very little super to speak of, and her personal disability insurance expired when she turned 60 the year prior.

Brenda undertakes legal proceedings and is eventually awarded a $1m settlement for compensation and loss due to personal injury.

Polaris: So, what financial options are available in that example?


Scenario 1

  • Brenda uses the $1m to establish a portfolio with an investment fund manager and draws down the income for her living expenses and ongoing care costs.
  • Brenda’s marginal tax rate and the Medicare Levy applies to any income.
  • Assuming an earnings rate of 5% p.a from the investments, Brenda’s tax liability would be approximately $8,800 p.a. with a net income of $41,100.

Scenario 2

  • Brenda uses the entire $1m to make a non-concessional contribution into super and notified her provider of the source of the funds by completing a Personal Injury Election Form.
  • Once received, the super benefits are moved to Retirement Phase and Brenda commences an income stream as tax-free pension payments, at the minimum $40,000 or 4% p.a.
  • The funds are invested according to Brenda’s wishes.
  • There is 0% tax payable on investment earnings and no Medicare Levy or Capital Gains Tax (CGT).
  • Compared with Scenario 1, Brenda has now saved $8,800 in tax she would have paid had she invested in her own name.
  • Any remaining investment income can be withdrawn to top up her income or can be reinvested so that her investments benefit from compounding returns.

Polaris: Are there special rules or opportunities for investment of personal injury payouts?

David: A good opportunity often arises for personal injury contributions to be added to superannuation. All or part of a personal injury payment can be added to super, as a Non-Concessional Contribution, or personal injury contribution.

Tax is paid on investment earnings at superannuation rates (0% or 15%), saving up to 47% on tax if investments were held outside of super.

Income stream payments can be tax free and/or made as large lump sum withdrawals.

Personal injury contributions made as Non-Concessional Contributions (NCC) do not count towards an individual’s Transfer Balance Cap (TBC), which restricts Retirement Phase Super to a maximum of $1.6m.

For instance, if an individual has already reached their TBC, they can utilise their personal injury payment to receive an additional pension.

Polaris: Who can qualify?

David: To qualify, the individual and the super contribution must meet certain criteria under the Income Tax Assessment Act 1997 (ITAA97 s292.95):

  1. The individual must have verification from two medical professionals that they are unlikely to ever be gainfully employed in an occupation for which they are reasonably qualified (permanent incapacity). The individual must be eligible to make contributions to super.
  2. The payment must arise from a structured settlement, workers compensation scheme or personal injury order.
  3. Where a settlement includes damages or compensation other than due to personal injury (e.g. property damage), only the portion of funds awarded for personal injury can be placed in a Personal Injury Pension.
  4. Funds must generally be contributed to super within 90 days of payment.
  5. A Personal Injury Election Form must be provided to the super fund before or the time of the contribution.

Polaris: What other advice should injured clients obtain when reviewing the management of their assets?

David: Individuals who receive compensation often find themselves with significant assets yet reduced capacity and sometimes, reduced life expectancy.

It is critical to consult with an Estate Planning specialist to address the following areas:

  • The Will;
  • Eligible beneficiaries;
  • Power of Attorney;
  • Advance Care Directive;
  • Death benefit options; and
  • Superannuation binding / non-binding nominations.

For anyone looking to maximise their compensation, contact Polaris Lawyers for a free, confidential initial consult.

For anyone looking to explore their financial options or wanting to make sure that their compensation payout lasts, contact David and the team at ICG Financial Planning.

Phone:  03 9611 1600

Email:   [email protected]

Web:    https://icgfp.com.au/


Disclaimer: everyone’s circumstances are different. The following is general information only and does not constitute legal, financial or taxation advice. The information does not take into account your objectives, needs and circumstances. You should obtain investment and taxation advice specific to your financial and legal situation before making any investment decision or acting on any of the information found here.


1300 383 825 or email [email protected]

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