Directing death benefits to charity too hard – super funds

Superannuation funds have talked down Productivity Commission suggestions that people should be able to direct their superannuation death benefits to charity arguing that it would be difficult, costly and counter to the legislative intent of super.

What is more, they have pointed out that most superannuation fund trust needs would not permit the payment of a death benefit to a charity.

Major superannuation fund organisation, the Association of Superannuation Funds of Australia (ASFA) has told the Productivity Commission that implementing such change “is not straightforward”.

“Paying death benefits to a charity would serve to increase the role and responsibilities of trustees of superannuation funds and result in additional administrative complexity, the costs of which would be borne by members,” ASFA said.

“This would, include ensuring the charity is correctly identified and that it still has charitable status at the time of the payment of the death benefit. Should this not be the case the trustee would need to make a determination as to the distribution of that portion of the death benefit.

“Further, there are Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) obligations that apply whenever a payment is made from the fund and so the trustee would need to perform verification checks which are out of the norm, increasing administrative complexity.”

The ASFA response said that, importantly, a change to enable binding death nominations to charity could result in superannuation trustees becoming involved a legal challenge from claimants, generally dependants or actual/potential beneficiaries of the estate, as to the validity of the binding nomination.

“In particular, as with other family disputes, the issue could arise with respect as to the capacity of a member to make the nomination/direction, especially where one or more dependants/beneficiaries have been excluded from the nomination and/or the will, which would serve to prolong the time take to pay the benefit,” it said.

ASFA suggested that this could then have a flow on effect to the Australian Financial Complaints Authority (AFCA).

“We submit it is not appropriate for the trustee of a superannuation fund to be exposed to additional legal risk and the consequential increase in costs associated with dealing with them, such as obtaining legal advice and managing any matters that may arise.”