Superannuation question

[Abundant life]

Both DH and I are drawing pensions from our respective super funds. The proceeds of his fund were from his employment, while mine were out of pocket after we downsized.

I was reading a recent email from DH's fund, Australian Super, and read this:

Your super isn’t automatically considered to be a part of your estate when you pass away. This is because wills typically only cover assets you own personally, such as houses, cars and investments, whereas super is held in a trust for you by the trustee of your super fund.

So it’s important to let your super fund know where you’d like your remaining savings to go. There are a few options when it comes to nominating a beneficiary.

    Binding nomination

    You provide formal written direction to AustralianSuper to tell us who you want your account balance paid to, so that it’s legally binding. A binding nomination comes into effect from the date we accept it and expires three years from the date you sign the form.
   
    Non-binding nomination

    You nominate who you’d prefer your account to be paid. However, your nomination is not legally binding and although we’ll consider who you choose, ultimately we will need to consider relevant laws when making a decision.

    Reversionary nomination for retirement accounts

    You can choose to nominate a reversionary beneficiary if you have an AustralianSuper Choice Income account or a Transition to Retirement account. The person you nominate will receive regular income payments from your account until the balance reaches $0. As your nominated beneficiary receives payments, the remaining balance stays with the super fund to maintain the account benefits.

I understood the first two points. My question refers to this last point. As things stand we have nominated each other, however I assumed the pension account would be closed and combined with the survivor's super or paid out as a lump sum.

And what happens when whoever survives leaves the remainder to the kids, do they have to take a fortnightly payment too? 

[mjr]

If a spouse is nominated as a reversionary beneficiary, the pension account is not closed.  It stays active and the pension seamlessly transfers to them.

Children over 18 cannot be nominated as such.  They'll get a lump sum, minus the defacto death tax.

[Abundant life]

If a spouse is nominated as a reversionary beneficiary, the pension account is not closed.  It stays active and the pension seamlessly transfers to them.

Children over 18 cannot be nominated as such.  They'll get a lump sum, minus the defacto death tax.

Thanks mjr, I presume the nominated spouse could withdraw amounts in excess of the government mandated percentage.

As far as the defacto death tax is concerned, is that the 10% they take if your super is a result of your employment? I went to a super seminar where Brett Stene said that doesn't apply to super that has come from after tax deposits like mine? (Unless the rules have changed again).

[deborah]

Superannuation has two components at death, tax free (the after tax money you added) and taxable (the before tax money added by you and your employer and any money from earnings of all the money inside super), so you will have a taxable component.

The tax free component gradually gets diluted by earnings. This is why financial advisors suggest taking out payments each year after you are getting tax free super pension payments, and recontributing them. This dilutes the taxable component, because what you’re putting into super is all tax free.

The taxable component is taxed at death if super doesn’t go to a dependent etc.. The tax is at their taxation rate, generally 15% or 30%, plus 2% Medicare levy. The tax free component isn’t taxed. However, you can’t separate the two - if 20% of your super is taxable, then 20% of what anyone receives is taxable.

[Abundant life]

Thanks Deborah,

any money from earnings of all the money inside super), so you will have a taxable component.

I didn't realise this, good to know.

The tax free component gradually gets diluted by earnings. This is why financial advisors suggest taking out payments each year after you are getting tax free super pension payments, and recontributing them.

I didn't think this was possible, unless you are still working and drawing a super pension?

[deborah]

The rules changed a couple of years ago and you can put money into super until you’re 75.