Q I am a member of the HIP (Health Industry Plan) Superannuation fund. I have been warned that on my death this fund does not refund tax paid on my Superannuation contributions. Can you please explain what this means and the consequences for my family if I was to die? Should I be concerned?
AWhere an individual or an entity claims a tax deduction on a Superannuation contribution, Contributions tax is payable at a rate of 15%. On the death of a fund member, a Superannuation Fund has the option to apply for a refund of the contributions tax paid to the ATO on behalf of the member. The refund of Contributions tax is referred to as an “Anti-detriment payment”.
If you receive total Employer Superannuation contributions of $300,000, Contributions Tax of $45,000 is levied on this amount. If you were to die, your beneficiaries would be entitled to the nett Superannuation balance of $255,000 subject to any change in value of the fund. If your fund makes Anti-detriment payments, your beneficiaries would be entitled to a further death benefit of $45,000.
The Superannuation Fund is not disadvantaged by paying this benefit to the beneficiary. The Superannuation fund trustee can claim a tax offset for this amount from the ATO. As you can see in the example above, the Anti Detriment payment can be quite substantial.
Anti-detriment payments can only be made to legal beneficiaries, namely spouses, former spouses and children.
There is no legal obligation for a Superannuation fund trustee to make an Anti-detriment payment; some funds automatically pay the benefit, others will pay on request and some disturbingly will not. There are a number of funds who have taken this position for whatever reason. Why HIP do not make Anti-detriment payments to beneficiaries is puzzling and is a question to be directed to the Trustees.
If this is unpalatable, ensure that a fund you intend to move to makes Anti-detriment payments. The information can be found in the Product Disclosure Statement (PDS) or by asking your Financial Adviser to research.
Entitlements to anti-detriment payments are not extinguished on the rollover to a fund that makes Anti-detriment payments. However rolling over benefits to a fund that does not make these payments does extinguish these benefits.
Confirm the impact of any Superannuation re-contribution strategy to future Anti-detriment entitlements with your Financial Planner.