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The Impact of Anti Detriment Payments
23 Nov 2016
Possibly one of the least understood aspects of superannuation; anti-detriment payments can have a significant impact on your loved ones in the case of your passing.
What is an anti-detriment payment?
In 1988 the federal government introduced a 15% tax on superannuation contributions (prior to this ruling, it had been untaxed). To compensate for this, the government also reduced the tax on superannuation lump sum payouts by 15%. However because lump sum payments to a dependent on death had always been tax-free, this new contributions tax meant that death beneficiaries were unfairly treated, receiving a lesser amount of money than they would otherwise have been entitled to had the contributions tax not been introduced.
To compensate for this, a voluntary “anti-detriment” scheme was introduced, which was designed to facilitate the refund of the total amount of contributions tax paid by the super member during their lifetime.
Example: John’s contributions
John has consistently made contributions to his super fund totalling $200,000 and has paid contribution tax of $30,000. If John was to pass away now, his dependent beneficiaries would be left with $170,000 (plus earnings). In other words there is a detriment of $30,000.
Under the anti-detriment scheme, the superannuation fund has the option to pay the additional $30,000 to John?s beneficiaries and claim a tax offset for the same amount.
It is important to note that anti-detriment payments are soon to be abolished, under legislation introduced and passed in November 2016. In order for an anti-detriment payment to potentially still apply, the superannuation fund member must die before July 1 2017, with payment made by July 1 2019.
Anti-detriment payments set to be scrapped. #smsf #superannuation https://t.co/CPTUVhmHex
— Sally Patten (@sallympatten) November 5, 2015
Account-based pensions: what happens if I pass away?
If you die, any money remaining in your account based pension will be paid to your beneficiaries or your estate.
If you have nominated a reversionary beneficiary then that person will continue to receive your pension payments until the account runs out and will be able to manage the account just as you could before your death. If you nominate a child as your reversionary beneficiary they will only be able to receive pension payments until they reach age 25, and then any remaining balance will be paid to them as a lump sum.
If your beneficiary is a spouse or dependant they may choose to receive your death benefit payment as a pension or a lump sum. Non-dependent beneficiaries will only be able to receive super death benefits as a lump sum.
What to be aware of
It is important to note that the anti-detriment scheme is voluntary – there is no legal obligation for super funds to provide anti-detriment payments. Additionally, some funds may only make anti-detriment compensation to beneficiaries who are classed as a dependent of the deceased.
Ask your superannuation fund of choice whether they provide for anti-detriment payments in the event of a member?s death and if so, who would be eligible to receive the payment.
Also be aware that a Fund?s anti-detriment policy may differ between funds in the accumulation phase (superannuation) and funds in the drawdown phase (pension) so ensure you ask the question for both phases of the investment process, and always read the Product Disclosure Statement (PDS) before making a purchase decision.
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