The introduction of compulsory superannuation in 1992, embedded the concept of retirement saving into our investment psyche.
While Australia’s superannuation scheme has its complexities, the idea is simple: regularly contribute a percentage of earnings to a complying superannuation fund to provide financial support upon retirement.
Well, that’s the plan.
But what happens if your savings strategy is disrupted before you get to retirement?
Knowing how super is affected when life doesn’t go to plan can help you determine your approach.
So, what happens to superannuation when…
1. You Die
Superannuation is governed by Australian tax law which means that your Will does not determine how the benefits are distributed. This is done by Nomination of Beneficiary. There are two types:
- Binding Nomination: specifies one or more dependents to receive the death benefits. Trustees must follow your nomination.
- Non-Binding Nomination: records your preference although trustees retain discretion and distribute the benefits according to what is deemed most appropriate.
If you die without completing any form of nomination, the trustee’s decision around beneficiaries and entitlements may not be what you had in mind.
Take Action:
Speak to your financial adviser or fund trustee about completing a Nomination of Beneficiary. It’s quick, easy and provides peace of mind.
2. You Die Without A Will (Intestate)
Fund trustees refer to nominations of beneficiary whether a Will exists or not.
If there is no binding nomination of beneficiary, the trustee assesses your relationships to determine entitlement. If there are no dependents, the death benefit may become part of your estate and be distributed according to intestacy laws.
Take Action:
Get your Will done! Additionally, speak to your financial adviser or fund trustee about completing a Nomination of Beneficiary.
3. You Get Divorced
Superannuation, in Family Law, is considered an asset and entitlements are determined between you and your former partner through negotiation or court order.
Your former partner may then:
- open a super account for themselves,
- roll the amount into their existing complying fund,
- access the amount as a super benefit if they meet standard release conditions.
Tax-free and taxable components are calculated and divided proportionately between the two entitlements.
Take Action:
Your tax position may have changed and your contribution threshold may also be impacted. Seek professional advice to fully understand your new circumstances.
4. You Move Overseas
Moving permanently overseas was once a condition of early release of super. The Australian government removed this option in 2002, the logic being that your savings can be maintained in Australia, where normal preservation and release conditions apply.
Alternatively, under the Qualifying Recognised Overseas Pension Scheme (QROPS) you may transfer your savings to an eligible overseas fund.
Take Action:
Contact your fund trustee for information about what happens to your super while you’re overseas. The Australian Tax Office (ATO) can also provide guidelines for managing and transferring super when leaving Australia.
5. You Retire Early
The government’s approved early retirement scheme provides limited tax-free payments for people over 65 and who have not reached retirement age.
While aiming to encourage certain employee groups into early retirement, strict conditions apply and the tax structure is complex.
Take Action:
Speak to the ATO for more information, or visit the government’s Approved Early Retirement page.
Your superannuation is a valuable asset, and regardless of what life throws your way, making informed decisions about how your super is managed, can greatly impact your financial security in retirement.
Seek professional advice when in doubt and plan for success!
