When it comes to superannuation, planning for the future is paramount. One aspect of this planning is determining who will receive your superannuation benefits when you’re no longer around. To help you navigate this crucial decision, retail or industry superfunds typically provide a “Nomination of Beneficiaries” form, allowing you to specify your wishes. However, it’s important to understand the different types of beneficiaries and how to nominate them effectively.

The choice between binding and non-binding beneficiary nominations in your superannuation plan and even Life insurance boils down to the level of control and flexibility you desire. Binding nominations ensure that your specified beneficiaries receive your superannuation benefits with a high degree of certainty, while non-binding nominations provide more flexibility for trustees to consider the current situation at the time of your passing.

1. Binding Nominations
A binding beneficiary nomination is a legally enforceable directive regarding who should receive your superannuation benefits upon your passing. The benefits of this nomination are:

  • Legally Binding: As the name suggests, a binding nomination is a legally binding instruction. The trustees of your superannuation fund are obligated to follow your wishes explicitly, provided that the nomination is valid and meets specific criteria.
  • Certainty: Binding nominations provide a high degree of certainty regarding the distribution of your superannuation benefits. Your chosen beneficiaries will receive the designated portion of your superannuation without the trustees’ discretion.
  • Lapsing or Non-Lapsing: Binding nominations can be further categorized as lapsing or non-lapsing. A lapsing nomination typically expires every three years, allowing you to review and update your choices in case your circumstances change. Non-lapsing nominations, in contrast, remain in effect until your death.

2. Non-Binding Beneficiary Nominations:

Non-binding beneficiary nominations, as the name suggests, are not legally binding instructions. Instead, they serve as guidance for the trustees of your superannuation fund. Here’s what you should consider:

  • Advisory in Nature: Non-binding nominations are advisory or suggestive in nature. While the fund trustees are encouraged to consider your preferences, they have the flexibility to use their discretion and assess the circumstances at the time of your passing.
  • Flexibility: Non-binding nominations offer more flexibility to adapt to changing life circumstances. If your nominated beneficiaries are no longer appropriate, the trustees can make decisions that better align with your current situation.

With both of these, the nominations can be categorised as either lapsing or non-lapsing.

  • Non-lapsing nominations remain in effect until your death. They provide a clear directive for the distribution of your superannuation benefits, ensuring your wishes are honored.
  • Lapsing nominations, on the other hand, are the more common choice. These nominations expire every three years. This expiration period is designed to account for potential life changes over time. For instance, if you initially nominate your spouse but later have children, remarry, or go through a divorce, the lapsing nomination adapts to these circumstances. If it does lapse and isn’t renewed, it transforms into a non-binding nomination, which is essentially a strong suggestion regarding the allocation of your death benefits. In this case, the superannuation fund’s trustees will consider the current circumstances when making a decision.

The other type of nomination – Reversionary Beneficiaries

In the realm of estate distribution, things can often become messy and complicated. Reversionary beneficiaries play a vital role when there is a loved one who is financially dependent (or interdependent) on the income stream generated from a pension account within your superannuation fund.

Upon your demise, a reversionary beneficiary steps in to receive income stream payments promptly and without the need for complex paperwork or time-consuming decisions by the superannuation trustees. This ensures that your loved one can continue to receive financial support seamlessly.

In summary, nominating beneficiaries for your superannuation and life insurance is a crucial part of your financial planning. You can choose between binding and non-binding nominations, considering whether you want your choices to adapt to changing circumstances or remain constant until your passing. Reversionary beneficiaries, on the other hand, provide a straightforward way to support a financially dependent loved one upon your death, ensuring they receive the income stream payments they rely on without delays or administrative hassles. Planning for your superannuation beneficiaries can offer peace of mind and financial security for your loved ones in the future.