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Changes to death benefits

Death benefits received by dependant beneficiaries


Upon death, the balance of the deceased member’s superannuation benefits can be paid to dependant beneficiaries either as a:

 

  • lump sum, known as a lump sum death benefit, or 
  • pension, known as a death benefit pension.

From 1 July 2017, important changes are happening to how death benefit pensions are treated.

 

They:

  • will count towards the transfer balance cap ($1.6 million in 2017/18)
  • cannot be rolled to a superannuation account (also called accumulation phase), and 
  • cannot be combined with the beneficiary’s other superannuation monies.

 


What is an eligible beneficiary?

 

A beneficiary is eligible to receive a deceased member’s superannuation benefits if, at the time of death, they were the member’s dependant, which includes:

 

  • their spouse or de facto spouse, including different or same sex
  • their child
  • an interdependent relation, or
  • any other person financially dependent on them

 

or their legal personal representative (on behalf of their estate).


However, to be eligible to receive a death benefit pension, the above beneficiary must be a dependant of the deceased member, and in the case of a child, must be under 18, under 25 and financially dependent on the member or disabled . Other eligible beneficiaries can only receive super death benefits as a lump sum.

 


Transfer balance cap


From 1 July 2017, a new transfer balance cap of $1.6m applies to limit the amount of superannuation you can transfer to retirement phase income streams. Death benefit pensions are retirement phase income streams, so if you receive a death benefit pension, the value will count towards your transfer balance account. If this causes you to exceed your transfer balance cap, the excess amount above $1.6m will need to be cashed out of the superannuation environment. Alternatively, if you have other retirement phase income streams, you may be able to remove your excess amount from one of those income streams by either withdrawing it, or transferring it back to accumulation phase.


Receiving a benefit as a reversionary beneficiary


However, if you receive a death benefit pension as a reversionary beneficiary, a deferral period of 12 months applies before the balance (measured at the time of death) will count toward your cap. The purpose of the deferral period is to give the reversionary beneficiary time to arrange their affairs.


Modified transfer balance cap for children


Special transfer balance cap rules apply where the beneficiary is a child.

 

 

Rolling over death benefit pensions


From 1 July 2017, death benefit pensions cannot be rolled to a super account in accumulation phase - they can only be cashed out of the superannuation environment.
If you have an existing death benefit income stream that you wish roll back to a super account, you must complete this before 1 July 2017.

 


Rolling a death benefit pension to another provider

 

Under previous rules, only a spouse could choose to rollover a death benefit pension to another provider and could only do so after the latter of six months after the date of death, or three months after grant of probate or letters of administration.


After 1 July, generally any beneficiary eligible to receive a death benefit pension can choose to roll their death benefit pension to another provider.

 

 

Combining death benefit pensions with other superannuation monies

 

From 1 July 2017, death benefit pensions cannot be combined with any other superannuation monies the beneficiary has, they must be kept in a separate account.

 

Removal of anti-detriment payment


Anti-detriment payments are additional payments (representing a refund of contributions tax paid) that may be made to certain beneficiaries receiving a lump sum upon the death of a superannuation member.


From 1 July, these payments will no longer be available where a member passes away after 30 June 2017. However, they may be made until 30 June 2019 in relation to members who pass away on or before 30 June 2017.

 

 



Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.