TPD Claim Stories
Client Stories, TPD / Superannuation
We are a financial advice firm and talk to people all over Australia that are about to, or have recently had a superannuation TPD claim approved and wanting to understand the financial options and implications following a successful claim.
A common theme we hear from TPD claimants is that the TPD process has been long and sometimes very challenging, it’s not been great for their health and the last thing they want to do is have to stay in the system and have to provide more medical certificates in future.
Then sometimes they have only recently learned that they have to make a choice – they can withdraw some or all of their TPD & super balance, they realise they will pay tax on their withdrawal (if under age 60), that the rate is different for everyone, that the withdrawal can trigger a whole range of other possible financial implications.
Before making a decision it’s a good idea to understand your options and implications. Below are some TPD Claim Stories explaining some of the financial pitfalls and opportunities following a TPD claim.
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Julie – Don’t consolidate superannuation funds.
Julie was diagnosed with MS at age 36 and after several years had to finish up working. She had $800,000 of Total & Permanent Disability (TPD) cover through her main superannuation account and lodged an application to claim on this. Right at the start of her TPD application her super fund advised that her account was falling below the minimum and if she didn’t top it up she would lose her insurance cover. Jennifer decided to take the opportunity to tidy up her superannuation accounts and rolled over another of her super accounts that didn’t have insurance on it. Unfortunately, Jennifer didn’t realise that by doing this small rollover, her tax that would have been $10,000 prior to the withdrawal was increased to roughly $90,000.
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Melinda – Check your tax rate
Superfunds don’t always calculate your tax correctly. Following a TPD claim through super, everyone will pay a different rate of tax and in fact, a person with more than one superfund & TPD claim could have very different tax rates on each TPD claim. An important date in the tax calculation is the “date you stopped being eligible to work again”. One of the most common errors superfunds make is using a more recent date which results in a higher tax rate.
Melinda stopped working 5 years ago but only recently had her $300,000 TPD claim approved. When she went to withdraw her TPD proceeds the superannuation fund miscalculated her tax rate resulting in additional tax of $7,500. By checking her rate and querying this with her superfund she was able to have this tax refunded.
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Liz – Withdrawal before 58th birthday
Liz was 57, earlier this year her $200,000 TPD claim was approved, she withdrew her full TPD proceeds from super and paid tax of roughly $30,000. Liz’s withdrawal was processed the day before her 58th birthday, had it been processed a day later she would have paid no tax (as 58 was her preservation age and she would have been entitled to withdraw $215,000 from super tax free). Liz was able to have her superfund reverse this withdrawal and re-process it saving her this $30,000 in tax.
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David – Expiration of tax concessions
David had a TPD claim through his superannuation fund, he made a withdrawal initially of $100,000 ($5,000 of tax was withheld by the super fund) to pay some bills, he decided to leave his remaining funds in superannuation to save tax and maximise his Centrelink payments. 9 months later David needed some more funds and went to make another withdrawal of $100,000 from his super account, only this time $22,000 in tax was payable. David couldn’t understand why he had to pay so much more tax, it turns out this was because his medical certificates had expired and was no longer entitled to the TPD tax concessions.
David was able to provide updated medical certificates to his super fund and have the additional $17,000 in tax refunded to him. Furthermore, through a simple strategy David was able to rollover his super account and have the TPD tax concessions locked in so he could continue to access his super at the lower tax rate and never had to provide medical certificates again.
- Tim – Will your TPD proceeds be invested?
Tim’s $400,000 TPD claim was approved in March 2020, these funds were immediately credited to his superannuation account and invested into his default “Growth” investment option (this is the process some superannuation funds follow). His superannuation fund didn’t tell him that his claim had been approved for 3 weeks – by the time he realised his TPD claim was approved his TPD proceeds had fallen by $60,000 to $340,000 – this was during a steep fall in financial markets due to Covid-19. Tim was planning to withdraw his funds anyway and was able to argue this with his super fund and be compensated the $60,000. - Tina – Are you on a Centrelink payment?
Tina was on a Centrelink Jobseeker payment, after her TPD claim was approved she took all her funds out of superannuation not realising this was going to put her over the Centrelink “Assets Test” threshold, so she stopped receiving her Jobseeker payment. Furthermore, Tina didn’t realise that the TPD withdrawal created additional taxable income for her, which at the end of the financial year was reported to Centrelink and she was required to pay back $10,000 in family tax benefits.
