Life’s Curveballs and Your Super: What Happens When Plans Change?

Life’s Curveballs and Your Super: What Happens When Plans Change?

The Australian superannuation system is built on a straightforward idea: contribute regularly to build a nest egg for your retirement. Simple enough, right? But life rarely follows a perfectly straight line. Unexpected events can throw a wrench in your savings strategy long before you reach your golden years. Understanding how your superannuation is handled when life takes an unplanned turn can empower you to make informed decisions and navigate these situations with greater clarity.

So, let’s explore some common life events and how they can affect your superannuation:

1. What happens to your superannuation if you pass away?

It’s important to know that superannuation isn’t automatically governed by your Will. Instead, Superannuation Law dictates how these benefits are distributed, primarily through beneficiary nominations you make directly with your super fund.

• Nomination of Beneficiary: This is the key. You can nominate specific individuals (usually dependents) to receive your superannuation death benefits.
• Binding Nomination: This is a legally binding instruction that the trustee must follow when distributing your superannuation and any included life insurance proceeds.
• Non-Binding Nomination: This expresses your preference, but the fund trustees have the discretion to distribute the benefits as they deem most appropriate, often after assessing your family relationships.
• No Nomination: If you pass away without any beneficiary nomination, the trustee will make the decision on how to distribute your superannuation proceeds. In the absence of a nomination, the death benefit might end up being considered part of your estate and distributed according to intestacy laws (if you also don’t have a Will).

2. What happens to your superannuation if you pass away without a Will (intestate)?

Even if you don’t have a Will, superannuation fund trustees will still first look for any beneficiary nominations you’ve made. If there’s a valid binding nomination, that will generally take precedence. If there’s no binding nomination, the trustee will then assess your relationships to determine who is entitled to the benefits. Only if there are no beneficiary nominations at all might the death benefit become part of your general estate to be distributed according to the laws of intestacy.

3. What happens to your superannuation if you get divorced or separate?

Family Law in Australia considers superannuation as a valuable asset that can be subject to division between you and your former partner in the event of a divorce or relationship breakdown. This division is typically determined through negotiation between parties or by a court order.

If a superannuation split occurs, your former partner may have several options for their share:

• Add it to their existing superannuation account.
• Invest it in a superannuation fund of their choice.
• Access it as a superannuation benefit if they meet the standard conditions of release (e.g., reaching preservation age).

When superannuation is split, both the tax-free and taxable components of your balance are calculated and divided proportionally between your and your former partner’s entitlements.

4. What happens to your superannuation if you move overseas permanently?

There was a time when permanently moving overseas was a valid reason for early release of your superannuation. However, the Australian government removed this condition in 2002. The rationale behind this change was that your superannuation savings are intended for your retirement and can be maintained within the Australian superannuation system, where normal preservation and release rules will eventually apply.

5. What happens to your superannuation if you retire early?

Generally, you can only access your superannuation retirement benefits once you meet a specific “condition of release.” The most common conditions are reaching age 65, or reaching your preservation age (currently 60) and retiring. If you choose to retire earlier than these ages, accessing your superannuation can be challenging. You might need to rely on investments held outside of the superannuation environment or explore eligibility for government payments until you meet the standard superannuation release conditions.

Your superannuation represents a significant asset for your future financial security. Regardless of the twists and turns life may bring, proactively understanding how your superannuation is managed in different circumstances is crucial. Don’t hesitate to seek professional financial advice to ensure you’re making informed decisions and planning effectively for your financial well-being.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice, or invitation to purchase, sell, or otherwise deal in securities or other investments. Before making any decision regarding a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.