Anti-detriment payments are one of the most poorly understood aspects of superannuation, but it can have a significant impact on your loved ones in case of your death by boosting a beneficiary’s death benefit.
What are anti-detriment payments?
To put it in simple terms the strategy is designed to refund the total amount of contributions tax paid by the super member during their lifetime.
For example, John has made contribution to his super fund totalling $200,000. By law the fund is required to pay a tax of 15% on the contribution which equates to an amount of $30,000. If John was to pass away now, his beneficiaries would be left with $170,000 i.e. there is a detriment of $30,000.
The anti-detriment law states that the super fund can pay the $30,000, paid in contributions tax, to John’s beneficiaries and claim a tax offset for the same amount. As the above example demonstrates the payout can be substantial and it is worthwhile checking if your super fund has provisions in place to provide anti-detriment payments.
The above example is just a simple demonstration of what an anti-detriment payment is and its impact. In reality the calculation can be a little more complicated and it can be obtained from the ATO website.
Who is eligible for an anti-detriment payment?
To make an anti-detriment payment the death benefit must be paid as a lump sum to one of the following beneficiaries:
- A current spouse (includes de-facto and same-sex partner)
- A former spouse
- A child of any age
What to watch out for?
Superannuation trustees have the option of not paying the anti-detriment payments since there is no legal obligation to do so. So if you are looking at providing this advantage to your beneficiaries, consider investing in funds that pay anti-detriment payments automatically. This is generally mentioned in the product disclosure documents. A fund generally makes these payments from its reserves, so it would be a good idea to do a little background research about the fund you wish to invest in.
The other thing to note is that, your contribution strategy can affect the anti-detriment payout. So it would be a good idea to spend some time with a financial advisor to discuss your strategy.
Article updated 29/06/2012