Insights
Is there a problem paying your super when you die?
The Australian Government has announced its intention to introduce mandatory standards for large superannuation funds to ensure timely and compassionate handling of death benefits. This raises an important question: Are there issues with paying out super when a member dies?
Superannuation in Australia: The Growing Issue
Australia’s superannuation assets have now reached approximately $4.1 trillion. However, unlike other assets, super does not automatically become part of your estate upon death. Instead, the fund trustee distributes it based on:
- Superannuation law
- Fund rules
- Any death benefit nomination you’ve made
Despite this process, complaints to the Australian Financial Complaints Authority (AFCA) regarding death benefits surged sevenfold between 2021 and 2023. The key issue? Delays in payments.
- Most super death benefits are paid within 3 months.
- Some cases take well over a year to resolve.
- The law only requires benefits to be paid “as soon as practicable”, leaving room for delays.
To avoid complications and ensure your super goes to the right place, it’s important to review your nominations regularly.
How to Make Sure Your Super Goes to the Right Place
Death benefits are a complex area. If you don’t make a formal nomination (or let it lapse), the trustee has the discretion to decide who receives your super. Without clear instructions, the process can be delayed, and funds might not go to the intended beneficiaries.
Four Types of Super Death Benefit Nominations
| Nomination Type | Description |
|---|---|
| Binding Death Benefit Nomination | Ensures your super is paid to a specific beneficiary as soon as practicable after your death. Most lapse after 3 years, unless non-lapsing. |
| Non-Lapsing Binding Death Benefit Nomination | Remains in place indefinitely (if permitted by the fund) unless cancelled or replaced. The trustee must follow this instruction. |
| Non-Binding Death Nomination | Guides the trustee’s decision, but they retain discretion to override your choice based on circumstances. |
| Reversionary Beneficiary | If you’re receiving a super pension, payments can automatically revert to your nominated beneficiary (usually a spouse or child under 18). |
There are four types of death nominations:
- Binding death benefit nomination
Directs your super to your nominated eligible beneficiary, the trustee is bound by law to pay your super to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination. - Non-lapsing binding death benefit nomination
If permitted by your trust deed, a non-lapsing binding death benefit nomination will remain in place unless you cancel or replace it. When you die, your super is directed to the person you nominate. - Non-binding death nomination
A guide for trustees as to who should receive your super when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay your super to someone else or to your estate. - Reversionary beneficiary
If you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years.
To prevent disputes and delays, ensure your nomination remains valid and is legally binding.
Who is Eligible to Receive Your Super?
Your super can be paid to:
- A dependant (spouse, child, or someone financially dependent on you).
- Your legal representative (executor of your will).
- Someone with an interdependency relationship (someone who relies on you for financial support or personal care).
If no valid nomination exists, the trustee will decide based on state or territory laws. In this case, your super may be paid to your estate and distributed according to your will.
What Happens If I Don’t Make a Nomination?
| Scenario | Outcome |
|---|---|
| Did the deceased have a valid death nomination? | Super is paid as directed. |
| No valid nomination? | Trustee decides who receives the benefits. |
| Multiple claimants? | Trustee must review all claims, causing potential delays. |
| Was the nomination correctly signed and witnessed? | ✔ Yes → Process continues. ❌ No → Risk of invalidation.Risk of invalidation—the trustee will determine distribution. |
Common Issues That Cause Delays
There have been a number of court cases over the years that have successfully contested the validity of death nominations. Here are scenarios where it can go wrong:
- Invalid nominations – A death benefit nomination must be legally valid (written, signed, dated, and witnessed).
- Expired nominations – Many binding nominations lapse after 3 years, meaning they must be renewed.
- Unclear beneficiary details – Avoid vague descriptions (e.g., “partner” instead of their legal name).
- Complex family situations – Multiple claimants or family disputes can lead to delays in trustee decision-making.
The bottom line is, young or old, check your nominations with your superannuation fund and make sure you have the right type of nomination in place, and it is valid and correct. While there still might be a delay in getting your super where it needs to go if you die, the process will be a lot quicker and less onerous for your loved ones.
Key Takeaway: Plan Ahead for a Smoother Process
Regardless of your age, reviewing your superannuation nominations regularly ensures:
✔ Your super is distributed to the right people.
✔ The process is faster and avoids legal disputes.
✔ Your loved ones won’t face unnecessary delays.
Need help reviewing your super arrangements? Our team at Modoras is here to provide expert guidance.
IMPORTANT INFORMATION: This blog has been prepared by Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licences (Number 233209). The information and opinions contained in this article is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. Any individual making any investment or borrowing decisions should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to borrow funds or purchase, sell or hold any particular investment. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of, credit contract entered into or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog may change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.
