What Happens to Your Super When Your Partner Passes Away?

It’s not a particularly exciting topic to think about, but understanding what happens to superannuation when a partner passes away is an important part of retirement planning.

Unfortunately, this is a situation many couples will face at some point. At what is already a difficult time, there can also be important financial decisions that need to be made. Knowing how your super is structured and understanding the options that may be available can make those decisions a little clearer.

There isn’t necessarily one right answer for everyone. What happens will depend on how the superannuation is set up, the beneficiary arrangements that are in place and the surviving spouse’s circumstances.

Start With How the Super Is Set Up

The first step is understanding how the superannuation has been structured.

Some important questions include:

·       What beneficiary nominations are in place?

·       Who has been nominated as the beneficiary?

·       Is there already a pension in place?

·       How is the superannuation currently being paid?

There are a few different ways this can work depending on the circumstances. For simplicity, let’s assume the arrangements have been set up appropriately and the beneficiary is the surviving spouse.

From there, some paperwork will generally need to be completed before deciding what to do with the superannuation benefit.

If there is a significant amount in super, perhaps $200,000, $300,000 or more, there can be different options available to the surviving spouse. Broadly, those options may include taking the money out of super or keeping it within the superannuation system.

Option 1: Take the Money Out of Super

One option available to a surviving spouse may be to close the superannuation account and withdraw the entire amount.

For example, if your partner had $200,000 or $300,000 in superannuation, you may decide to take the

money out and hold it personally.

In many cases, there may be no tax payable when doing this, although this is something that needs to be

checked because different circumstances can have different tax consequences.

Having the money personally may be beneficial if there is a particular reason you need access to the capital. For example, you might want to use some or all of the money to pay off debt.

Once the money has been withdrawn, however, it is important to understand that getting it back into superannuation may not always be straightforward. This is why withdrawing the entire benefit shouldn’t necessarily be an automatic decision.

Option 2: Keep the Money in Super

Another option may be to keep the money within the superannuation system, transfer the benefit to the

surviving spouse and establish or continue a regular income stream.

Consider a retired husband and wife who each have superannuation and are receiving around $1,000 per

week from their respective accounts.

Together, they have been living on approximately $2,000 per week from their superannuation. If one

spouse passes away, the surviving spouse may still want or need a similar level of regular income.

In that situation, there may be no immediate need to cash out the superannuation. Instead, it may be possible to keep the money within the super fund and arrange for the surviving spouse to continue receiving an income from it.

Rather than receiving $1,000 each per week, for example, the surviving spouse may continue receiving the combined $2,000 per week.

This can allow the retirement income arrangements to continue in a similar way. There may also be other considerations, such as how the change in circumstances affects the surviving spouse’s pension and overall financial position.

Which Option Is Better?

There isn’t a universal answer.

For one person, taking the money out of super and using it to reduce debt may make sense. For someone else, keeping the money within superannuation and continuing to receive a regular retirement income may be more appropriate.

The key is to understand the options before making a decision.

It can be tempting to simply cash out the superannuation and deal with everything else later. However, if you withdraw the money and subsequently decide that you would prefer it to be back inside super so you can continue living off it, getting that money back in can sometimes be difficult or complicated.

Taking some time to consider the options before acting can therefore be very important.

Getting Advice Before Making a Decision

When a partner passes away, there can be a natural temptation to deal with the paperwork quickly and move the money somewhere that feels simple.

But decisions around superannuation can sometimes be difficult to reverse.

Before withdrawing a death benefit, it can be worth understanding whether the money can remain within the superannuation system, what income it could provide, the tax implications and how the decision may affect your broader retirement position.

The right decision will be different for every family. The important thing is to understand your options before making an irreversible choice.

At Financial Edge Group, we specialise in retirement planning and help people navigate the financial decisions that can arise after the loss of a partner.

If you’re dealing with this situation, or helping a family member who is, we’re happy to have a conversation about the options available and what may be appropriate for your circumstances.