Insurance, Superannuation

Salary sacrifice has risk insurance benefits

Having temporary and permanent disablement insurance cover inside or outside of their superannuation fund is an arrangement that can allow an individual to benefit from more than just the payout from the policy in the event of a debilitating incident, a technical expert has said.

“Once a client meets the temporary incapacity condition of release [of the policy], the super legislation states they can access their insurance payment and access any voluntary employer contributions over and above the 9.5 per cent SG (super guarantee),” AIA Australia technical manager Natasha Panagis told attendees at the recent SMSF Association Technical Day Series in Sydney.

“Voluntary employer contributions are salary sacrifice contributions and the SIS Regs (Superannuation Industry (Supervision) Regulations) allow for that if you meet a temporary disablement condition of release.”

She pointed out this course of action is available to a super fund member regardless of where the risk cover is held.

“The good thing about this strategy is that it applies to insurance policies outside of super. So in other words, the insurance doesn’t actually have to be [held] in the SMSF for the client to be able to do this,” she said.

“The client can have the insurance in another super fund or they can have an ordinary policy. As long as they meet that temporary incapacity condition of release and made salary sacrifice [contributions] into their SMSF, they technically have grounds to request [the release] of those salary sacrifice contributions from their SMSF by way of a non-commutable income stream.”

According to Panagis, the introduction of the SuperStream system should make this strategy even easier to execute in the future due to the ability to specifically identify different types of retirement savings contributions.

“It will be a lot easier for SMSFs because if the employer is using SuperStream detailing that that contribution is a salary sacrifice contribution, the SMSF administrator is able to quarantine those funds and say that’s a salary sacrifice contribution,” she noted.

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