Changing Total and Permanent Disablement (TPD) Definitions
20th Sep 2016
Historically, TPD definitions have usually been consistent with the definition of permanent incapacity under r1.03C of the Superannuation Industry (Supervision) Regulations 1994 which requires that the member’s ill-health render them unlikely to ever engage in gainful employment for which they are reasonably qualified by education, training or experience.
However, insurers are increasingly amending their TPD definitions, because some stakeholders argue that too many claims are being paid out due to ‘generous’ TPD definitions. Broad definitions have been identified as one (but not the only) reason why the group life insurance industry has been running at a loss since 2013. Unfortunately for members, many superannuation fund trustees are now acquiescing to these changes.
One such change to TPD definitions is the requirement that members be ‘unable’ or ‘incapable’, rather than ‘unlikely’ to return to employment. Precedents have developed around the use of the word ‘unlikely’ that plaintiff lawyers rely on to argue that while a member may have some residual work capacity, they are in fact unlikely to return to work because of challenges they would face in the open labour market. Such arguments are often supported by evidence from vocational assessors.
An assessment of whether a member is ‘unable’ or ‘incapable’ of returning to work, on the other hand, is arguably a purely hypothetical question of ability or capacity, where such considerations are irrelevant. While a member may have no realistic prospect of returning to work, if they are not able to prove that they are ‘unable’ or ‘incapable’ due to their medical condition, they will not succeed in their TPD claim.
Another change to TPD definitions has been the introduction of retraining and rehabilitation clauses. AustralianSuper and MTAA have introduced clauses which allow the insurer to consider any retraining, education or rehabilitation the member undertook after the waiting period expired, or could reasonably undertake in the future, in the assessment of whether the member is TPD.
In line with current precedent, plaintiff lawyers have argued that education, training or experience obtained after the expiry of the waiting period is irrelevant to the consideration of whether a member is TPD, unless it was a short course or a qualification which was already within the member’s education, training or experience. However, with these changes, the possibility of further retraining or rehabilitation could mean a member is unable to prove that they are TPD.
While the insurance and superannuation industries claim that this will help members return to work, it remains to be seen how these clauses will work in practice. What is ‘reasonable’, given the financial barriers most members (who have been forced to stop work) face? Who is going to pay for the training or rehabilitation? What happens if the cost is greater than the TPD benefit?
In addition to wording changes like ‘unlikely’ to ‘unable’ and inserting a retraining and rehabilitation clause, SunSuper has implemented a five-year, graduated claim payout rather than a one-off lump sum payment with a waiting period. This will increase the cost of administering claims due to the longer timeframe. However, insurers say they expect the change will lead to a lower amount of claims being paid out overall. This means that even if a member’s medical condition has stabilised, they will have to wait more than five years to receive their total payment.
Further, MTAA have also introduced a clause which requires that the member be receiving regular and ongoing care, which itself requires a doctor to confirm that their medical condition will not improve sufficiently to allow them to return to work in any capacity. That is a much higher hurdle than the TPD definition which only requires a doctor certify that the member is unlikely, unable or incapable of returning to work which is within their education, training or experience.
Premiums for cover within superannuation have increased across the board, meaning that many members are paying large premiums with a low probability that they will actually ever successfully claim their TPD benefits, even if they stop work due to a medical condition.
Superannuation fund trustees who are entrusted with the management of their members’ entitlements should remember that for many, if not most members of industry funds, their automatic TPD cover through superannuation is their only insurance in the event they have to stop work because of a medical condition. That is particularly the case for members in manual labour roles, or low- or semi-skilled workers, who are unlikely to be able to afford insurance outside of superannuation.
Some superannuation funds such as CBUS have resisted changes on behalf of members, their policy with TAL retaining ‘unlikely’ in the definition, and omitting any retraining clause. Hopefully other funds will follow suit rather than introducing changes to their TPD definitions to make it more difficult for members.
Otherwise, we expect that as a result of these changes, plaintiff lawyers will soon see increasing challenges for members as they claim under policies with these changes. Insurers are already not subject to any statutory time limit in assessing claims. It would now be expected claims assessment will take even longer, that it will be necessary to obtain more evidence to supports claims, there will be more declined claims, and it will be increasingly necessary for members to engage lawyers.
Ashley Matthews is a lawyer working in financial advice disputes, superannuation and insurance claims for Maurice Blackburn in Sydney. She is passionate about advocating for clients and achieving outcome for them and also improving the regulation of those industries more widely.
Disclaimer: The ALA would like to acknowledge that the image for this article is creative commons and was originally produced by Anjan Chatterjee accessed here.
The views and opinions expressed in these articles are the authors' and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).