According to the firm’s Insights blog, the payment of TPD claims by instalments has only been adopted by a small number of super funds.
“It is expected that the payment of TPD by instalments will expand and, in time, will lead to a combination of TPD and disability income provisions in some funds,” Rice Warner said.
“This is a significant move which, to date, has only been adopted by a small number of funds, but many others are ‘watching this space’.”
Each instalment would be paid out following a new assessment of a claimant’s TPD status and, in some cases, their compliance with medical, retraining and rehabilitation requirements.
Rice Warner noted its effective application would require rules to determine the cases where only one single assessment would be made.
Such cases would include claimants who are clearly highly disabled without any prospect of improving to an extent where the TPD status would be questionable, the firm said.
Other cases would include small sum insured cases where multiple assessments and the payment of the claim by instalments would be financially inefficient.
Rice Warner said lump sum TPD payments receive favourable taxation treatment compared with monthly disability income payment.
However, it noted lump sums are generally being applied to take the place of income no longer able to be earned by the disabled member.
“This raises questions as to the adequacy of the lump sums and the need for customised advice for each claimant on how to effectively deal with the lump sum,” the firm said.
As the payments are made no more regularly then annually, they are being treated as lump sum payments and not income, fair enough concern though.
I don’t see how this is screwing members, if old TPD definitions and the single lump sum structure remained the premiums would continue to sky rocket. How that in the best interest of members. Super is there to fund your retirement, not pay for insurance. Insurance has become too expensive so measures had to be taken to reduce cost, or at a minimum stop the increases.
Same goes for ‘unlikely ever to’, versus ‘unable to ever return to work’; another measure to keep premiums from continued increases.
TPD is usually used to provide income when the life can no longer work and repayment of debt and renovations etc so their home is livable in their new disabled state. Having regular payments from TPD does not allow for these purposes other than income.
In addition, regular payments may be taxable as income unless there is an appropriate exemption from Government, good luck with that.
Just looks like another way in which the Union Super Funds will screw their members over. One wonders whether these changes will be communicated adequately to members so that they know how the changes will impact them. Hopefully it wont be like how the changes TPD definitions at the nation’s largest super were announced. The change from being UNLIKELY to ever work again to NEVER work again was trumpeted as ‘great’ news because it resulted in virtually no change to premiums. Never mind that the hurdle members now have to jump over to make a successful has just increased significantly. Existing members have been penalised by the growth objectives of management and trustees who have favoured new members by still offering high AAL’s. Obviously it’s only financial advisers who need to act in the clients best interest, as it appears there is no such requirement on union fund trustees.