Having an unsexy title is the least of the problems facing super funds when it comes to anti-detriment payments. Funds that ignore these payments risk having to deal with a rise in member complaints or even class action, writes Richard Webb, AIST’s training consultant.
Anti-detriment payments – best described as a form of ‘contribution tax’ refund to eligible beneficiaries when a member dies – are one of the most misunderstood areas of superannuation. Whilst it is not mandatory for super funds to make antidetriment payments (although APRA regards these as prima facie payable), it’s a no-brainer that members would want their eligible beneficiaries to receive them. After all, on a super balance of $400,000, these payments can be as high as $70,000. Anti-detriment taxes were introduced in 1988, following the Hawke government’s introduction of the 15 per cent contribution tax. The aim was to ensure that no one would be worse off as a result of paying this tax. An anti-detriment payment is designed to return the death benefit super balance to the position that would have prevailed had there been no front-end 15 per cent contribution tax. Arguably, those who receive lump sums on death are fairly entitled to antidetriment payments.
Yet based on industry feedback – and that from the regulator, some funds do not make these payments. Funds that don’t pay antidetriment payments risk a rise in member complaints and potential class actions, if the issue attracts a strong consumer voice. Certainly, in the case of a member belonging to several super funds, beneficiaries may complain if they receive antidetriment payments from one fund but not the others. Of course there may be sound reasons why some funds don’t make anti-detriment payments. But as APRA points out, this cannot be without a carefully considered and disclosed trustee policy in line with fiduciary obligations. Given this payment is able to be matched by a reduction in the fund’s total tax liability and hence does not substantively cost anything -, which members would forgo the benefit? So in what instances are antidetriment payments available?
Generally, only taxed funds are eligible to make anti-detriment payments, although previously rolled over funds may qualify. If a fund pays contributions tax, then they can make antidetriment payments. Although tax concessions exist for death benefits paid as income streams, antidetriment amounts may only be paid on lump sum death benefits. Not all beneficiaries are eligible. Eligibility is limited to spouses, including same or opposite sex de factos and exspouses as well as children. When it comes to calculating and paying anti-detriment benefits, most accumulation-style funds can use a standard formula approved by the ATO while defined benefit funds must use an actuarial calculation. Despite the obvious need for financial planning advice around anti-detriment payments, advisers lack knowledge in this area. It is suspected that very few advisers are aware of the loss of anti-detriment benefits and may not be disclosing this in ‘statements of advice’.