What happens to your super when you die - choosing a beneficiary

Your super savings are a key investment for your future. It’s your money, and you’ve worked hard for it. But, that money needs to go to someone if you die before you can access or have accessed your super. The person you nominate to receive your superannuation death benefit is defined as your beneficiary.

We know it’s not nice to think about, but it’s important to be aware of your options before you nominate a beneficiary.

 

Why you should nominate a beneficiary 

Unlike your other assets, your super and any insurance benefits you have aren’t considered part of your estate. That’s because your super is legally considered to be held in trust until you are eligible to access it. For this reason choosing a beneficiary now could save putting that responsibility on your loved ones if the unexpected occurs.

If you don’t nominate a beneficiary, your super fund will follow relevant laws to decide who receives your balance. This could be either one or more of your dependants, or your legal personal representative. Nominating a beneficiary now can provide clarity about who you want to receive your super if you die and help avoid arguments between your loved ones.

 

Who you can nominate as your beneficiary 

Your beneficiary could be:

  • your spouse or partner
  • your children
  • interdependents (someone who lives with you and shares a close personal relationship where one or both of you provide financial and domestic support, and personal care of the other)
  • other financial dependants (such as someone who relies on you financially)
  • your estate or legal personal representative.
What’s an interdependent relationship? 

An interdependent relationship exists if:

  • two people have a close personal relationship which involves a demonstrated and ongoing commitment to a shared life and each other’s emotional support and wellbeing; and
  • they live together, or are temporarily living apart; and
  • one or each of them provides the other with financial support; and
  • one or each of them provides the other with domestic support and personal care of a level normally provided in a close personal relationship, rather than by a mere friend or flat mate.

OR

  • if they don’t live together or provide each other with financial support, domestic support and personal care, it’s because one or both of them suffer from a disability.

Two people don’t have an interdependent relationship if one of them provides domestic support and personal care to the other and is paid for this support or care, or works on behalf of an organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

 

Your options nominating a beneficiary

Most super funds let you nominate a beneficiary - someone you would like your super balance to be paid to when you die - as either a non-binding or binding nomination.

Binding nomination

A binding nomination instructs your super fund who you want your super to be paid to in the event of your death. If you make a binding nomination, your super fund will pay your account balance to whoever you’ve nominated, as long as your nomination is valid and in force at the time of your death. This will normally be as a one-off payment, but in some cases it may be paid as a regular income stream.

Children aged between 18 and 25 who are considered to be your financial dependants can choose to receive your super balance as regular income payments if they’re your beneficiary. Any remaining account balance will be paid out to them in full when they turn 25.

If you nominate a child under the age of 18, you super balance may be paid into a trust account and a Trustee will have responsibility for the money until they turn 18. If your child is permanently disabled, they may continue to receive regular payments until the money runs out, regardless of their age.

A binding nomination needs to be reviewed and renewed every 3 years, because it is only valid if:

  • it was made within the 3 years leading up to your death;
  • all the individuals nominated are alive at the time of your death (for example, if you nominated 3 beneficiaries and 1 was no longer alive at the time of your death, then the nomination would be invalid);
  • all the individuals nominated are eligible.
Non-binding nomination

Making a non-binding nomination means you’re still telling your super fund who you want your super balance to be left to when you die, but in this case your nomination isn’t considered legally binding.

This means that although your fund will take your wishes into account, they remain legally responsible and will need to consider relevant laws when making a decision. There may be circumstances where your fund will have to decide who your balance would be paid to after investigating your situation at the time of your death, and the needs of your dependants. In some situations this could differ to your non-binding nomination, although will always be in accordance with the law. The account balance will normally be paid as a one-off payment.

Reversionary nomination for retirement account holders

If you’re the holder of an account-based pension, (such as AustralianSuper’s Choice Income account  or a Transition to Retirement account ), you can make what’s known as a ‘reversionary nomination’. This means that in the event of your death, payments will continue to go to your nominated beneficiary. The balance of your account stays with the super fund to maintain the benefits of the account. 

The reversionary beneficiary of your retirement account, will receive regular income payments until the balance reaches $0. However, you can’t nominate your estate or legal personal representative in this instance, as you can with other nomination types.

If your children are over the age of 18, they must be permanently disabled, or younger than 25 and financially dependent on you at the time of your death for a reversionary nomination to be valid.

It’s important to know that making or changing a reversionary nomination could impact your Centrelink benefits. For up to date information on these rules, please visit dss.gov.au

In order to understand if your Centrelink benefits will be impacted, it’s wise to seek financial advice prior to changing or making a reversionary nomination.

 

You can change you beneficiary or nominate additional beneficiaries

You can ask your fund to accept nominations for additional beneficiaries and it’s important to keep your nominations up-to-date to reflect changes in your circumstances. It can be a good idea to review your beneficiaries shortly after big life events - like marriage, divorce or separation, having children, or the death of a relative - to avoid additional stress for your friends and family in the event of your passing.

AustralianSuper Members

If you’re an AustralianSuper member you can update or change a non-binding nomination at any time by logging into your account selecting 'Beneficiaries for my super account'. Alternatively, you can download and complete a Binding death benefit nomination for super members or Reversionary benefit nomination form.

 

MEMBERS: LOGIN TO YOUR ACCOUNT

 

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Does your beneficiary pay tax on the money they receive?

They could, but it depends on their relationship to you. If the beneficiary is considered a financial dependant, they could qualify as a dependant for tax purposes, and can receive the benefit tax free.

However, someone not considered a financial dependant for tax purposes - such as a financially independent adult child - may need to pay tax on some of the benefit. If they are given your benefit as a lump sum, they will receive the tax-free component of your super balance without paying any tax, however they will be required to pay up to 15% tax, plus Medicare levy on what is considered the taxable component of your balance.

The tax-free component includes:

  • After-tax contributions.
  • Government co-contributions.
  • Investment earnings on the tax-free component (if receiving a pension).

The taxable component consists of:

  • Employer contributions.
  • Salary-sacrificed contributions.
  • Personal contributions where a tax deduction was claimed.
  • Investment earnings on the taxable component.

 

What to do if you don’t have a financial dependent to nominate

If you’re not sure who to nominate, it might be worth considering nominating your legal personal representative, then using your will to determine how you would like the proceeds of your superannuation to be paid.

For example, if you wish to nominate a parent or financially-independent sibling, you could make a binding nomination to your legal personal representative and then instruct them on how your super should be divided or allocated through your will.

It’s important to remember a legal personal representative is not considered a financial dependant for tax purposes, so tax will need to be paid on your super balance in these circumstances.


REVIEW YOUR BENEFICIARIES TODAY


This information is general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. 

Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.

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