Superannuation Estate Nominations: Binding vs Non-Binding
Tuesday, April 15, 2025
When planning for the future, superannuation beneficiary nominations help ensure your savings go to the right people. Your superannuation is not part of your Estate, and you must specify separately how you want those funds distributed upon your passing.
Not all nominations are the same—here’s a breakdown of how they work and what they mean for your loved ones.
Binding vs Non-Binding Nominations
Binding Nominations
A binding nomination is a legal instruction to your Superannuation fund’s trustee, requiring them to distribute your death benefit exactly as you’ve specified. Think of it as a “must-follow” rule. In Australia, this can either go to your spouse, dependants, children, or your Legal Representative. The Super trustee has no discretion to override this nomination.
Types: Binding nominations can be lapsing (expire after 3 years) or non-lapsing (no expiry, provided they meet fund rules).
Pros: Provides certainty for beneficiaries and avoids potential disputes.
You can also binding nominate to your Estate and thereby have money distributed according to your will. This will however take the money out of the tax benefit environment of superannuation.
Cons: Inflexible—if relationships change (e.g., divorce, death of spouse), outdated nominations may still apply unless updated. You will need to notify your financial adviser of any changes in your situation.
Non-Binding Nominations
A non-binding nomination acts as a “wish list” for the trustee. While they’ll consider your preferences, they retain ultimate discretion based on your dependents’ circumstances at the time of death.
Pros: Your wishes would be considered if a non-binding nomination was your only choice. If there is the option of a binding nomination that would be the best choice.
Cons: Risk of disputes or delays if the trustee’s decision conflicts with your wishes.
It takes longer to process the distribution of the Estate.
What Happens When a Lapsing Nomination Expires?
Binding nominations that lapse (after 3 years) revert control to the trustee, who then decides beneficiaries based on superannuation law.
Factors that might stop you from changing a nomination include:
Health or Cognitive Decline: Age-related conditions like dementia may render someone unable to sign a new form.
Procrastination or Oversight: Many forget to renew nominations, especially if life gets busy.
Fund Restrictions: Some funds don’t offer non-lapsing options, forcing members to manually renew every few years. If a nomination lapses and isn’t updated, beneficiaries lose the legal protection of a binding directive, potentially leading to unintended outcomes.
Options for Beneficiaries After Death
When a member passes away, beneficiaries generally have two choices:
Lump Sum Payment: A one-time payout, which may incur taxes for non-dependents (e.g., adult children).
Super Income Stream: Regular payments (if eligible), with tax implications depending on the recipient’s age.
Transfer of Pension to Spouse: There can be a smooth transition, if a binding nomination is in place, of the existing pension to a pension for the surviving spouse.
The trustee’s role is critical here:
For binding nominations, they must follow the valid instructions.
For non-binding or lapsed nominations, they assess relationships, financial dependency, and legal requirements.
By understanding your options, you can make informed decisions to protect your loved ones and ensure your superannuation reflects your wishes—even when life changes. This may require a comprehensive conversation with your Financial Adviser to understand your retirement nest egg and the implications of your choices for Estate Planning. We recommend a consultation with your financial advisor to review your personal circumstances and wishes. Maher Digby Securities are specialists in Estate and Retirement Investment Planning and may be contacted on Ph 5441 1266.
For more Information contact Mark Digby at Maher Digby Securities Pty Ltd - Financial Advisers – AFSL No. 230559. This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor.