I have just read Jason Hurst’s excellent article on accessing total and permanent disablement payments in the latest edition of SelfManagedSuper. I would certainly recommend a read.

I would like to emphasize a couple of points.

The tax-free uplift (the calculated increase in the tax free portion) is only available if the benefit is taken as a lump sum. If it is taken as a pension, the tax components do not change though a 15% tax offset is applied to the taxable portion of the pension payment for a taxed recipient (under 60 years of age).

It is possible to have the best of both worlds.

The tax-free uplift is available for both a benefit payment and a rollover so, if the whole of the disability benefit is rolled to another fund before a pension is commenced the maximum tax uplift will apply, thereby increasing the tax free portion of the pension as well as lowering the tax payable to a non-dependant beneficiary (if applicable) on the death of the member.

As a variation of the above, the tax-free uplift will be enhanced if a non-concessional contribution is made to the account before the payment/rollover occurs.

Our Alliance Partners have access to a calculator that incorporates this strategy and produces a report that may be considered for incorporation into an advice document.  I’ve run the numbers on a 40 year old member with a 10 year service date and a $1m benefit, all taxable component.

If the $1m was withdrawn as a lump sum OR rolled over the taxable component would reduce from $1m to $307k. If a $360k non concessional contribution was made beforehand, the taxable component would reduce to $58k. Food for thought!