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.
Reviewing your nominations regularly is essential to avoid complications and ensure your super goes to the right place.
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 your trust deed permits, 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 your estate. - Reversionary beneficiary
Suppose you are taking an income stream from your superannuation at the time of your death (pension). In that case, the payments can be reverted 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.
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 interdependent relationship (someone who relies on you for financial support or personal care).
What happens if I don’t make a nomination?
According to state or territory laws, if you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to. This will be a superannuation dependent or the legal representative of your estate, and it will then be distributed according to your will.
| 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 several 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. You need to renew them.
- Unclear beneficiary details – Avoid vague descriptions (e.g., “partner” instead of their legal name).
- Complex family situations – Multiple claimants or family disputes can delay trustee decision-making.
So what should you do?
If you have an SMSF, these problems are less likely to be an issue, as the delays mainly occur with retail or industry super funds.
We can help.
Whether you are young or old, we recommend that you check or update your nominations with your superannuation fund and ensure you have the correct type of nomination in place and that it is valid and accurate. 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.
Perhaps changing from a retail or industry super fund to a self-managed super fund is right for you? Contact us, and we will assist you in making informed decisions on what is right for you.
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