As of February 2023, there are 23.2 million superannuation accounts in Australia with more than $3.3 trillion in assets under management. Just about every adult has superannuation. For many, it is their primary financial resources. It is, therefore, vital for a superannuation fund member to make arrangements for his/her superannuation in the event of death, just as a member should have a will to deal with his/her estate.
A common misconception is that a member’s superannuation forms part of his/her estate on death. That is not necessarily the case. In order to take control of what happens to their superannuation on their deaths, superannuation fund members should ensure that they nominate a beneficiary to receive their superannuation benefits.
The law provides that superannuation benefits may, generally, only be paid to a ‘dependant’ of the deceased member or the deceased member’s ‘legal personal representative’ (the executor or administrator of the deceased member’s estate). These terms are defined in the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). Superannuation funds are governed by their trust deeds, which generally adopt the SIS Act definitions, but this should always be confirmed.
A beneficiary is a nominated person (or persons) who will receive the member’s superannuation and life insurance benefits after the member’s death, less any applicable fees and taxes.
Who can be nominated as a beneficiary?
Members can nominate their legal personal representative, in which case the superannuation death benefit will form part of the member’s estate, and will be dealt with in accordance with the provisions of the member’s Will.
Alternatively, members can nominate a dependant, in which case the benefit will be paid to the nominated dependant(s).
The SIS Act defines a dependant as:
- The spouse of the member (‘spouse’ includes a de-facto partner and a same-sex partner)
- The child or children of the member (child or children includes adopted children, stepchildren, ex-nuptial children, a child of the principal person’s spouse)
- A person with whom the member was in an interdependent relationship at the time of the member’s death or whom was financially dependent upon the member at the time of death.
Where there is no nomination, and no person who qualifies as a dependant, the member’s superannuation benefits will probably be paid to the member’s legal personal representative, and form part of the members estate.
How to make a nomination?
A beneficiary nomination is often labelled as a ‘death benefit nomination’. Depending on the terms of the superannuation fund’s trust deed, the nomination may be:
- binding on the superannuation trustee, or non-binding; and
- lapsing or non-lapsing.
A binding death benefit nomination is a written direction made to the trustee which names the dependant(s) and/or legal personal representative to receive the member’s death benefit.
A non-binding death benefit nomination is a written request that suggests to the trustee the beneficiaries who should receive the member’s death benefit. The trustee will consider the nomination, but is not bound to act upon it.
A death benefit nomination may be ‘lapsing’, meaning it will expire at the end of a fixed period, generally every three years.
A non-lapsing nomination is a permanent nomination, but which may be revoked.
Superannuation fund websites provide more information about these terms.
Most industry superannuation funds will have a nomination form on their websites, which when completed and submitted, constitutes a death benefit nomination. Self-managed superannuation funds may have a nomination form annexed to the trust deed and will likely have the requirements for the nomination set out in their trust deed.
To guarantee that a death benefit nomination will be effective, it is essential to review the relevant provisions of the trust deed carefully, and ensure that the death benefit nomination complies with the superannuation fund’s requirements.
The Sydney Morning Herald opinion piece reports on the complexities of superannuation death benefits and the need for superannuation fund members to have current superannuation death benefit nominations.
For more information on superannuation beneficiaries, ‘death benefit nominations’, or Wills & Estates generally, please get in touch with the Blanchfield Nicholls team on 9994 0130.