Summary
Understanding super and beneficiaries
Do you know what will happen to your super if it outlasts you? It might not be something you want to think about, but it’s important to nominate beneficiaries for your super if you pass away. It’s also important to know that your super is generally distributed separately to the assets in your will, unless you nominate your estate as your beneficiary.
There are two different types of super beneficiary nominations:
- Binding nominations
- Non-binding nominations
The importance of nominating beneficiaries for super
You’ve worked hard for your super savings, so you want to make sure that money goes to the right place in the event of your passing. Your beneficiary(ies) is/are who you nominate to receive your superannuation death benefit.-
Who you can nominate as your beneficiary
Your beneficiary/ies could be:
- your spouse or partner
- your children (conditions apply for reversionary beneficiary nominations)
- interdependent(s) (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 dependants1 (such as someone who relies on you financially)
- your estate or legal personal representative (not available for reversionary nominations).
You can learn more about dependents on the Australian Taxation Office (ATO) website.
Types of nominations
Most super funds, including AustralianSuper, allow you to nominate a beneficiary or beneficiaries, as either a:
- Binding nomination - your super fund is legally obliged to pay your account balance to a chosen beneficiary – if your nomination is valid and in force at the time of your death.
- Non-binding nomination - With a non-binding nomination, you tell your fund who you want your super balance paid to, however it’s not legally binding.
- Reversionary nomination (account-based pension members only) - Payments will continue to go to your nominated beneficiary/ies. The balance stays with the super fund.
Beneficiary payments and tax
The rules about the tax applied to beneficiary payments can be complex. It can depend on the type of beneficiary and how the benefit is received.
For example:
- If the beneficiary is considered a financial dependent, they could receive the benefit tax free.
- If the beneficiary is not considered a financial dependent (such as a financially independent adult child) they may need to pay tax on the benefit.
Whether payments are made as a lump sum or as an income stream can also affect the applicable tax.
Q&A: what happens to your super when you die?
AustralianSuper Head of Member Products, Guidance and Advice Shane Hancock chats to Education Manager Jaclyn Livingstone about whether super is covered by your will, the process of choosing a beneficiary and what else you should be aware of.
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Q: Shane Hancock - Today's topic is: What happens to my super if I die? Not an uplifting topic, but it has common questions. Can you talk us through what happens to someone's super when they die?
A: Jaclyn Livingstone- It depends on if that person has made beneficiary nominations.
Q: What type of beneficiaries can someone have?
There's a few different options when it comes to beneficiaries. They can make a binding nomination, they can make a non-binding nomination, and they can also do a reversionary nomination if they're earning a retirement income.
Q: How does someone nominate a beneficiary?
It's a simple process for a non-binding nomination. You can easily do that online or give us a call.
For a binding nomination, you do need to complete a special form. It's a little bit more of a formal document that you need to complete. You get it witnessed by two people so it's legally binding.
Q: What’s the difference between binding and non-binding?
The binding nomination is legally binding on the fund. Whereas the non-binding nomination is essentially a preference. At the time of passing, the fund must check the rules and laws to make a decision.
Q: Who could someone nominate as a beneficiary for their super?
Either a dependent person (that could include a spouse or a child or it could include a financial dependent) or someone that's interdependent. Someone that you're typically living with and caring for. The other option is to nominate a legal personal representative, where you're nominating for your super to be paid according to your will.
Q: How would that work? if someone puts their super as part of their estate.
Their superannuation will be paid according to the instructions that they've put in their will.
Q: If someone nominates a binding beneficiary, but they also reference their super in their will, does the fund still apply the binding nomination in relation to their payment?
In that circumstance, they’ll pay the beneficiary according to what is in the binding nomination as long as it's valid.
Q: So it's important that people review their beneficiary nominations?
Absolutely. It's one of those things that's very easy for people to put to the back of their minds, but it is something to keep up to date. That's why with a binding nomination, we have a lapsing nomination where it's required to renew this every three years. We always notify people as well to say it's up for renewal a few months prior.
Q: Can you explain what a reversionary nomination is and how it works?
That is for a member who has a pension account, either Choice Income or Transition to Retirement. That person is receiving an income on a regular basis. They're retired, they got access to their super.
If they pass away, a reversionary nomination is where their beneficiary, typically a partner, would receive the income that the deceased partner had been receiving.
Q: What if someone doesn't nominate a beneficiary?
It depends. The fund can always check to see if that person has dependents, or they may look to pay the funds according to that person's estate. This reinforces why it's really important to make a will and provide your directions.
Q: For people that receive payments after someone's passing, whether it be a beneficiary or through a state, is there any tax payable?
This can catch a few people out because it's quite complex and different things impact whether tax will be applied. But it depends on the person that receives the fund.
If that person is considered to be a tax dependent (a partner or a child that's financially dependent on you) or interdependent they could potentially receive funds tax-free.
But it does get a little bit more technical because it depends on how your contributions are allocated in your account. There’s a taxable component and a tax-free component. When people are doing their estate planning and working with a financial advisor, it can be good to work on this strategy because there can be ways for people to potentially save on the tax their beneficiaries would have to pay.
A common scenario is people have an adult child that's not dependent. This child can sometimes be subject to paying some tax on their benefit.
Read more
- What happens to your super when you die - choosing a beneficiary
- Nominate who gets your super
The importance of nominating a beneficiary
Who you can nominate and how
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