Will a TPD Claim Affect My Superannuation Balance?

Total and Permanent Disability (TPD) insurance is a crucial safety net for Australians who are unable to work due to a severe injury or illness. If you have TPD cover through your superannuation fund, you might wonder how a TPD claim will affect your superannuation balance. 

This article will explain the impact of a TPD claim on your superannuation balance, the options available to you after a successful claim, and the tax implications of accessing your TPD payout.

Understanding TPD Insurance in Superannuation

TPD insurance provides a lump sum payment if you become totally and permanently disabled and are unable to work again. This insurance is often included as part of your superannuation fund, and the payout is designed to help cover medical expenses, rehabilitation costs, and living expenses.

What Happens When Your TPD Claim is Approved?

When your TPD claim is approved, the payout is deposited into your superannuation account. This amount is added to your existing super balance, and you have several options for accessing these funds:

1. Leave the Funds in Superannuation: You can choose to leave the TPD payout in your super account until you reach retirement age. This option allows your super balance to continue growing with investment returns, and you can access it tax-free once you reach the age of 60.
2. Withdraw a Portion or the Entire Balance: You can withdraw some or all of your super balance, including the TPD payout. However, if you are under the preservation age (between 55 and 60, depending on your date of birth), you will need to pay tax on the withdrawn amount.
3. Commence a Superannuation Income Stream: You can start a superannuation income stream, which provides regular payments from your super balance. This option can offer a steady income while potentially minimising tax liabilities.

Also read: Is Superannuation Paid on Workers' Compensation Payments?

Tax Implications of a TPD Payout

The tax treatment of your TPD payout depends on your age and how you choose to access the funds. Here are the key points to consider:

1. Tax-Free Component: If you leave the TPD payout in your super account until you reach the age of 60, you can withdraw it tax-free.
2. Tax on Lump Sum Withdrawals: If you withdraw the TPD payout before reaching the preservation age, the taxable component of the withdrawal will be taxed at 22% (including the Medicare levy). If you are over the preservation age but under 60, the tax rate is 17% on the portion above a certain threshold.
3. Superannuation Income Stream: If you start a superannuation income stream, the income drawn from your super account will be taxed at your marginal tax rate if you are under 60. However, the earnings within the super account are tax-free.

Impact on Centrelink and Other Government Benefits

A TPD payout can affect your eligibility for Centrelink benefits and other government financial assistance. Here are some important considerations:

1. Centrelink Means Testing: If you leave the TPD payout in your super account, it generally won't affect your Centrelink payments until you reach the Age Pension age (between 65.5 and 67). However, withdrawing the funds can impact your entitlements.
2. Reporting Changes: It is crucial to report any changes to your financial situation, such as receiving a TPD payout, to Centrelink to ensure you receive the correct benefits.

Steps to Take After a TPD Claim is Approved

If your TPD claim is approved, consider the following steps to manage your superannuation balance effectively:

1. Seek Financial Advice: Consult with a financial advisor to understand the tax implications and the best way to manage your TPD payout. They can help you decide whether to leave the funds in your super account, withdraw them, or start an income stream.
2. Review Your Super Fund: Check the terms of your superannuation policy and the level of cover you have. Ensure that your super fund is performing well, and consider consolidating multiple super accounts to save on fees and manage your funds more efficiently.
3. Plan for the Future: Consider your long-term financial needs and how the TPD payout can support your goals. This may include paying off debts, covering medical expenses, or investing for future growth.

Next Steps:

A TPD claim can significantly impact your superannuation balance, providing much-needed financial support if you are unable to work due to a severe injury or illness. Understanding the options available for accessing your TPD payout and the associated tax implications is crucial for making informed decisions. 

By seeking professional advice and carefully managing your superannuation balance, you can ensure that your TPD payout supports your financial needs both now and in the future.

For personalised advice and assistance with your claim, contact our TPD insurance claims expert at 1800 960 482 or request a free case review online.