© 2025 First Samuel Limited
Estimated reading time: 5 minutes
Key Takeaways
- Superannuation is likely your second-largest asset, and its distribution after death relies on beneficiary nominations.
- Certainty is vital: binding nominations are more secure than non-binding ones. Yet, they may lapse after three years in certain funds.
- Timeliness of death benefit payments often suffers due to administrative delays and beneficiary uncertainties. Some claims take over 650 days to resolve.
- Recent ASIC findings reveal unacceptable delays in death benefit applications. This highlights the need for careful selection of superannuation funds.
- Choosing the right superannuation fund involves considering both investment returns and the fund’s record on timely and fair distributions.
The Short Story
Some obvious statements:
- Your superannuation probably is or will be your second largest asset (after the family home), if not the largest.
- The distribution of your superannuation benefit on your death requires:
a. Certainty of beneficiary; and
b. Timeliness of payment.
Certainty
- Disposition of superannuation assets on your death is not governed by your will, but by a written ‘beneficiary nomination’.
- A ‘non-binding’ beneficiary nomination is an expression of your preference, but it is not binding on the superannuation fund trustee. The trustee can consider claims based on dependency, hardship, unjust outcome, etc.
- A ‘binding’ beneficiary nomination is almost iron clad, providing the nominated beneficiaries meet the definition of a dependent under superannuation law. Alternatively, it can be to the estate. The trustee must distribute the death benefits exactly as you wish.
- But a ‘binding’ nomination lapses after three years in the case of industry superannuation and public offer funds. In the case of a Self Managed Superannuation Fund it may not lapse.
Timeliness
- Delays in the payment of death benefits are generally caused by:
a. Inadequate administration by the superannuation fund; and/or
b. Beneficiary uncertainty that may result in administrative or legal appeals.
The critical importance of choosing a superannuation fund should be based not only on investment returns. Consider how the fund works when things don’t work.
Case #1 – certainty
Last week our attention was drawn to adult siblings whose mother had died. They received nothing from her industry superannuation fund.
She had effectively executed a ‘non-binding’ nomination in favour of her second husband, i.e. not the father of her children.
This woman had long been divorced from the children’s father and had been remarried for some time. She and her new spouse had wills drawn up to leave their assets to each other. The intent was that the survivor would upon their death share the residual assets amongst the couple’s respective children.
However, following her death the children became aware their stepfather had amended his will to exclude them from future distributions. The trustee of the mother’s superannuation fund ultimately decided not to award her superannuation benefit to her children.
The son appealed to the Australian Financial Complaints Authority AFCA). And failed. He then appealed to the Federal Court. And failed.
Essence: The mother could probably have avoided the cost and anxiety for her children had her nomination been binding. The second husband changing his will to exclude his step-son was irrelevant.
Case #2 – certainty
Consider only a month earlier the case of a man with an estranged wife. He had provided a non-binding nomination to his industry superannuation fund. The nomination was to leave 100% of his member balance to his six adult children upon his passing.
The trustees initially resolved to follow the nomination before later, reversing course to award 100% to the estranged wife.
A subsequent appeal to AFCA resulted in a 50:50 split of the deceased’s superannuation death benefit between the children and the estranged wife. The latter appealed to the Federal court, which upheld the AFCA decision.
Essence: If ACFA follows procedural fairness, even if it is inconsistent with other decisions, the court will not intervene (see more, below).
Case #3 – timeliness
In March 2025, the Australian Securities and Investments commission (ASIC) released a long overdue report, in our opinion, into the practices of public offer and industry superannuation funds handling death benefit claims. The findings were largely expected, but some aspects were more concerning than initially feared.
ASIC found very few death benefit applications were paid within a reasonable time on average, less than 90 days. Many instances took between one and two years, and in extreme cases over 650 days to resolve.
ASIC laid the blame for the unacceptable outcomes squarely at the feet of both the trustees of ten major industry and retail superannuation funds. These funds were investigated for the report, which represented 38% of Australia’s superannuation assets.
More than 78% of claims had delays attributable to failures with the superannuation fund itself and within its control. There was not only the imposition of unnecessary hurdles, but also insensitive treatment of claimants.
It should further be noted that separate from the 10 funds investigated as part of the report, ASIC has commenced legal proceedings against two other very large industry funds for more severe systemic failings.
Conclusions
The aspects we find most concerning are twofold.
Firstly, it is clear that a discretionary decision of a superannuation trustee, and thereafter AFCA, is not ordinarily open to challenge in a court.
Rather, the onus exists on the complainant to establish a procedural failure from the superannuation fund or AFCA. This includes considering various factors that were pertinent or evidentiary bias in favour of one party in the claim administration.
Secondly, investors often place too little importance on these aspects when choosing a superannuation fund. Consider the heightened risk and lasting impact of significantly delayed outcomes, unintended, or unfair outcomes.
Given all of the above, you really need to ask yourself… Are you and your loved ones ready for potential headaches or heartaches from such uncertainty and delay?
As always, speak to your First Samuel Personal Client Adviser if you need any guidance. Or, get in touch to learn how we can help.
Other aritcles of interest:
The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation, or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.