What Happens To My Superannuation When I Pass Away?

The Government has announced its intention to introduce mandatory standards for large superannuation funds to, amongst other things, deliver timely and compassionate handling of death benefits.

The value of superannuation in Australia is now around $4.1 trillion. When you die, your superannuation does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the fund rules, superannuation law, and any death benefit nomination you made.

Complaints to the Australian Financial Complaints Authority (AFCA) about the handling of death benefits surged sevenfold between 2021 and 2023. The critical issue was delays in payments. While most superannuation death benefits are paid within 3 months, for others it can take well over a year. The superannuation laws do not specify a time period only that superannuation needs to be paid to beneficiaries ‘as soon as practicable’ after the death of the member.

How to make sure your superannuation goes to the right place:

Death benefits are a complex area. The superannuation fund trustee has discretion over who gets your superannuation benefits unless you have made a valid death nomination. If you don’t make a decision, or let your nomination lapse, then the fund has the discretion to pay your superannuation to any of your dependants or your estate.

There are four types of death nominations:

1. Binding death benefit nomination.

A binding death benefit nomination directs your superannuation to your nominated eligible beneficiary. The trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.

2. Non-lapsing binding death benefit nomination.

If permitted by your trust deed, a non-lapsing binding death benefit nomination will remain in place unless you cancel or replace it. When you die, you direct your super to the person you nominate.

3. Non-binding death nomination.

A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die, but thetrustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay your superannuation to someone else or to your estate.

4. Reversionary beneficiary.

If you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years.

Who is eligible to receive your super?

You can pay your superannuation to a dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you. A dependant for superannuation purposes is ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care.

What happens if I don’t make a nomination?

If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will be a superannuation dependant or the legal representative of your estate and will be distributed according to your Will.

Where it can go wrong

There have been a number of court cases over the years that have successfully contested the validity of death nominations. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name. If you’re directing your superannuation to your estate, ensure the wording uses the correct legal terminology.

Funds often cite delays in paying death benefit nominations when no valid nomination exists, multiple people make claims, and the trustee must sort through complex family situations.

The bottom line is, young or old, check your nominations with your superannuation fund and make sure you have the right type of nomination in place, and it is valid and correct. While there still might be a delay in getting your superannuation where it needs to go if you die, the process will be a lot quicker and less onerous for your loved ones.

Please get in touch with your Aintree Group adviser for further assistance.

Further resources to check out:

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant and lawyer.