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Permanent incapacity

Section: 12.5

Definition of permanent incapacity

Permanent incapacity, in relation to a member, means ill health (whether physical or mental), where the trustee is reasonably satisfied that the member is unlikely, because of the ill health, to engage in gainful employment for which the member is reasonably qualified by education, training or experience.

To be 'reasonably satisfied' a trustee will usually request medical evidence in the form of two doctors' certificates to that effect. This is to also satisfy the requirement for the payment of a disability super benefit.

The SIS definition of permanent incapacity above is sometimes referred to as an 'any occupation' definition of permanent incapacity because it relates to gainful employment 'for which the member is reasonably qualified by education, training or experience'.

Total and permanent disablement (TPD)

A Product Disclosure Statement (PDS) will usually state a definition of TPD for insurance purposes (for the actual wording of the definition, please refer to the insurance contract). An insurer will determine the definition of TPD which may be an 'any occupation' or 'own occupation' definition.

Any occupation vs own occupation insurance definitions of TPD 

An insurer generally defines TPD in one of two ways:

  • Any occupation - the insurer may define TPD as various circumstances which leave a person unable to engage in gainful employment in any occupation for which the member is reasonably qualified by education, training or experience (any occupation). The probability of an insurance payout under this definition is lower than an 'own occupation' definition, but is more compatible with the SIS permanent incapacity condition of release.
  • Own occupation-the insurer may define TPD as various circumstances which leave a person unable to work again in their own occupation they held just prior to total and permanent disablement. The probability of an insurance payout under this definition is higher than an 'any occupation' definition, but is less compatible with the SIS condition of release.

If TPD insurance is held in super, regardless of whether a person has met the insurer's definition of TPD, it will be the SIS definition of permanent incapacity which must be met to release the proceeds from super. The SIS definition of permanent incapacity is an 'any occupation' definition. This means that if a member has satisfied an 'own occupation' definition of TPD, the insurer may pay the insured benefit into the member's superannuation account but the trustee may not be able to cash out the benefit if the member does not satisfy the broader SIS definition of permanent incapacity as it is an 'any occupation' definition.

Note: From 1 July 2014, new personal insurance policies within super are only allowed to the extent that they align with the death, terminal illness, permanent incapacity or temporary incapacity condition of release.

Last modified: Wednesday, July 24, 2019