The government has stated that it intends to establish criteria for large superannuation funds in order to enable fast and careful management of death payouts. When a member dies, is it difficult for the funds to pay out super?

In Australia, superannuation is now valued about $4.1 trillion. When you die, the fund trustee will pay your qualified beneficiaries their super rather than automatically including it in your estate, in accordance with the fund laws, superannuation law, and any death benefit nominations you made. 

Between 2021 and 2023, the Australian Financial Complaints Authority (AFCA) received seven times as many complaints about death payments. Payment delays were the main issue. Some individuals may not receive their super death benefits for more than a year, but the vast majority do so within three months. The super statutes simply state that super must be paid to beneficiaries “as soon as practicable” after the member’s death and do not specify a time range.

 

How to ensure that your super is paid to the right person

The issue of death benefits is tricky. Unless you have filed a valid death designation, the trustee of your superannuation fund has the right to determine who receives your super payments. If you do not make a selection or your nomination expires, the fund may choose to distribute your super to your estate or any dependents.

 

Death nominations come in four types:

1. 1. Nominations for death benefits are binding

The trustee is required by law to transfer your superannuation to the selected eligible beneficiary as soon as reasonably reasonable after your death. Death benefit nominations usually expire three years after they are made, unless they are non-lapsing binding.

1. 2. Non-lapsing, binding nomination for death benefits

A non-lapsing binding death benefit nomination, if permitted by your trust deed, will remain in effect until you amend or withdraw it. When you die, your superannuation goes to the person you choose.

1. 3. Non-binding death nomination for death

A guide for trustees that describes who should inherit your super when you die, but the trustee retains the ability to pick who receives the benefits. Even if you specify who should receive your super, the trustees may opt to give it to your estate or someone else. 

1. 4. Reversionary Beneficiary 

If you are receiving a pension or other income stream from your superannuation at the time of your death, the pension will be automatically transferred to your selected beneficiary. Reversionary pensions are only available to certain dependents, typically a spouse or child under the age of 18.

 

Who receives your superannuation?

A dependent, your legal representative (such as the executor of your will), or someone with whom you have an interdependent connection may get your superannuation. “The person’s spouse, any child of the person, and any person with whom the person has an interdependency relationship” are considered dependents for superannuation reasons. Someone who relies on you for care or financial support is considered to be in an interdependent relationship.

 

What happens if I decide not to nominate someone?

If you have not specified a beneficiary for death benefits, the trustees will determine who receives your superannuation in line with state or territory rules. According to your will, this will be either the legal representative of your estate or a superannuation dependent.

 

Where things may go wrong

The legality of death nominations has been successfully challenged in a number of judicial proceedings over the years. A death nomination must be written, witnessed, and signed and dated by you to be considered valid. Your nomination must also be precise and legally enforceable. If you nominate someone, make sure to use their legal name. If your super is to be transferred to your estate, make sure the right legal terminology is utilized in the document. 

Multiple potential claimants, the need for the trustee to negotiate occasionally problematic family situations, and the lack of a nomination (or one that has expired or is invalid) are among the reasons provided by the funds for the delays in paying death benefit nominations. 

Finally, regardless of age, check your superannuation fund to ensure you have the correct nomination type and that it is legitimate and accurate. If you die, the process will be faster and less distressing for your loved ones, although there may still be a delay in getting your super where it needs to be. 

If you have any question relating to super funds or super death payout, contact Bates Cosgrave anytime.