The limit on the number of death benefit lump sums that can be made from superannuation should be removed in recognition of the fact it is not always easy to make only two payments, the Institute of Financial Professionals Australia (IFPA) has told the government.
IFPA made the call for changes to the superannuation death benefit system in its pre-budget submission to Treasury, noting it had not been revised in decades and no longer met the needs of super fund members.
The industry body stated a review into who death benefits can be paid to and the tax settings around those payments should take place, but the removal of the limit of two death benefit lump sums was a quick fix that could be implemented and prevent breaches of superannuation regulations.
“Superannuation law specifies that if some or all of a deceased person’s superannuation is paid as a lump sum, the lump sum must comprise of a single lump sum, or an interim amount and a final lump sum,” IFPA stated in the submission.
“In practice, the law recognises there may be times where the exact amount to be paid is still being finalised and, in the meantime, a decision has been made to pay a partial death benefit to a dependant(s).
“Having a maximum of two lump sums per dependant poses a problem where the surviving trustee wants or must pay multiple transfers of death benefits, such as different parcels of shares or other fund investments, to the beneficiary or to the legal personal representative (LPR).”
The institute pointed out that each cash payment, or in-specie transfer of shares or investments, to the beneficiary or LPR would be treated as a separate lump sum and would breach Superannuation Industry (Supervision) (SIS) regulation 6.21 where more than two payments were made to any beneficiary.
“It is submitted that the requirement to pay no more than two lump sums is unnecessarily restrictive, often impracticable and superfluous, especially given that death benefits are, in any event, required to be paid as soon as practicable,” it said.
“Our association would like to see a practical approach provided in the legislation which would allow multiple lump sums being paid as soon as practicable.
“This change would overcome the technical issues that now exist and inadvertently lead to breaches of the SIS regulations.”
IFPA also called for binding death benefit nominations (BDBN) that lapse after three years to become non-lapsing and, like a will, remain in place until revoked or replaced with a new nomination.
Off the back of this recommendation, it added that informal BDBNs should be allowed and, like a will, where a nomination did not meet strict requirements, it should still be binding if it showed a clear intention to deal with superannuation benefits.
“The case law in this area shows many BDBNs failing on minor technicalities due to an emphasis on the importance of form over substance,” it said.
