Getting money out of super
A superannuation fund may pay a benefit to a member suffering temporary incapacity.This condition of release is commonly applied to Salary Continuance Insurance (SCI) held within superannuation. Only benefits that are not minimum benefits (i.e. an insured SCI payment) can be released under this condition of release. Temporary incapacity is where the member:
- has ceased to be gainfully employed, or
- has temporarily ceased to receive income under a continuing gainful employment arrangement, and
- is suffering physical or mental ill health that caused the member to cease to be gainfully employed, and
- is not permanently incapacitated.
Consequently, the temporary incapacity condition of release does not generally apply to a member's accrued benefits but instead is the mechanism which allows fund trustees to release salary continuance payments to eligible members.
Cashing restrictions for temporary incapacity
The amount of super released under temporary incapacity must be taken as an income stream (with specific restrictions) cashed from the regulated super fund for:
- the purpose of continuing (in whole or part) the gain or reward which the member was receiving before the temporary incapacity, and
- a period not exceeding the period of incapacity from employment of the kind engaged in immediately before the temporary incapacity.
For policies taken out prior to 1 July 2014, this condition of release may not be satisfied even though the member is successful in claiming on their SCI policy (for example, if the member was on unpaid leave or unemployed immediately prior to temporary incapacity).
This could result in the insurance proceeds being trapped in the superannuation fund and unable to be paid directly to the member. This issue should not arise in respect of new policies taken out on or after 1 July 2014, however, as new 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.
Income stream restrictions under temporary incapacity
For the purposes of accessing super under temporary incapacity, the income stream must meet all of the following requirements:
- cannot be commuted
- is paid at least monthly
- does not have a residual capital value
- the total amount paid each month is fixed or varies during any period of 12 months by no more than:
- 5% per annum, or
- consumer price index (CPI).
Temporary incapacity condition of release frequently asked question
Question 1: My client has taken out an income protection insurance policy through his super fund prior to 1 July 2014. As well as replacing salary, this policy also provides for an additional lump sum rehabilitation benefit to be paid by the insurer.
Will my client be able to withdraw any rehabilitation benefit received by the fund?
Answer: The temporary incapacity condition of release only allows for the payment of a non-commutable income stream to continue (in whole or part) the income the member was receiving prior to becoming incapacitated. The lump sum withdrawal of an additional rehabilitation benefit would not comply with this condition of release and it is likely that such a benefit could not be withdrawn by the client.
Last modified: Friday, November 16, 2018