In Australia, a large number of people may have no say in who inherits their superannuation upon their death, due to a key distinction between “binding” and “non-binding” nominations. Recent findings suggest that a lack of awareness and understanding of these options is leaving beneficiaries vulnerable to delays, disputes, and potentially not receiving the intended benefits. This issue affects millions of Australians who may not realise the legal implications of their superannuation decisions.
The superannuation system, designed to ensure financial security in retirement, also dictates how savings are passed on to beneficiaries after death. However, a new survey has revealed concerning gaps in Australians’ understanding of the nomination process, which could lead to unwanted complications for families left behind.
Without clear, legally binding instructions, beneficiaries risk being caught in lengthy legal battles, as in the case of one family who has been fighting for years to access a deceased relative’s super.
The Risks of Non-binding Nominations
A non-binding nomination allows a superannuation fund to consider the deceased person’s wishes when determining who should receive the superannuation death benefit. However, it is ultimately up to the super fund’s trustees to decide based on the circumstances at the time, such as dependants or other claims.
According to a survey by Super Consumers Australia, 36% of Australians have not made a death benefit nomination at all, and only a quarter have made a binding nomination that ensures the money will go to the intended beneficiaries. This uncertainty can lead to disputes, as super funds are not required to act on the deceased’s wishes, leaving room for other relatives or parties to challenge the distribution.
Zac’s case, highlighted in the survey, demonstrates the potential consequences of a non-binding nomination. Despite his father, Tony, designating him as the primary beneficiary, the absence of a binding nomination allowed a relative with no legal claim to the super to step in and contest the distribution. The result was a prolonged legal battle, causing significant distress for Zac and his mother, who struggled with the emotional and financial toll of the delay.
Lack of Awareness and Complex Processes
Despite the significant financial stakes, many Australians remain unclear about the superannuation nomination process. Data from a recent ASIC review indicated that many members do not know whether their nomination is binding or non-binding, with only 54% of people aged 65-74 knowing that their nomination was binding.
This lack of clarity is compounded by the complicated process of making a binding nomination, which often requires paperwork, witnesses, and regular renewals. The manual nature of the process has led to many members allowing their binding nominations to lapse, creating further uncertainty and potential legal delays for beneficiaries.
Experts, including Xavier O’Halloran from Super Consumers Australia, have called for an overhaul of the system, arguing that super funds must do more to simplify the process and ensure that members’ intentions are clearly understood and respected.
This could involve better communication, easier renewal processes, and clearer information on the implications of each type of nomination. Until such reforms are made, however, millions of Australians will continue to face the risk of losing control over their superannuation inheritance.
