The Federal Government could save $340 million on disability pensions in just one year if people were adequately insured for such events, according to a study by the Financial Services Council and KPMG.

Most of the saving would come among people aged 45-64, 77% of whom are underinsured, the report says.

The saving in the second year would be $650 million, rising to $940 million the following year. In the 10th year the saving would be $2.5 billion.

The figures do not take account of tax revenue that is lost when people retire on disability pensions.

The average person should cover 84% of their income until retirement in case of disability, according to the report.

“Our analysis of the population and the insured coverage suggests 35% of people do not have any disability insurance,” it says.