Witnessing of Binding Death Benefit Nominations: One, Two or None? What's the story morning glory?

Will all nominations lapse after 3 years?  Must all nominations be witnessed by 2 independent witnesses (in the manner of a will)?  The answers to these questions depends on whether the fund is an SMSF and whether or not the nomination is a lapsing or non-lapsing nomination.

The story for SMSFs which have adopted the SUPERCentral Governing Rules – is that nominations are of indefinite duration (ie equivalent to non-lapsing nomiantions) and need not be witnessed.  However, the standard SUPERCentral nomination template includes a provision for a witness.  This is done as a means to preclude disputes subsequently arising as to whether the nomination was or was not signed by the relevant member.  While the nomination is of indefinite duration – it can, at any time, be revoked or replaced by a more recent nomination made during the member’s lifetime.

For other SMSFs – whether nominations are of indefinite duration or subject to the “3 year/2 witness” requirement depends entirely on the wording of the trust deed/governing rules of the SMSF.  The trust deed/governing rules may expressly or implicitly incorporate the “3 year/ 2 witness” requirement.  If this requirement has been incorporated, then the nomination will only be valid if the requirement has been satisfied.  However, the trust deed/governing rules need incorporate the requirement or, indeed, may incorporate a different requirement.

What about funds other than SMSFs?

For all other superannuation funds (eg retail funds, master funds, industry funds, small APRA funds, corporate funds) nominations must either satisfy the “3 year/ 2 witness” requirement or be drafted as a “non-lapsing nominations”.  The difference between the 2 types of nomination is that lapsing nominations do not require the consent of the trustee while non-lapsing nominations do require the consent of the trustee.  The advantage of a non-lapsing nominations is that the nomination is of an indefinite duration (but can, at any time, be revoked or replaced during the member’s lifetime) while lapsing nominations will cease to be valid after 3 years (unless refreshed within that period).  

Another difference is that non-lapsing nominations are not required by the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) to be witnessed.  However, most funds will impose a witnessing requirement to preclude disputes subsequently arising as to whether the nomination was, in fact, signed by the member.

Why aren’t the SUPERCentral Nominations non-lapsing?

The simple answer is that it is not necessary for them to be non-lapsing given that SUPERCentral Nominations are of indefinite duration.

What is the technical difference between the various nominations?

SUPERCentral Nominations satisfy the requirements of s59(1) of the SIS Act.  As do  all other SMSFs which have not adopted (expressly or implicitly) the “3 year/ 2 witness” requirement.

A standard (ie non-lapsing) nomination in an APRA regulated fund (eg master fund, retail fund, industry fund, corporate fund and small APRA fund) satisfies the requirements of s59(1A) of the SIS Act (and thereby, must satisfy reg 6.17A which provision specifies the “3 year/2 witness requirement).  Similarly with any SMSF whose trust deed/governing rules have adopted the “3 year/2 witness” requirement.

A non-lapsing nomination in an APRA regulated fund is a nomination which satisfies the requirements of s59(1)(a) of the SIS Act.  As this provision is not linked to reg 6.17A, the “3 year/2 witness” requirement does not apply.  However, s59(1)(a) can only be satisfied if the trust deed requires the trustee to have consented to the nomination: that is the trust deed of an APRA regulated must specify that a non-lapsing nomination is only valid if the trustee has consented to the nomination and the trustee must in fact consent to the nomination.