Q. I have been receiving income protection benefits for about 10 years which will continue until I am 65 years. Is there anyway I can get these benefits paid directly into my super fund then start a transition to retirement plan once I turn 60? I am in my late 50s. While I am grateful that I took out this policy I am very aware that due to my illness I only earn a fraction of my salary, so I am behind in retirement savings so would like to be as pro-active as I can at this late stage.

A. There are no restrictions on making contributions to Superannuation provided you are under age 65 notwithstanding your incapacity.  However once you attain age 65, contributions to Superannuation are restricted to those who can satisfy the work test of working 40 hours in a 30 day period in the financial year contributions are received.  It appears you would not be able to satisfy this test into the future.

Your contributions to Superannuation would be treated as Non-Concessional Contributions and would be untaxed to the fund. . You are restricted to contributions of up to $150,000 p.a or $450,000 every 3 years.  Given the benefits of establishing a transition to retirement Allocated Pension, it would make sense to maximize Superannuation Benefits by contributing as much as is practical within contribution limits prior to establishing the Allocated Pension.  This however would be subject to your overall financial circumstances which would need to be considered prior to making this decision.

As your Income protection benefits are taxable income, an alternative would be to offset the income tax by making personal deductible contributions to Superannuation.  To be considered self employed, you would need to have received no PAYE income for the financial year.  As you have been on claim for a prolonged period of time, I would assume this to be the case.  Deductible contributions are limited to $25,000 for the Financial year.

I would encourage you to get advice before embarking on this strategy to ensure that you make the most of this opportunity and avoid any pitfalls.

The great relief to you is that you were prudent to put in place Income Protection, you now have the comparative “luxury” of being able to fund your income needs beyond retirement using this benefit.  Those who have no form of income support in the event of disability sadly do not.

The above article was originally published in The Australian