Tuesday, August 26, 2014

Accessing disablement proceeds via superannuation


This week’s post addresses an issue recently raised with us by an adviser, focusing on the ability to access insurance proceeds from a superannuation fund on an event of permanent incapacity.

The particular issue raised involved the fact that best practice often dictates that clients should obtain insurance protection on the basis of an inability to work in their ‘own’, as opposed to ‘any’ occupation.
The satisfaction of the ‘own’ occupation test is obviously easier than the condition of release set out under the superannuation legislation, being that a member must be incapable of working in ‘any’ occupation.
Where insurance is owned via a superannuation fund there is therefore a risk that while the fund will receive an insurance payout, it will be unable to release it to the member until some other condition of release is satisfied (for example, reaching the retirement age).

Historically therefore, the conservative view was undoubtedly that own occupation insurance should always be owned outside super.  Importantly, since 1 July 2014, own occupation insurance is no longer available via superannuation, subject to a grandfathering for arrangements already in place before that date.
For those pre-existing arrangements, there appears to be a pragmatic approach adopted, particularly by those with policies via a self-managed superannuation fund.  This approach involves assuming that a trustee (who will also be a member of the relevant fund) will adopt a liberal interpretation of the ‘any’ occupation definition under the superannuation legislation and therefore always allow the release of insurance proceeds.
 Until next week.
Image credit: panshipanshi cc