What do I do with my TPD Payout? Investment Ideas from a Financial Planner

Have you received a Total and Permanent Disablement (TPD) payout, and you’re not sure what to do with the money? 

In this blog, our Certified Financial Planner® Glenn Hilber outlines some investment ideas if your payout is from your super fund, along with the pros and cons of each alternative. Watch the video below or keep reading for everything you need to know!  

DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below. 

What do I do with my TPD Payout? 

In many instances, your Total and Permanent Disablement Insurance Policy is ‘owned’ by your superannuation fund. This usually means that the proceeds are paid into your superannuation account.  

If you have met the requirements of a Total and Permanent Disablement claim, you should also then be eligible to access your super as well.  

Not sure what to do with your payout? Here are some options:

1. Leave the Money in your Super Accumulation Fund 

By leaving your money untouched in your accumulation fund, you allow it to continue to be invested and grow in accordance with the earnings of your super fund.  

Pros –  

• When your superannuation fund is in accumulation phase, it is not assessed by Centrelink when you’re under the Age Pension age. If you’re getting a Disability Support Pension from Centrelink, you don’t want to have a huge assessment of assets or income, so leaving the money inside the accumulation phase might be the right thing to do.  

Cons – 

• As your money remains inside your fund, you are unable to use it.  

• Tax is levied at 15% on the earnings. For some people this tax rate may be okay if the alternative is a higher rate, however, this is detrimental if the alternative is a lower tax rate or no tax rate.  

2. Withdraw the Payout as Cash  

Before we delve into the pros and cons of this options, it’s important to note that there may be tax payable on your withdrawal.   

The amount of tax payable on that withdrawal is based on a formula that uses your eligible service date on your super fund and your current age. Generally, the younger you are the less tax you’ll pay withdrawing the money, the older you are the more tax you’ll pay. 

Pros – 

• You’ve got the money out of your fund and can use it for other purposes such as to buy a house or renovate your property  

Cons –  

• If you’ve withdrawn the money, it may be assessed by Centrelink. So, if you’re receiving a Disability Support Pension, a withdrawal could negatively impact your existing benefits.  
• If you have invested the money outside of superannuation, there may be tax on those earnings. So, depending on how much money it is, the taxable income of the investment, and if you have any other taxable income from other sources, there may be ongoing negative tax implications by having that money outside of superannuation.  

3. Transfer Super Accumulation Phase to a Super Disability Pension 

This means the money is still in the superannuation environment, but it’s now in a pension.  

Pros – 

• The tax rate on a pension earnings is zero per cent (as opposed to fifteen per cent), which leads to a better investment return than an accumulation fund.  

Cons –   

• A pension is assessed with Centrelink, so if this is a consideration you need to ensure that the amount of money in a pension doesn’t negatively impacts on your Centrelink payments.  
• While the money is in a pension, you can’t spend the money. However, in saying that you will receive pension payments, which could be anywhere from the minimum yearly amount right through to the full pension amount.  (NB – Tax implications on pension payments are different to withdrawing as lump sum). 

4. Combination of Above Options  

For many people, a combination of the above options is the most suitable alternative.  

Key Considerations when Thinking about the Best TPD Payout Option 

There are a range of things to consider, including:  

• Is your spouse continuing to work? If so, you probably won’t be eligible for Disability Support Pension. 
• Do you have income protection? If so, you may also be receiving income protection payments which will contribute to your taxable income.  

• What are your current needs? Do you need a lump sum payment, or will an ongoing income stream be more beneficial? 

To determine which single option, or combination, is best for you, please contact our Certified Financial Planner for personalised advice and investment help here or call 1300 200 012 today.