Death, super and confusion: rewriting Australia’s death benefit rules
Complex death benefit rules around superannuation payouts are a dog’s breakfast, but improving the regulations won’t be easy.
In Brief
- The most common dispute dealt with by Australia’s Superannuation Complaints Tribunal concerned payouts to families and loved ones from a deceased person’s super fund.
- The 2016 superannuation reforms, with the Transfer Balance Cap and the Total Super Balance, have made estate planning even more complicated.
- There is a strong case for reforming parts of the Superannuation Industry Supervision Act.
These disputes typically centre around who is entitled to receive death benefit payments and why, how they are paid, and tax owed.
By 30 June 2018, the SCT received 509 complaints about death benefit distributions, representing the biggest category of complaints for the financial year. That’s reflective of a longstanding trend expected to continue under the oversight of AFCA.
“It is no wonder the public is confused: the complex web of rules and regulations surrounding superannuation death benefits is a dog’s breakfast.”
To be fair, it is no wonder the public is confused: the complex web of rules and regulations surrounding superannuation death benefits is a dog’s breakfast.
Over the past five to 10 years, there’s been a constant stream of court cases involving super fund death benefits, reflecting the complexity of the rules.
It’s clear there is a case for how parts of the Superannuation Industry Supervision (SIS) Act that govern death benefit rules might be reformed.
What is wrong with the current death benefit rules?
Tony Negline CA
The conversation around improving death benefit policy will need to consider several complex issues.
Binding death benefit nominations are often seen as solving many problems and creating certainty. But one issue with these documents is their variety and the lack of knowledge about them. There are common questions that crop up. Does the document lapse after a period of time? Was it executed validly? Can an enduring power of attorney execute it? What happens if none was executed?
There is often legitimate confusion over who controls a super fund and what their obligations are when a member dies. This can be difficult to resolve. Can a confrontational trustee, who refuses to act, be forced to without a Court Order?
The problem with the two lump-sum limit
Many retirees want to plan carefully because of complex contribution and death benefits taxation rules, especially the additional tax on death benefits paid to non-dependants. The 2016 super reforms have made estate planning even more complicated. The ugly twins, the Transfer Balance Cap and the Total Super Balance, create a large number of problems.
The SIS Act allows only two lump sum death benefits to be paid. For example, suppose a family needs a small lump sum from the super fund to pay for the funeral. Not long after they receive another lump sum to help pay any bills before the super fund life insurance death claim is paid. But if the family would like a lump sum to pay off the house mortgage and other debts it isn’t allowed because two lump sums have been already paid.
Some APRA funds pay out exclusively to deceased estates so they don’t have to deal with death benefit disputes – especially those referred to the SCT and now AFCA. However, one attraction of super is it can be dealt with outside the often cut-and-thrust and seeming uncertainty of wills and estates. Paying to the estate eliminates this flexibility.
CA views will be invaluable
Improving the regulation of death benefits won’t be simple, or quick. However it’s a task that deserves government, regulators, bureaucrats, consumer advocates and industry working in collaboration. Among the ranks of CA ANZ’s members there are many with the expertise and experience required to contribute much value to the conversation.
