Just as the Federal Government accepts a recommendation from the Financial System Inquiry that the objectives of super be enshrined in law, the Superannuation Complaints Tribunal has discussed this issue specifically from the perspective of super death benefits. It makes interesting reading.
The headline for a lead commentary in the tribunal’s recently-released 2014-15 report clearly makes its point: Death benefit trap: Superannuation is not an asset of the estate.
A common shorthand definition of the sole-purpose of superannuation reflecting the Superannuation Industry (Supervision) Act is that it is to provide retirement benefits for retirees. And the Financial System Inquiry, chaired by David Murray, states that the purpose of super is to "provide an individual with an income in retirement".
And understandably, given its role, the Superannuation Complaints Tribunal goes further than the shorthand definition to state: "Broadly speaking, the purpose of superannuation is to provide income in retirement to members and their dependants; it does not form part of a person’s estate."
As the tribunal suggests, it is a common misconception that super death benefits automatically form part of a deceased member’s estate.
Keep in mind that a large proportion of the tribunal’s workload involves disputes over how super fund trustees distribute super death benefits (comprising super saving and life insurance benefits).
In 2014-15, 28.7 per cent of complaints within jurisdiction received by the tribunal concerned super death benefits. This compares to 49.2 per cent about fund administration and 22.1 per cent concerning disability insurance.
From the viewpoint of the tribunal in regard to super death benefits, a key word is "dependants".
"Accordingly," the tribunal explains, "a superannuation death benefit should be paid to dependants [of the deceased member] and those who had a legal or moral right to look to the deceased member for financial support had they not died."
It should be emphasised that a fund member can make a binding death benefit nomination, if provided for in a fund’s trust deed. The binding nomination could stipulate that a super fund pay death benefits to a member’s dependents (as defined in super law) or to a legal personal representative (in other words, deceased estate).
Significantly, a valid binding death benefit nomination removes a fund trustee’s discretion regarding the distribution of super death benefits.
One of the indirect benefits flowing from the widespread discussion of late about the purpose or objective of superannuation is that it helps focus the minds of individual members on the purpose of their super savings.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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