To Bind or Not to Bind by lindayy

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									 S     ome challenges facing fund trustees
       do not diminish with time but
       seem to become more entangled,
       complex and contentious. The
 distribution of a minority of qeath
 benefits falls squarely into this category.
                                                of all complaints in 2000-01, 26.9% in
                                                2001-02, 22.5% in 2002-03, 32.2% in
                                                2003-04,31.4% in 2004-05 and 35.1%
                                                in 2005-06.
                                                     McDonald attributes much of the
                                                increase to the sharply rising value in
                                                                                            concept of the family is much broader
                                                                                            than it used to be, and people are still
                                                                                            coming to terms with it."

                                                                                            less binding camplaints
                                                                                             Perhaps unsurprisingly, McDonald
     In a futile attempt to cut the volume      death benefit payouts (accumulated
 of death benefit complaints to the             savings plus the insurance component),       says very few complaints are received
 Superannuation Complaints Tribunal             and the complex makeup of many               regarding binding death benefit
 (SCT), the Superannuation Industry             modern Australian families, with more       nominations. Any complaints are
 (Supervision) Act (SIS) was amended            members remarrying and having children      typically about whether the person
eight years ago to permit funds to offer        from several marriages.                     making the nomination had the capacity
 members the ability to make binding                 "Adult children, for example, from     to do so and whether witnesses to the
nominations.                                    a first marriage might make claims          making of the binding nomination were
     However, death benefit complaints          against the widow of the second marriage    qualified.
to the tribunal have since climbed and         receiving a benefit," McDonald says.             Sometimes siblings are named
fund trustees are divided over whether              Many of the complaints are              as beneficiaries when they are not
to offer members the option of binding         from adult children who perceive             dependants of the member and are thus
nominations.                                   superannuation death benefits in the         not entitled to any of a deceased's death
    As fund trustees and their senior          same way as inheritances and may have a      benefits through a binding or non-
executives debate the issue, the tribunal's    belief everyone should have a share.         binding nomination.
chair, Graham McDonald, is dealing                   "If all of the death benefit is            All retail personal master trusts and
with growing numbers of death benefit          distributed to the widow and the infant      the majority of retail corporate master
complaints.                                    children of a second marriage, the adult     trusts now offer binding nominations.
    In 1999-2000, 27.5% of written             children from the first marriage may have    However, less than a quarter of industry
complaints to the SCI concerned death          trouble accepting that."                     funds, and no corporate or public sector
benefits. This was the first year funds were        A first wife who may feel rejected or   funds, are known to provide members
allowed to offer binding nominations.          children of a first marriage may believe     with this option.
In the following years death benefit           the deceased had a moral obligation to           Brad Pragnell, director of policy and
complaints have kept coming: 24.7%             provide for them, notes McDonald. "The       best practice for ASFA, says members

SUPERFUNDS    S E P T E M B E R 2007                                                                                                   17
                                                                                                               I 1 CPD point for this article for




who have selected their superannuation           age and actual financial dependency, any       short time and the death benefits may
fund on the advice of a financial planner        individual with whom the member had            end up with the wrong person. A new
more commonly decide to make binding             an 'independency relationship' and a           spouse and recently born child could
nominations.                                     person who was financially dependent to        miss out on a member's death benefits
    "The members might sit down with             some degree on the member at the time          if a binding nomination has not been
their planners and talk about the need for       of death.                                      kept up to date with changing family
an updated will and an appropriate death             According to the SIS Act, an               circumstances.
benefit nomination. It is all part of an         interdependency relationship exists                 The BPP sums up the case for and
estate planning service."                        when two people have a close personal          against offering binding nominations.
                                                 relationship, live together, at least one of   The main arguments in favour of binding
Who is a dependant?                              them provides the other with financial         nominations include:
                                                 support and at least one provides                   Members typically expect funds to
A trigger for the growing disputes over          domestic and personal care to the other.            distribute death benefits to their
death benefits, apart from multiple                  With non-binding nominations, the               nominated beneficiaries when a
marriages and increasing superannuation          trustee can exercise its discretion about           non-binding nomination is in place.
benefits, is the difficulty facing trustees in   which of the dependants should receive              "Even though superannuation is
determining just who is a dependant of           at least a share of the death benefits. That        held in trust, members regard it as
the deceased.                                    is unless a trust deed limits payment to            their money, and therefore [members
    Pragnell says one of the reasons ASFA        the deceased's legal representative.                often believe] they should decide
prepared new guidance this year on the               Fortunately as ASFA's Best Practice             to whom it will be paid," the paper
difficulties surrounding death benefit           Paper (BPP) points out, most death                  observes.
determinations was growing trustee               benefit decisions are straightforward as            Advisers and rating agencies are
concern about the possible impact of             "often the dependants are obvious, and              increasingly rejecting or downgrading
the expanding definition of dependants.          in many cases, there is an agreement as             funds not offering binding
(ASFA Best Practice Paper No.29 Death            to who [among the eligible beneficiaries]           nominations.
Benefits, is available to members on the         should receive the benefit".                   According to the BPP, the case against
ASFA website.)                                       Frequently this means the benefits         binding nominations includes:
                                                                                                     Circumstances change in a short




