Superannuation Death Benefit Nominations
Superannuation is one of the biggest assets many Australians have, but what happens to it when you die? You might think your Will decides where it goes, but that’s not always the case.
At Insight Wealth Planning we help you navigate the complexities of superannuation and estate planning so your hard earned savings go exactly where you want. In this article we explain how superannuation death benefits work and what you can do to stay in control. Seeking financial advice is critical for managing superannuation and understanding the complexities around insurance, fees and tax implications.
What is Superannuation
Superannuation is a way for employers to provide money for their employees’ retirement. The superannuation guarantee (SG) is the minimum amount of super that employers must pay to their employees to avoid penalties. The SG rate is 11.5% of an employee’s ordinary time earnings and will increase to 12% by 2025. Employers must pay super guarantee contributions to all eligible employees, regardless of their pay. It’s important for employees to understand their super fund and how it works to make the most of their retirement savings.
Super and Death: Who Really Decides?
Your super doesn’t automatically become part of your estate. In fact the final decision on who gets your superannuation death benefit often lies with the trustee of your super fund — not you or your Will.
Unless you’ve made a clear direction on how your super is to be distributed, the trustee has discretion over how to pay it out.
It’s important to understand the eligibility criteria for making valid superannuation death benefit nominations so your wishes are followed.
Choosing a Super Fund
Choosing a super fund is a big decision that can impact an individual’s retirement savings. When choosing a super fund it’s important to consider administration fees, past performance and investment options. Past performance is not a reliable indicator of future performance but it can give you an insight into the fund’s overall management. Also consider your personal circumstances, such as financial situation and retirement goals to help you choose the right super fund for you. Eligible employees have the right to choose their own super fund and employers must give them a choice of fund when they start a new job.
Managing Super Accounts
Managing super accounts is key to a comfortable retirement. You can manage your super accounts by tracking your super balance, investment options and fees associated with your account. Also consider consolidating multiple super accounts to avoid paying unnecessary fees. Admin fees, other fees and costs can eat into your retirement savings so it’s important to be aware of these expenses. By taking an active role in managing your super accounts you can make informed decisions about your retirement savings and be on track to meet your goals.
Take Control: Binding Death Benefit Nominations
The best way to take control of what happens to your super when you die is through a Binding Death Benefit Nomination (BDBN).
What is a Binding Nomination?
A BDBN allows you to formally nominate your beneficiaries. These must be:
- Your spouse or de facto partner
- Your children
- Someone financially dependent on you
- Your legal personal representative (the executor of your estate)
Eligibility criteria apply for the nomination to be valid.
Why Choose a Binding Nomination?
If your nomination is valid, properly signed, witnessed and current at the time of your death, the trustee must pay your super to the people you’ve nominated.
Unlike a Will, a binding nomination is much harder to contest. This gives you and your family peace of mind.
Keep It Up to Date
Most binding nominations lapse after three years, unless your fund allows for a non-lapsing nomination. At Insight Wealth Planning we recommend reviewing your nomination every three years. If there are no legal dependants or estate nomination, the trustee may pay the benefit to a non-dependant which could attract tax of up to 30%.
Super Contributions and Investment Options
Super contributions are key to building retirement savings. Employers must pay super guarantee contributions to their employees’ super funds by the due date to avoid penalties. The due date for super contributions is typically the 28th of each quarter and employers must make payments on time to ensure their employees receive their entitled super pay. Individuals can also make voluntary contributions to their super fund which can provide a tax deduction and help boost their retirement savings. When it comes to investment options individuals can choose from a range of options including low-risk investments and more aggressive investment options. It’s important to consider personal circumstances, financial goals and risk tolerance when selecting investment options for super contributions. By making informed decisions about super contributions and investment options individuals can give themselves the best chance of a comfortable retirement.
What About Superannuation Pensions?
If you’ve already retired and are drawing an income stream (pension) from your super the situation is slightly different.
Understanding how investment returns impact your pension payments is critical as strong long-term investment returns can contribute significantly to the growth of your retirement account.
Reversionary Pensions
You can nominate a reversionary beneficiary, often a spouse, to continue receiving pension payments after your death. The payments will continue until:
- The beneficiary dies, or
- The account balance runs out
Once the reversionary beneficiary passes away the remaining balance is then paid according to the beneficiary nomination they have made.
Why It Matters: Estate Planning and Tax Implications
The structure of your superannuation and who receives it can have tax implications.
For example:
- Death benefits paid to dependants are generally tax-free.
- Payments to non-dependants can attract taxes of up to 30%.
Given the complexity it’s important your superannuation nominations are part of a broader, well-considered estate plan.
Also consider the impact of inflation on the value of your superannuation benefits. Inflation can erode the purchasing power of your savings over time so adjusting financial figures to reflect today’s dollars while considering inflation assumptions is critical for accurate financial planning.
Contact a Financial Adviser
At Insight Wealth Planning we help you make the right decisions around superannuation, beneficiaries and estate planning. As super balances grow and rules change it’s more important than ever to ensure your intentions are documented and legally binding. You may also need to request information from financial advisers to stay compliant and make informed decisions.
We’ll help you:
- Review your super fund rules
- Establish or update your binding nominations
- Consider the tax implications of your decisions
- Align your super with your estate plan and financial goals
Don’t Leave It to Chance
Your super is too important to be left to chance. If you’re not sure who would get your super if you died tomorrow it’s time to review your strategy.
Contact Insight Wealth Planning today to make sure your super works for you—now and into the future.