Through the use of a superannuation nomination form, an individual has the ability to nominate which of their beneficiaries will receive their superannuation or pension balance in the event of their own death.
A superannuation nomination can be Binding or Non-Binding.
The meaning of binding and non-binding is explained below.
While many superannuation funds will offer both Binding and Non-Binding beneficiary nominations to members, some superannuation funds only provide a member with the ability to make Non-Binding nominations.
This article discusses the difference between Binding and Non-Binding nominations, including non-lapsing Binding Nominations.
Why Make A Superannuation Nomination?
Unlike personally-owned assets, superannuation and pension savings are not paid via a person’s Will in the event of their death. This is because the legal owner of the superannuation or pension balance is the trustee if the superannuation fund. The member is only the beneficial owner.
Therefore, it is the Trustee’s decision of how superannuation or pension balances will be paid upon the death of the member and who the beneficiary will be, taking into account the members circumstances and relationships at the time of death.
However, a member can make a Binding or Non-Binding nomination to the trustee while still alive to direct the trustee on how they would like their benefits paid in the event of death and who the binding or non-binding beneficiary will be.
Difference Between Binding and Non-Binding Beneficiary Nominations
The difference between Binding and Non-Binding beneficiary nominations is that one is binding on the trustee and one is not.
As the name suggests, a Binding Nomination is binding on the trustee. This means that a trustee is unable to use their discretion when paying death benefits to beneficiaries of a deceased member; the trustee must pay the member’s balance strictly as nominated on the Binding Nomination.
A Non-Binding Nomination on the other hand is more of a ‘wish list’. It tells the trustee how a member would like their benefits distributed, but leaves ultimate discretion with the trustee, taking into account the member’s relationships at the time of death.
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Non Lapsing Binding Death Benefit Nomination
A standard Binding Death Benefit Nomination expires three years from the date that it was initially put in place.
The reason behind this is because people generally aren’t as consistent at updating their superannuation nominations as they are at updating their Wills, which risks superannuation proceeds not being paid in accordance with their wishes and relationships at the time of death.
However, more recently, some superannuation funds, including self managed superannuation funds (SMSF), have made it possible for a member of the fund to put in place Non-Lapsing Binding Nominations. A Non-Lapsing Binding Nomination is the same as an ordinary Binding Nomination, without the 3-year expiry date (i.e. it does not lapse).
Binding Death Benefit Nomination Advantages
The advantages of Binding Death Benefit Nominations include:
- Certainty over who will receive superannuation proceeds in the event of death;
- Removes trustee discretion;
- Ability to nominate any beneficiary as defined in the Superannuation Industry Supervision (SIS) Act; and
- Can work well with an overall estate plan for blended families, mixed families, extended families and second/subsequent marriages.
Binding Death Benefit Nomination Disadvantages
The disadvantages of Binding Death Benefit Nominations include:
- Forgetting to update the Binding Nomination may result in super and pension savings being paid to the wrong people in the event of death;
- Trustee is unable to use discretion as to who benefits are paid to, even if they know circumstances have changed since the Binding Nomination was originally submitted;
- Generally expire every 3-years and need to be resubmitted to the trustee, unless a Non-Lapsing Binding Nomination was put in place; and
- Not offered by all superannuation funds.
Non-Binding Death Benefit Nomination Advantages
The benefit of Non-Binding Death Benefit Nominations include:
- Trustee is able to distribute superannuation and pension proceeds given the member’s relationships at the time of death and taking into account the member’s wishes at the time of death;
- No expiry date; and
- Ability to nominate any beneficiary as defined in the Superannuation Industry Supervision (SIS) Act.
Non-Binding Death Benefit Nomination Disadvantages
The disadvantages of Non-Binding Death Benefit Nominations include:
- No certainty of who will receive superannuation and pension benefits in the event of death, as ultimate discretion lies with the trustee of the superannuation fund.
Superannuation binding and non-binding nominations do not apply to reversionary pensions.
Reversionary pensions automatically revert to the reversionary beneficiary upon death of the original pension owner.
The reversionary pension balance then count towards the beneficiary’s transfer balance cap.
Superannuation Beneficiary Rules
Upon the death of a superannuation member, their remaining superannuation or pension benefits cannot be paid to just anyone.
- A deceased’s spouse or de-facto spouse
- A child of the deceased (any age)
- A person in an inter-dependency relationship with the deceased (a close personal relationship between two people living together, where one or both provides financial, personal or domestic support to the other).
- An estate where dependants listed above will benefit
Hopefully this article has assisted in helping understand the difference between Binding and Non-Binding beneficiary nominations and who a binding or non-binding beneficiary can be.