                                                                                                   nomination directing death benefits
                                                                                                   be paid to the deceased estate. The
    As trustees well know, the SIS Act was       go, for example, without dispute to the
                                                                                                   statutory formula for payment of
amended three years ago to expand the            deceased's spouse and minor children
                                                                                                   a deceased's assets differs between
definition of dependants to include those        who would have received financial
                                                                                                   states and does not cover some
in an 'interdependency' relationship.            support had the deceased lived.
                                                                                                   relationships, including between
    Whether or not a person was a
                                                                                                   same-sex partners.
dependant of the deceased at the time            No silver bullet
of death is, of course, highly significant
                                                 Nevertheless, there is a minority of
when it comes to death benefits. Under
the SIS Act, funds can normally only pay         distributions that cause difficulties for          ny Willcocks, chair of ASFA's Best
death benefits to the deceased member's          trustees.                                          ctice Committee and a partner of
personal legal representatives or                    "Binding death benefit nominations            rltslegal, says most funds have gone
dependants, whether or not the deceased          are not necessarily the silver bullet in         rough the process of considering
member made a binding or non-binding             every case," explains Pragnell. "They can          ether to provide members with the
nomination.                                      create their own problems."                      llity to make binding nominations.
    A dependant for the purposes of                  Although binding nominations                    "The debate about whether to bind
death benefits comprises the deceased            legally expire after three years, Pragnell        not to bind has been going on among
member's spouse including de facto,              warns significant changes can occur               stees since the inception of binding
any child of the member regardless of            to a fund member's circumstance in a              minations. A lot of funds offer

                                                                                                               S E P T E M B E R 2001 S U P E R F U N D S
       Willcocks says funds not favouring




       Furthermore, Willcocks emphasises
     at binding nominations d o not provide
     nds or members with a means to avoid

     eath benefits. Binding agreements must


     ree years before needing renewal.
       Binding nominations can be
     valid if, for example, proportions




                      nominations in the first




        hether to offer binding nominations
       depend largely on membership
       and, which in turn, can reflect the
       ographics of a fund.




                     oclis says. "Someone

                       the trustee makes."

20               S E P T E M B E R 2007   SUPERFUNDS
Passionate believer                                So far, less than 1%of members             membership. Many REST members are
                                               of AustralianSuper have elected to             young retail workers with low account
 AustralianSuper general manager               make binding nominations. However,             balances and the average balance in the
 of insurance Glenn Palmer, says he           the number of applications to make              $13 billion fund is just $7,000.
 became %cry passionate" about binding        binding nominations has quadrupled                  Hill readily understands why many
 nominations a few years ago after            since November 2006 when the option             members of retail master trusts who
 addressing a workplace where a fund          was first offered to the combined               may have large balances would want the
 member had been fatally injured at work.     membership of STA and ARE                       certainty of binding nominations.
      Palmer was representing STA, which           Palmer believes more members
was the workplace's superannuation                                                                Given the demographics of REST'S
                                              would make binding nominations if               membership and the fact the trustee
 fund. The member who was killed              they understood the trustee could decide
 at work had made a non-binding                                                               already tries to pay death benefits in
                                              how their death benefits are distributed.       accordance with any nomination, Hill
 nomination naming his de facto partner            AustralianSuper's field staff is talking
 as beneficiary and the de facto received                                                     questions whether introducing binding
                                              more often to members about their
 all the death benefits.                                                                      nominations would provide any greater
                                              ability to make binding nominations
      However, the ironic c m of the                                                          certainty about how benefits were paid.
                                              and Palmer believes the fund could
story was that the deceased member's                                                          He also questions whether introducing
                                              still do more in its literature to draw
workmates became upset on learning                                                            binding nominations could be justified
                                              members' attention to this option.
the trustee had the power to decide who                                                       given the administration involved.
                                                   Damian Hill, chief executive of REST
received the deceased's death benefits. "It   Superannuation, says his fund's trustee             Hill says the fund has enough
became a highly emotional issue," Palmer      board made the decision some years ago          difficulties convincing members to
remembers.                                    not to offer binding nominations and he         make non-binding nominations and
      He was told in no uncertain terms       believes the board's view is unlikely to        would face significant problems in
the members intended to take their            have altered.                                   ensuring binding nominations were
superannuation elsewhere unless they               Hill is not against the concept of         kept up to date and were for acceptable
were given the power to decide who            binding nominations but believes                beneficiaries.
received their death benefits, without the    their suitability depends largely on the            Even with non-binding nominations
trustee having a say.                         makeup of a fund's membership.                  some members are nominating friends
      Palmer completely agrees with their          He says when trustees are                  or charities, both of which are ineligible
logic and "because of my experience with      considering whether binding                     in most situations. "Consequently, a
those members, I was one of thq key drivers   nominations are appropriate for their           proportion is invalid as they would be
at STA to introduce binding nominations       funds, it is necessary to "look under the       even if they were binding nominations,"
- they are a pet subject of mine".            bonnet" at the composition of the fund's        Hill notes. SF




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