Greens question whether government subsidising insurance companies by allowing welfare payments to be deducted from payouts

This article is more than 9 months old

This article is more than 9 months old

Insurer TAL has agreed to repay a $68,150 Centrelink debt generated after it deducted the full rate of the disability support pension from a disabled man’s income protection payments.

TAL has defended the “common industry practice” of deducting Centrelink benefits from its income protection payments to insurance claimants, which was “clearly stated” in its terms.

But the man’s case, championed by his carer Diana Marr, has prompted Greens senator Rachel Siewert to write to the social services minister questioning whether the practice amounts to the government subsidising insurance companies by allowing welfare payments to be deducted from payouts.

The man in Marr’s care, Matt (not his real name) worked for 40 years in mining and transport before end-stage liver disease forced him out of the workforce in mid-2016.

Through his IOOF superannuation fund, Matt had paid for income protection insurance with TAL entitling him to $3,894 a month less “Centrelink offsets” for welfare “paid or payable” after he applied for the disability support pension.

TAL deducted amounts ranging from $1,726 to $1,905 every month on the assumption that Matt was entitled to the full rate of the DSP, despite Marr warning as early as 2017 that the welfare payment was means-tested and would be reduced to reflect he had other income.

In total, TAL deducted a total of $64,868 between 2016 and 2019, as Marr struggled to get Centrelink to correctly record Matt’s income and TAL to acknowledge the offsets would be means-tested.

On 9 October, Centrelink calculated that based on annual income of $47,377 Matt was only entitled to $26.30 in DSP a fortnight, plus other supplements.

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On 29 October, Centrelink sent Matt a debt notice for $68,152 for the period June 2016 to September 2019.

After repeated complaints from Marr and an approach from Guardian Australia for comment, TAL wrote to Marr stating that although it is “entitled to offset Centrelink benefits under the IOOF policy terms” it is prepared to pay the full debt, including $64,868 for the offsets and an ex gratia payment of $3,284 for the discrepancy.

On 2 December Siewert wrote to the social services minister, Anne Ruston, that “it appears that a range of insurance companies are contractually requiring individuals to apply for government income support as a prerequisite to their income protection policy being paid out”.

“If income support is granted, we have been informed that insurance companies offset the amount of income support payable to the individual from the maximum amount of income protection payable under their policy,” Siewert wrote.

“In effect this equates to the government subsidising the insurance company’s fiscal liability to the individual.”

Siewert asked how many Centrelink clients are receiving income protection and could potentially be affected by the industry practice.

Siewert told Guardian Australia that people with income protection insurance “shouldn’t need income support, they’re supposed to have their income guaranteed, that’s what they paid their insurance premiums for”.

She said if the practice is widespread then “insurance companies are making dough” by pushing people onto the DSP when they have another source of income, suggesting they are “shirking their responsibility” by doing so.

Earlier, TAL told Guardian Australia that “the terms of the customer’s income protection policy clearly state that any Centrelink benefits received by the claimant are to be offset against income protection payments from the insurer to ensure the total payments received by the customer from all sources reflect the customer’s pre-disability income”.

“This is common industry practice.”

TAL said it relies on customers to provide written notification from Centrelink confirming the amount their payment will be offset, and “in relation to this customer” it did not receive written confirmation of Centrelink payment changes until 31 October 2019.

“The offset has been accordingly amended for benefit payments going forward.”

The Department of Human Services general manager, Hank Jongen, confirmed that in “most cases compensation, insurance, and income protection payments are treated as income for social security purposes” but did not comment on the specific case.

Just under 40,000 Australians received payments under income protection insurance in the last year.

In December, the Australian Prudential Regulation Authority announced changes to the sector after individual disability income insurance products lost more than $3bn in five years.

TAL is part of the Dai-ichi Life Group, a global insurance company based in Japan. According to Australian Taxation Office data TAL Dai-Ichi Life Australia Pty Ltd paid $40.5m of tax on a total income of $3.9bn and taxable income of $226m.