As we are all aware, the law allows superannuation fund trustees to provide three types of death benefit nomination options to members – non-binding, binding, and consent nominations.
Each of the three options provides different degrees of certainty to members as to whom their superannuation death benefits will be distributed to. Simultaneously, each of the three options provides trustees with different means by which they can accept these nominations from members under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations).
The problem – hard or soft copy nominations in the digital age
A question for many trustees is whether they can accept binding death benefit nominations electronically, given that modern commerce takes effect in the digital age.
The manner in which non-binding and consent nominations are made is neither governed by SIS nor the SIS Regulations. In other words, there is nothing preventing a member making such nominations via email or a fund’s portal, for example, unless the fund’s governing rules prohibit it.
However, the requirements are markedly different when it comes to binding death benefit nominations which, for many members, may create the greatest peace of mind for obvious reasons. This is because SIS Regulations 6.17A and 6.17B place specific requirements as to how members can direct trustees. For current purposes, a binding death benefit nomination must:
- be in writing, and signed and dated by the member in the presence of two valid witnesses; and
- contain a declaration, signed and dated by the witnesses, stating that the nomination was signed by the member in their presence.
The actual direction contained in a binding nomination could be made electronically on the basis that the Acts Interpretation Act 1901, section 2B defines “writing” to include ‘any mode of representing or reproducing words, figures, drawings or symbols in a visible form’.
However, there is no legislation detailing whether these nominations can be signed and witnessed electronically. Each of the Commonwealth and states provide their own electronic transaction laws allowing for electronic signatures (for example the Electronic Transactions Act 1999 and the Electronic Transactions (Victoria) Act 2000). However the legislation does not apply in the context of superannuation death benefit nominations and, even if it did apply, the legislation fails to detail how certain documents can be witnessed.
Therefore, in the absence of any legislative guidance or specific prohibitions, if trustees sought to accept binding death benefit nominations, electronically, there are likely to be two approaches they could consider:
- trustees could accept scanned copies of members’ binding death benefit nominations, rather than via the post – in our experience trustees usually only accept these if they are posted (i.e. originals). For all intents and purposes, if a trustee cannot determine whether a scanned copy of a binding nomination has been signed by the member and witnessed by two separate witnesses, how could it determine that a posted original document has been signed by the member and witnessed by two separate witnesses?
This first option would mean that the nomination is drafted, signed and witnessed on paper, but sent electronically; and/or
- trustees could accept binding death benefit nominations made via the fund’s portal, or in some other electronic manner, provided that the trustee can satisfy itself that the document has been signed by the member and witnessed by two separate witnesses (for the purposes of exercising the degree of care, skill and diligence that a prudent superannuation trustee would be required to). One way to imagine this would be if such a nomination could be made on a computer device (think of a smart phone or tablet) that not only accepted three separate signatures (the member and two witnesses), but could photograph/film the signing.
In some respects (and again, technology permitting) this second option may actually provide greater certainty that the nomination was witnessed both at the location and at the same time that the member signed it. In the absence of a smart phone or tablet – as mentioned above – the trustee may not be able to detect whether signatures have been forged, neither can it be so satisfied receiving paper copies (at least not at a reasonable expense to the trustee).
An alternative option – the middle ground
In the face of uncertainty, if trustees seek the flexibility of receiving death benefit nominations electronically, an alternative is to provide for consent nominations pursuant to SIS, section 59(1)(a).
A consent nomination allows members to nominate the persons to whom death benefits should be paid, subject to the trustee consenting to the nomination.
A consent nomination provides a middle ground between non-binding and binding death benefit nominations because:
- as with a non-binding nomination, there is no certainty that the trustee will agree to pay an amount to the nominee, until such time as the trustee confirms that it consents, has withheld its consent or revokes its consent;
- assuming that the trustee consents to a nomination, the nomination does not lapse every three years (as it would for a binding nomination). However previous APRA guidance recommended that trustees have processes in place to review past nominations on a periodic basis, and it would be prudent for trustees to continue to maintain such processes; and
- even though the trustee should review previous consent nominations on a periodic basis, the trustee would still be required to determine whether the payment of a death benefit complies with the law before making such a payment under all three types of nomination.
Any additional burden placed on the trustee, by allowing for consent nominations, is likely to be minor at best. In fact a trustee could develop a policy outlining that consent nominations can only go to a member’s dependants or legal personal representative (LPR), and provide its consent periodically on the basis that at the time of a member’s death, the nominee is still either a dependant or the LPR.
However, for the purposes of a trustee being able to accept death benefit nominations electronically, the fact that there is no restriction on consent nominations being provided by the member electronically may provide a suitable middle ground.
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