Superannuation in Australia is a significant part of people's financial future, now totalling around $4.1 trillion. However, when a person passes away, their super doesn’t automatically form part of their estate. Instead, it's paid to eligible beneficiaries as per the fund rules and any death benefit nominations they made.
Unfortunately, there’s been a rise in complaints to the Australian Financial Complaints Authority (AFCA) due to delays in paying these benefits, which surged sevenfold between 2021 and 2023. While most super death benefits are paid within 3 months, some take more than a year to process, as the super laws only state that the funds must be paid "as soon as practicable."
How to Ensure Your Super Goes to the Right Place
If you don't make a valid death nomination, the fund trustee has discretion over who receives your super, which could be anyone within your family or estate. There are four types of death benefit nominations:
Binding Death Benefit Nomination: Directs your super to a nominated beneficiary, and the trustee is required to follow it.
Non-lapsing Binding Death Benefit Nomination: Lasts until you cancel it, providing certainty for your beneficiaries.
Non-binding Death Nomination: A guide for trustees, but they still have discretion to decide where your super goes.
Reversionary Beneficiary: Applies if you're receiving a pension from your super, automatically transferring payments to a nominated beneficiary.
Who Can Receive Your Super?
Your super can be paid to dependants, your legal representative, or someone with an interdependency relationship with you. Dependants for super purposes include spouses, children, and those financially or emotionally dependent on you.
What Happens If You Don’t Make a Nomination?
If no death nomination is in place, the trustee will decide who receives your super based on state or territory laws. This often leads to delays, especially in complex family situations.
Avoiding Pitfalls
To avoid issues and delays, ensure your death nominations are valid. They must be signed, dated, and witnessed correctly. A poorly written nomination or an expired one can complicate matters for your loved ones, especially if there are multiple potential claimants.
The Bottom Line:
Regardless of your age, it’s crucial to check your death benefit nominations with your super fund. Keeping them valid and up to date can make the process smoother for your family and reduce the time spent waiting for the funds. Though delays may still happen, having the right nomination in place ensures your superannuation is distributed as per your wishes.
Superannuation Tax Changes: An Increase in the Tax-Free Retirement Cap
In other news, the tax-free retirement super transfer cap will increase to $2 million on July 1, 2025. This change allows those considering retirement a chance to transfer more of their super to a tax-free account. If you begin your retirement income stream in June 2025, your cap will remain at $1.9 million, but if you wait until July 2025, you’ll benefit from the new $2 million cap, adding an extra $100,000 in tax-free savings.
If you're already taking a retirement income stream, this increase only applies to unused cap space. To keep track of your super balance and available cap space, you can check your details through the Australian Taxation Office (ATO) online via MyGov.
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