Guide to Superannuation TPD Payouts.
If you’re unable to work due to injury or illness, you might be able to claim a total permanent disability insurance (TPD) payout. Most Australians have TPD insurance through their superannuation fund, although many are unaware of this and may not realise they’re eligible for a TPD insurance payout.
How much is a TPD payout?
TPD lump sum payout amounts typically range between $60,000 and $300,000. Your insured benefit amount will be clearly identified on your superannuation member statement.
Different insurance policies have different definitions to qualify for a TPD payout. But as a general rule, if you’ve been unable to work due to an injury or illness for an extended period (usually more than three months) with no expectation to return to work, then you may be entitled to a superannuation disability payout. For more information, read our Superannuation TPD Claim Guide.
How long does it take to get a TPD payout from a superannuation fund?
Generally speaking, it takes 6-12 months for a TPD lump sum payout to be finalised.
Insurance companies generally undertake to complete their assessments of TPD claims within six months. Some straightforward claims are finalised more quickly, however in more complicated claims the insurance company will often take more than six months to make a decision.
Once the insurance company has made their decision on a TPD claim, the trustee of the superannuation fund will also undertake their own assessment of the claim. This usually takes one to two months.
How is TPD paid out?
If your TPD insurance claim is approved, the lump sum is usually paid into your superannuation account, giving you the choice to:
- Withdraw the entire balance
- Make a partial withdrawal and leave the balance in super
- Leave the entire balance in your super
Is a TPD payout considered taxable income?
A TPD payout is not considered taxable income, however if you withdraw part or all of your TPD payout amount from your super fund as a lump sum, you’ll need to pay “superannuation lump sum withdrawal tax”. The calculation is different for everyone, and if you have multiple super funds, the calculation will be different for each fund you make a withdrawal from.
- There’s no tax payable if you’re aged 60 or over.
- If you’re under 60, the amount of tax you’ll pay depends on your age and your “eligible service date” (this is usually the date you became a member of your superannuation fund).
- If you haven’t reached your preservation age, then a portion of the withdrawal amount will be tax free, and the taxable portion will be taxed at 22%.
- If you have reached your preservation age (but are not yet aged 60), you can withdraw up to $200,000 tax free.
- If you withdraw more than this amount, a portion of the further withdrawal amount will be tax free, and the taxable portion will be taxed at 22%.
Does a TPD payout affect Centrelink?
Many of our clients ask us about the relationship between a TPD payout and Centrelink benefits.
The first thing to understand is that your TPD payout will be paid directly into your superannuation account, so it won’t affect your Centrelink benefits. Your superannuation account balance is excluded from Centrelink means testing until you reach the Centrelink Age Pension age, which is between 65.5 and 67. If you’re receiving other benefits, such as child support payments, your TPD payout won’t affect those either.
However, if you withdraw any money from your TPD (or existing superannuation) balance, the withdrawal might impact your Centrelink entitlements. In other words, you only need to consider the link between your TPD payout and Centrelink benefits when you decide to access the money in your superannuation account.
There are different means tests that apply depending on which Centrelink benefits you receive, so it’s a good idea to get professional advice on your entitlements before you access your TPD benefit and/or superannuation account balance.