As at June 2023, there was approximately $3.6 trillion being held in superannuation industry assets in Australia. Of this amount, around $2.5 trillion are being held by superannuation funds regulated by the Australian Prudential Regulation Authority or APRA.
For many people, superannuation forms a large part of their overall wealth. So, the question of what happens to your superannuation account balance, as well as any life insurance attached to your super account, when you pass away is a vital part of your estate plan.
The volume of funds that are being held in super, and the large account balances that are being transferred upon the death of a fund member, also means that this is a fertile ground for disputes when somebody dies.
What happens to your super fund balance when you die?
When a member of a super fund dies, this is known as a “compulsory cashing” event and the member’s death benefits must be paid out by the fund as soon as practicable. In this context, “death benefits” means the balance of the member’s accounts, as well as any entitlement they may have to life insurance.
The fund’s process of paying out death benefits is governed by the terms of each fund's deed and its own procedures, which differ from fund to fund. The member may have made a “Binding Death Benefit Nomination” (BDBN) which directs the Fund Trustee to pay their death benefits in accordance with their wishes. If the member has not made a BDBN, or if the BDBN is invalid, then the Fund Trustee has the discretion to decide who to pay the death benefits to. In either case, the death benefits may only be paid to someone who is an eligible beneficiary according to the Superannuation Industry (Supervision) Act 1993 Cth.
Who is an eligible beneficiary for super death benefits?
A super death benefit can only be paid to the following people:
- Spouse of the deceased
- Child of the deceased (any age)
- Financial dependant of the deceased
- A person in an interdependency relationship with the deceased
- The Legal Personal Representative (that is, the Estate) of the deceased.
In the absence of a BDBN, the Fund Trustee will need to consider all of the people who are eligible beneficiaries after a member has died and determine which of them should receive the death benefits.
The complexity of modern families has led to an increase in potential beneficiaries, which means that it can take some time for the Fund Trustee to investigate eligibility and make decisions about payment of death benefits. There has also been a significant increase in disputes in this area, with potential beneficiaries taking steps to appeal the decisions of Fund Trustees.
The Australian Financial Complaints Authority (AFCA) handles complaints about payment of death benefits and they have seen a significant increase in the volume of complaints about the delays in processing death benefit applications. In 2023, there were nearly 600 death benefit complaints filed with AFCA.
How do I dispute a Fund Trustee’s decision about payment of super death benefits?
When assessing a claim for death benefits, the Fund Trustee will require submissions to be made from all eligible beneficiaries to confirm their relationship to the deceased member and their degree of financial dependence upon the member.
The Fund Trustee will assess that information and they must then provide a notice of their decision to all potential beneficiaries. The beneficiaries will then have 28 days to object to the decision.
If an objection is made, the Fund Trustee will then have 90 days to respond. This may mean varying the decision, or providing the beneficiary with reasons for rejecting the complaint.
If the beneficiary is unsatisfied with the Fund Trustee’s response, they can take the complaint to AFCA, but this must be done within 28 days. AFCA may then:
- Affirm the decision of the Fund Trustee if they find it to be fair and reasonable
- Vary the decision
- Set aside the decision and either substitute a new decision, or send the matter back to the Fund Trustee for reconsideration.
If the beneficiary is unsatisfied with AFCA’s determination, then a further appeal may be made to the Federal Court.
Key Points to remember
- The best way to avoid issues with the payment of YOUR super death benefits, is to make sure you have a valid binding death benefit nomination (BDBN) in place. Each super fund has slightly different processes and rules around their BDBN’s – make sure you read your fund rules carefully, and complete the form accurately to ensure your nomination is valid and binding.
- If you are an eligible beneficiary and you are unhappy with the decision of a Fund Trustee regarding the payment of death benefits there are steps that you can take to challenge this decision. Abiding with the time frames for challenging decisions is vitally important, as is providing evidence of your relationship with the deceased member and the extent of your financial dependence upon them.
Our Team can assist to ensure that your super death benefits are dealt with in accordance with your wishes and recorded as part of your Estate Planning. If you need advice about where the payment of your super death benefits may be made to or if you are an eligible beneficiary and you are unhappy with the decision of a Fund Trustee, please contact our Estate Planning lawyers on +61 3 9822 8588 or email HERE to find out how they can help you.
