The importance of anti-detriment payments from super

Whether a superannuation fund will make an anti-detriment payment (ADP) or not is seldom considered when weighing up the pros and cons of a given fund. But it should be.

It is not compulsory for a super fund to make an ADP, which is payable upon death. Some funds will make an ADP only if your beneficiary is a dependent, such as a spouse or dependent children (adult children are not considered dependents). Other funds will make a payment regardless of your beneficiary nomination and some funds won’t make ADP’s at all.

In simple terms, an ADP is made in the event of death to reflect the contributions tax incurred by the deceased member over their working life.

Any contributions made to superannuation on a pre-tax basis, such as employer (SG) or salary sacrifice contributions, are subject to a contributions tax of 15% upon being received by your super fund. Pre-tax contributions are also known as concessional contributions.

Given most individuals make super contributions on a pre-tax basis and work for about 35 years, a significant amount in contributions tax has often been paid by the time they cease work.

To put this in context, let’s say you earn $75,000 pa, your employer contributes 9% pa to super and your salary increases by 3% pa, you will have paid around $64,000 in contributions tax after 35 years. And this doesn’t allow for any salary sacrifice contributions.

An ADP seeks to reimburse the contributions tax paid during the member’s working life. Upon death, the super fund will perform a calculation to determine how much contributions tax was paid by the deceased member and increase the lump-sum payment to beneficiaries accordingly. An ADP can increase a lump-sum death benefit by as much as 17.6% and can be claimed as a tax deduction by the super fund. ADP’s can only be made where a death benefit is paid as a lump sum, not a pension.

ADP’s came about when contributions tax was introduced on 1 July 1988. At this time, it was decided that death benefits should not be disadvantaged by the new tax, thus super funds were permitted to ‘refund’ contributions tax on the basis that it effectively reduced the account balance and therefore the death benefit payable.

The importance of ADP’s should not be underestimated. For the sake of your beneficiaries, make sure your super fund will make an ADP.

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
© Copyright 2011-2014 Financial Planning Expert Pty Ltd

ABN: 71 545 756 841 Australian Financial Services License: 402042

Phone: (03) 9708 8126




This entry was posted in News Blog, Superannuation. Bookmark the permalink. Both comments and trackbacks are currently closed.
  • Send Us Your Enquiry Today!

    Name *

    Email *

    My enquiry relates to:

    Additional Information

    Enter the CODE below:

  • FPE on YouTube

  • About Financial Planning Expert

    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.