One of the most important parts of an estate plan is generally your will. A will is a legal document that governs how your estate (all the money and property you own) will be distributed when you pass away. Having a will in place can give you some certainty and peace of mind.
What many people don’t know is that your super, and any life insurance in your super account, doesn’t automatically form part of your estate, and may therefore not be covered by your will. That’s why it’s important to consider what would happen with this money (referred to as your ‘death benefit’) when you pass away.
You can let your super fund know who you’d like to receive your death benefit by nominating one or more beneficiaries. This may make an already difficult situation for your loved ones a bit easier.
If you don’t nominate a beneficiary, your super fund will – subject to the fund rules and super laws – decide who should receive your death benefits.
Beneficiary nominations
If you’re a member of the Macquarie Superannuation Plan (the Fund), you can nominate who you’d like your benefits in the Fund to be paid. This can be done by making one of the following nominations:
non-lapsing death benefit nomination (available for accumulation and pension accounts)
reversionary pension nomination (only available for pensions accounts)
Note: Other funds may offer other types of nominations, such as lapsing binding nominations (often these lapse after three years) and non-binding nominations, which are not considered in this article.
Non-lapsing death benefit nomination
If you have a valid non-lapsing death benefit nomination in place, the trustee of the Fund must pay the death benefit to your nominated beneficiaries. It’s important to note that super funds can only pay death benefits to certain people. Refer to the question ‘Who can I nominate to receive my death benefit?’ below for more information.
A non-lapsing nomination doesn’t expire (or lapse) so it’s important to periodically review your nomination to ensure you still want the nominated person to receive your benefits. This is particularly important if your circumstances have changed, for example, as a result of marriage, divorce, having a child, or losing a loved one.
Reversionary pension nomination
A reversionary pension nomination means that on your death, a pension you’ve already started reverts to the person you’ve nominated as the beneficiary (provided they’re eligible to receive a pension - refer to ‘Who can receive a death benefit as a pension?’). The pension is considered to continue and the reversionary beneficiary ‘takes over’ your pension from the date of your death.
How is a death benefit paid?
Your nominated beneficiary or beneficiaries may be able choose to receive the benefit as a lump sum payment (e.g. an amount paid to your nominated bank account), a death benefit pension or a combination of both. However, only certain beneficiaries can receive the death benefit in the form of a pension. Refer to the question ‘Who can receive a death benefit as a pension?’ below for further information.
Death benefit pensions
If your beneficiary is eligible, and they choose to receive a death benefit pension, the Fund will pay them a regular income steam, called an account-based pension. If the beneficiary decides they no longer wish to receive a death benefit pension from the Fund, they can request the balance to be paid out as a lump sum or, they can roll it over into another death benefit pension with another super fund.
For more information about account-based pensions within the Fund, please refer to Keep your super working for you with an account based pension
Questions and Answers
What happens if I don’t make a beneficiary nomination for my benefits in the Fund?
You don’t need to make a beneficiary nomination. If you don’t, the rules of the Fund require your death benefit to be paid to your legal personal representative who will distribute your account balance as part of your estate assets.
If you don’t have a legal personal representative and the trustee of the Fund reasonably believes one is unlikely to be appointed, your account balance will be paid to your next of kin, who is also a dependant.
When and how can I make a death benefit nomination?
You can provide a new or updated non-lapsing death benefit nomination to the Fund at any time.
Reversionary pension nominations can only be provided to the Fund at the time you start an account-based pension.
Who can I nominate to receive my death benefit?
Super death benefits can be paid to dependants (as defined under super law) or to the deceased’s legal personal representative (estate).
Under current super law, a dependant includes:
your spouse
your children of any age
a person with whom you have an interdependency relationship, or
a person who is otherwise your dependant (typically this would be someone who was financially dependent on you just before you died).
Who can receive a death benefit as a pension?
Whilst a death benefit can be paid as a lump sum to all super law dependents, only certain dependents can receive a death benefit pension. Those that can are:
a dependant of yours (for example, your spouse, a person with whom you have an interdependency relationship, or is financially dependent on you) who is not a child, or
a child of yours who is:
less than age 18, or
aged 18 to 24 inclusive and is financially dependent on you, or
aged 18 or more and has a qualifying disability (broadly, this is a disability that is permanent or likely to be permanent and results in the need for ongoing support and a substantially reduced capacity for communication, learning or mobility).
What is required for the Fund to pay a death benefit pension to a child?
If you have a child or children, you can nominate them to receive your death benefit. Depending on the circumstance, you may be able to nominate them to receive it in the form of a pension.
To nominate a child to receive a death benefit pension, you need to complete the Non-lapsing death benefit nomination form and the Child pension schedule.
When the death benefit pension is paid to the nominated beneficiary, can they stop the pension?
In most cases they can.
A death benefit pension that is stopped must be either paid out as a lump sum to the beneficiary or rolled over to another super fund to start another death benefit pension. It can’t be kept in an accumulation account.
Are death benefit payments taxed?
Special tax treatment applies to death benefits paid from super.
The actual tax payable depends on:
whether the recipient is a dependant (for tax purposes) and
whether it’s paid to that person as a lump sum or a pension payment.
A death benefit paid as a lump sum to a tax dependant is generally tax free.
A death benefit pension is generally tax free if either the deceased person or the beneficiary is age 60 or more.
For tax purposes, a dependent includes:
your spouse or former spouse,
your children under age 18,
a person you have an interdependency relationship with, and
a person who is otherwise your dependent.
How are investment earnings within a death benefit pension taxed?
Investment earnings within a death benefit pension account are generally tax free.
