Destination of Your Pension Fund Upon Death: An Overview

Destination of Your Pension Fund Upon Death: An Overview

In the world of superannuation, it's essential to ensure that your hard-earned savings are distributed according to your wishes after your demise. One way to achieve this is by making a death benefit nomination. Here's a guide to the different types of death benefit nominations and their implications.

Some super funds take a proactive approach to reminding members to renew their nominations before they lapse. Death benefit payments can include any superannuation funds left over and any life insurance through the super fund. When deciding where to distribute death benefits, super funds must consider eligible beneficiaries.

There are four main types of death benefit nominations in superannuation:

1. Binding Death Benefit Nomination: This nomination directs your superannuation trustee to pay your superannuation benefits to your nominated eligible beneficiary upon your death. The trustee is legally bound to follow this nomination, provided it is valid at the time of your death. Binding nominations typically lapse after three years unless they are specifically non-lapsing (if allowed by the trust deed).
2. Non-Lapsing Binding Death Benefit Nomination: This type of binding nomination does not expire after three years and remains effective until you cancel or replace it. It obligates the trustee to pay your superannuation benefits to your nominated beneficiaries exactly as specified.
3. Non-Binding Death Nomination: A non-binding nomination acts as a guide for the trustee about your preferred beneficiaries, but it does not legally bind them. The trustee retains discretion and may pay the benefits to your nominated person(s), other dependants, or your estate.
4. Reversionary Beneficiary: This applies when you are receiving an income stream (pension) from your superannuation at the time of death. Instead of a lump sum, the pension payments continue to a nominated reversionary beneficiary, who generally must be a spouse or a child under 18 years.

Eligibility to receive superannuation death benefits generally requires that the beneficiary be a "dependant" (such as a spouse, child, or financial dependent) or the legal personal representative (executor of the estate).

Each nomination type has different implications for control, certainty, and flexibility over how your superannuation is distributed after death. Binding nominations (particularly non-lapsing ones) provide certainty but require updating to remain current, while non-binding nominations allow trustee discretion which can adapt to changing circumstances.

Making a valid nomination can be very technical; talk to your fund if unclear about the process or how to make a valid nomination. If unhappy with how a fund distributes a death benefit, complaints can be made to the Australian Financial Complaints Authority (AFCA).

If an account holder wants to nominate someone who is not eligible as a beneficiary, they can nominate their legal personal representative (executor of their will) to receive the death benefit, which will then be paid in accordance with the will. Most super funds allow account holders to choose who their death benefit is paid to through a death benefit nomination.

A death benefit nomination is separate from a will and does not automatically cover the superannuation. Super funds only have to follow a binding nomination if it is valid at the time of the account holder's death. If an account holder does not have a valid binding nomination in place, most super funds have discretion to decide who to pay the death benefit to. If more than one person makes a claim for the death benefit, the fund will offer each person an opportunity to complain if they aren't happy with the decision.

Renewing a lapsing nomination can provide greater peace of mind. If a valid binding nomination lapses and is not renewed, most funds will treat it as a non-binding nomination. Nominations can be lapsing or non-lapsing. A non-lapsing nomination stays in effect until the account holder makes a new one or dies. A lapsing nomination lasts for up to three years and must be renewed to remain valid.

Eligible beneficiaries include the account holder's spouse or partner, children, someone in an interdependent relationship, anyone financially dependent, the estate, or legal personal representative. Account holders can usually download a nomination form from their fund's website or contact them for more details.

CHOICE is an independent consumer advocacy group funded by members who value expert reviews and independent product testing. It's always a good idea to consult with them or other financial advisors to ensure you're making informed decisions about your superannuation.

A wise move for personal-finance management could be consulting CHOICE, an independent consumer advocacy group, to help make informed decisions about your superannuation. This is especially important when considering the distribution of death benefits, a crucial aspect of education-and-self-development, as some super funds may only follow a binding nomination if it is valid at the time of the account holder's demise.

In the realm of superannuation, there are four main types of death benefit nominations: Binding Death Benefit Nominations, Non-Lapsing Binding Death Benefit Nominations, Non-Binding Death Nominations, and Reversionary Beneficiary. Each type has different implications for learning and control over how your superannuation is distributed after death, with binding nominations providing certainty but requiring updates, and non-binding nominations allowing trustee discretion which can adapt to changing circumstances.

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