As part of the 2017 super reforms the law was amended to remove the payment of the anti-detriment benefit from 1 July 2019. Although the anti-detriment benefit is being phased out, it remains available where:
- The member passed away prior to 1 July 2017
- The lump sum death benefit is paid before 1 July 2019
The anti-detriment amount can be as high as 17.65% of the taxable component (element taxed) of the lump sum death benefit paid. As such it is worth reviewing a client’s circumstances to determine whether they might be entitled to the anti-detriment amount on any lump sum death benefits paid before 1 July 2019.
A possible situation where an anti-detriment benefit might be available is where the deceased passed away before 1 July 2017 and the surviving spouse received the death benefit as a pension. A lump sum paid before 1 July 2019 from the pension account will be a death benefit and may attract an anti-detriment benefit.
Withdrawing funds from a pension account moves those funds from a tax free earnings environment to a potentially taxable environment. A single person who is 65 years or older has an effective tax-free threshold of $32,914 when including the benefit of various income tax offsets. This means a substantial amount of assets can be held personally before the income will be subject to tax. However, the decision to remove funds from superannuation should be made in light of the client’s overall position; taxation is only one aspect of this position.
A further benefit may arise where an individual is drawing more than the minimum pension amount. Taking a lump sum for the amount above the minimum might attract an anti-detriment benefit. In addition to the anti-detriment benefit, it will have favourable treatment from a transfer balance cap perspective as lump sums are a debit against the transfer balance account whereas pension payments don’t affect the transfer balance account.
Another situation where an anti-detriment benefit might arise is the situation where the person passed away before 1 July 2017 and the super fund is yet to pay the benefit. The process of paying a death benefit can take time and such a delay is not uncommon. Where the death benefit is paid as a lump sum it may attract an anti-detriment benefit.
Not all super funds pay anti-detriment benefits and those that do may not pay in all circumstances (eg a super fund may not pay on lump sum death benefits containing death benefits rolled over from another fund) so it will be important to check with the fund on a case by case basis.