Don’t let your super fund decide who gets your money

More than 6.5 million Australians risk leaving their families tangled in red tape because they haven’t told their super fund who should inherit their money. Here’s how to fix it in five minutes.

By Bron Maxabella

Superannuation is meant to be the nest egg that looks after us in retirement. But what happens to all that money when you’re gone? According to new research from Super Consumers Australia, more than 1 in 3 Australians (36%) with super have never told their fund who should receive their money when they die. Only 1 in 4 (24%) have gone the extra step of making a binding death benefit nomination.

That means more than 6.5 million Australians are at risk of leaving their grieving families struggling to access money. As Xavier O’Halloran, CEO of Super Consumers Australia, warns: “Without a valid binding nomination, funds have to decide who your money goes to. That leaves families in limbo, sometimes waiting months or years to access money they are entitled to. And it’s not good enough.”

Super Consumers points out that even people who think they’ve secured their wishes may not have, because nominations often expire or haven’t been done correctly. “The fact that so many Australian families are facing this uncertainty is a red flag. This is a system that’s too hard to understand and navigate,” says O’Halloran.

Warning: your super isn’t part of your will

The thing is: do most of us even know that our super isn’t automatically part of our will?

Well, it isn’t. That’s because super is held in a special trust by your super fund, and legally it belongs to the fund until they release it. When you die, the fund’s trustees are the ones who decide who receives your balance and any insurance payout attached to it. Yes, really.

This means you can’t just rely on your will to direct your super to the people you choose. If you haven’t made a valid binding death benefit nomination with your fund, the trustees will assess your situation and decide who gets the money. 

They must generally pay it to dependants – like your spouse, partner or kids – or to your legal personal representative (the executor of your will). But they can, and do, make their own decisions within those rules, which can leave your family waiting and worrying. It can drag on for ages and may not reflect what you actually wanted. 

Binding vs non-binding: what’s the difference?

That’s why it’s so important to do the extra step of making a binding nomination with your fund: it ensures your wishes are followed. Think of it as the “missing link” between your will and your super; without it, things can get messy.

When you nominate who should get your super, you’ll usually be asked whether you want your nomination to be binding or non-binding. The names sound technical, but the difference is pretty simple.

• Binding nomination: This is the “no ifs, no buts” option. If you make a valid binding nomination, your fund is legally required to pay your super to the person (or people) you’ve named. It gives certainty and makes things faster and easier for your loved ones. The catch? Binding nominations often expire after 3 years unless your fund offers a non-lapsing version, so you’ll need to renew or update them.
  
  
• Non-binding nomination: This one acts more like a “strong suggestion”. You tell your fund who you’d like the money to go to, but the trustees still have the final say. They’ll consider your wishes alongside the rules about who qualifies as a dependent.

So why would anyone choose non-binding? Sometimes life is complicated. If you’re newly divorced, or separated but not divorced, have a blended family or there’s potential for dispute, leaving a non-binding nomination gives the trustee flexibility to consider everyone’s circumstances at the time of your death. Some people prefer this because it may reduce the risk of legal challenges later.

But for most people, a binding nomination is the way to make sure their wishes are carried out exactly as intended.

How to make sure your wishes are followed

Getting a valid binding death benefit nomination done is not nearly as complicated as all of this makes it sound. Here are the steps you need to make sure your super goes where you want it to.

1. Log in to your super fund account: Most funds let you make or update your nomination online. Look for “nominations” or “beneficiaries” in the menu. Give your super fund a call if you can’t find what you’re looking for.
   
   
2. Choose your people: You can nominate your spouse, partner, children, financial dependants or your estate. If you want your will to cover it, nominate your legal personal representative (the executor of your will).
   
   
3. Decide on the type of nomination: Select whether you would like to create a binding or non-binding nomination – there will be separate forms for each of these, so choose carefully. You can also check to see if your fund offers a “non-lapsing” binding nomination, which doesn’t expire.
   
   
4. Fill in the form: Online is easiest, but some funds still want a signed paper form witnessed by two people. Make sure you do exactly what your fund requires or the nomination may not be valid.
   
   
5. Check the expiry date: Your fund might offer a “non-lapsing” binding nomination, which doesn’t expire and this could be a good option for you.  If it doesn’t, or if you’d rather have a lapsing nomination make a note in your calendar to update your nomination before the expiry date (typically every 3 years for lapsing binding nominations, but check your fund) or if you have any major life changes (divorce, marriage, etc).
   
   
6. Then, tell your loved ones: It can feel awkward, but letting people know your wishes should save them stress later.

Note that super funds vary and if these steps still leave you with questions, give your fund a call. Ask for someone to talk you through getting your nomination done correctly, step-by-step.

Don’t put it off

This is one of those admin jobs that feels small until you think about what happens if you don’t do it. Imagine your family trying to navigate grief and red tape at the same time. Plus, you’ve worked hard for your super, so you should be the one who decides where it goes.

So make a cuppa, log into your fund and get it done. Future-you, and your family, will be very glad you did.

This article contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.

^{Feature image: iStock/it:Miljan Živković} 

More life admin you’ll thank yourself for later:

• A living will (and why your advanced care directive matters)
• 7 top legal tips to make your will watertight
• A CITRO GUIDE: Vital health checks for Australians aged 50 to 60