If an individual has a superannuation account when they die, the trustee of the super fund will generally pay the deceased individual’s superannuation interests – accumulation and retirement phase interests – as a death benefit lump sum to a beneficiary.
Superannuation death benefits can be cashed:
- to a beneficiary or beneficiaries as superannuation lump sums that are paid out of the superannuation system, or
- to a dependant beneficiary or beneficiaries as superannuation income streams that are retained in the superannuation system, or
- to a dependant beneficiary or beneficiaries using a combination of the two.
When a death benefit income stream is paid to a dependant beneficiary, a credit arises in the beneficiaries transfer balance account. This may cause the dependant beneficiary to exceed their transfer balance cap.
In this case the beneficiary can choose to reduce their transfer balance account by commuting the death benefit income stream fully or partially. When this happens, the commuted amount will need to be cashed out as a lump sum and paid to the individual – rather than being kept in an accumulation account – due to the rules relating to the payment of death benefits.
Reversionary superannuation income streams
A death benefit can either be reversionary or non-reversionary.
Reversionary death benefit income streams are superannuation income streams that revert to a reversionary beneficiary automatically upon the member’s death.
A non-reversionary death benefit income stream, on the other hand, is a superannuation income stream created and paid to the dependant beneficiary or beneficiaries.