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Understanding death benefits under the new transfer balance cap

The introduction of a $1.6 million transfer balance cap for superannuation will take effect from 1 July 2017 which is likely to impact fund members who collectively with their spouse exceed $1.6 million in super.

When an individual with a super account dies, the trustee of the super fund will generally pay the deceased’s remaining super interests (accumulation and retirement phase) as a death benefit lump sum to a beneficiary.

Superannuation death benefits can be cashed:
– to a beneficiary or beneficiaries as superannuation lump sums that are paid out of the super system, or
– to a dependant beneficiary or beneficiaries as superannuation income streams that are retained in the super system, or
– to a dependant beneficiary or beneficiaries using a combination of the two.

A dependant is a person who is either a spouse of the deceased, a child of the deceased (less than 18 years old, financially dependent under 25 years old or has a disability) or a person who was in an interdependency relationship with the deceased.

When a death benefit income stream is paid to a dependant beneficiary, a credit arises in the beneficiaries transfer balance account. This may result in the dependant exceeding their transfer balance cap.

In this case, the beneficiary can choose to reduce their transfer balance account by commuting the death benefit income stream fully or partially. When this occurs, the commuted amount will need to be cashed out as a lump sum and paid to the individual – rather than being kept in an accumulation account, as this contravenes the regulatory requirement to cash the benefit out of the super system as soon as practicable.

Reversionary super income streams
A death benefit can be either reversionary or non-reversionary.

Reversionary death benefit income streams are super income streams that revert to a reversionary beneficiary automatically upon the member’s death. A non-reversionary death benefit income stream is a super income stream created and paid to the dependant beneficiary or beneficiaries.

If an individual receives a reversionary super income stream, the value of the entire supporting super interest at the time it becomes payable to the beneficiary counts towards their transfer balance cap.

If you are the recipient of a reversionary pension, the income stream will not count as a credit in your transfer balance account until 12 months after the death of the member, giving you time to adjust your affairs and reduce any amount that may cause you to exceed your transfer balance cap.

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News

Amnesty means that 24,000 businesses own up to underpaying Aussies superannuation

September 24, 2020

An amnesty scheme which ended earlier this month has caused around 24,000 businesses to admit to underpayment of their worker’s super. A total of 588 million dollars will be distributed to almost 400,00 individuals.

The scheme, which covered payments from the introduction of super in 1992, gave employers the opportunity to come clean without any consequences as long as they paid the unpaid super as well as 10% interest for every year the money was overdue.

The ATO will be directing its attention at any businesses that did not admit fault and these businesses will face severe penalties.

Many individuals are looking to access their superannuation early in order to have support during these times. Although there is criticism of early access to super, this facility has been helpful to many families to keep afloat.