Standard methods for creating and maintaining binding death benefit nominations are often imperfect and can leave a member’s family in financial distress if not managed properly. However, an already existing strategy may provide a more effective path forward, according to Malleson’s Sarah Yu and Zoe Fu, and Australian Retirement Trust’s Karen Thomson.
Death benefit distribution has proved to be a persistent thorn in superannuation’s side. Two of the most common mechanics for distributing these benefits suffer from not-insignificant flaws:
SIS binding death benefit nominations (SIS BDBNs) are hard to make, prone to lapsing without being confirmed or remade, and can be unfair if the member’s personal circumstance changed before their death.
Placing death benefit distributions at the discretion of the trustee, however, may help to alleviate some of these challenges but can also take longer and be more costly to administer.
Offering two imperfect solutions does not produce an optimal outcome. Members may struggle to keep nominations current amid changing circumstances, and where the outcome would be plainly unjust, the right of trustees to intervene remains uncertain.
There is, however, a third way.
Binding nominations made with trustee consent under section 59(1)(a) of the SIS Act (Deed Binding BDBNs) offer an alternative framework that trustees can design, adjust, and modernise within their governing rules.
This pathway was even acknowledged in the Australian Government’s consultation on preventing perpetrators from accessing victims’ superannuation death benefits as being a potential solution to that problem.
Despite this, the amount of members that have made Deed Binding BDBNs is estimated to be only 6%.
We would welcome legislative reform to allow these nominations to apply more broadly and provide greater certainty – but the industry need not wait.
This paper considers what is possible with binding nominations made under the governing rules of the superannuation fund that are consented to by the trustee under section 59(1)(a) of the SIS Act as well as the importance of an operationally efficient transition to Deed Binding BDBNs.
Nomination pathways
The distribution of death benefits among eligible recipients is a discretionary trustee decision. Generally – and with some exceptions – a trustee cannot be directed as to the exercise of its discretion. For a superannuation trustee, section 59 of the SIS Act prohibits the governing rules permitting a discretion to be exercisable by other persons, subject to certain exceptions. The result is that there are five potential death benefit distribution pathways. Three of those pathways allow a member to determine how their death benefit will be distributed:
- SIS binding death benefit nominations
- deed binding death benefit nominations (Deed Binding BDBNs) that are commonly referred to as non-lapsing death benefit nominations, and
- the trust deed prescribing the distribution (eg to a deceased’s legal personal representative).
Deed Binding BDBNs – a creature of the governing rules
Unlike SIS BDBNs – whose requirements are hard-wired in the SIS Regulations – Deed Binding BDBNs are a creature of the governing rules.
This distinction has significant practical implications. The framework is largely in the hands of the trustee that – consistently with their fiduciary, trustee and statutory duties – can design, adjust, and refine the nomination process through the governing rules, provided those rules require trustee consent to the nomination, enlivening the exception in section 59(1)(a) of the SIS Act.
The ‘governing rules’ of a superannuation fund include any rules, written or unwritten, that dictate the establishment or operation of the fund. APRA says it considers:
‘Governing rules will always include the trust deed or other constituent instrument and any rules attached to the trust deed or other instrument together with any further rules which are made pursuant to such instrument.
The definition encompasses the trust deed and any pursuant rules, documents, guidelines or member communications if the trust deed provisions empower the trustee to prescribe certain matters in those documents.
Because Deed Binding BDBNs derive their authority from this multi-layered framework, trustees can deliberately allocate different elements of the nomination process to different layers, each offering a different degree of permanence and flexibility. This layered architecture gives trustees the foundational stability in the trust deed, operational flexibility in policies and guidelines, and communication agility at the member interface.
Unlike the statutory framework, which requires legislative amendment to adapt, trustees can recalibrate their Deed Binding BDBN framework as risks, technologies, and member expectations evolve.
The industry has recognised this potential, but implementation remains narrow.
Most trustees offering Deed Binding BDBNs have used the framework primarily to provide non-lapsing nominations, avoiding the three-year expiry period prescribed for SIS BDBNs.
This is a valid use case, but it captures only a fraction of what the layered architecture makes possible. We’ve identified three additional dimensions to this broader potential:
- easing formality requirements;
- modernising administrative controls; and
- permitting substantive protections against changed circumstances.
Transition: managing concurrent pathways
Trustees offering Deed Binding BDBNs face a threshold question: is it in members’ interests to offer multiple death benefit nomination pathways, or should the fund transition to a single pathway?
Offering both SIS BDBNs and Deed Binding BDBNs – each with different formality requirements, lapse rules, and operational processes – creates complexity that may impede member understanding. ASIC noted that inconsistent processes for different nomination types may cause confusion as to how a binding nomination can be confirmed, amended, or revoked.
Dual pathways also impose an administrative burden: trustees must maintain separate processes, train staff on both regimes, and ensure member communications accurately explain the distinctions. If both pathways are offered concurrently, the trust deed must establish clear priority rules. Consider a member who has a SIS BDBN in favour of their spouse and later makes a Deed Binding BDBN in favour of their adult children. If the member dies while both are in effect, which nomination prevails?
This is a matter of trust deed design, but the rules must be unambiguous and communicated to members at the point of nomination. Alternatively, trustees may prefer to phase out SIS BDBNs and offer only Deed Binding BDBNs going forward.
This approach aligns with ASIC’s recommendation to consolidate nomination options and avoids the complexity of managing two concurrent systems, allowing the trustee to design a unified, modern nomination framework. However, a practical difficulty arises: members with existing SIS BDBNs have a statutory entitlement under regulation 6.17A(5) to confirm or amend their nomination before it lapses.
If members exercise this right, their SIS nomination continues—potentially indefinitely through successive three-year confirmations. The trustee cannot refuse to accept a valid confirmation that complies with the regulation.
This creates a transition challenge. Even if a trustee closes new SIS BDBNs to incoming members, existing nominations may persist for years as members continue to confirm them. However, to achieve operational efficiency and minimise administration costs an effective and efficient transition can (and should) be designed to bring everyone within the same death benefit nomination regime. This requires regulatory relief.
The case for Deed Binding BDBNs
The SIS BDBN framework has served the industry for over two decades, but member expectations, risk landscapes, and digital capabilities continue to evolve. Deed Binding BDBNs provide trustees with the architecture to meet those evolving demands. This enables trustees to take ownership of the nomination process and implement considered design choices that are fit for purpose, tailored to their membership, and balanced between member protection and operational efficiency.
Disclaimer: The views of Karen Thomson are her own and do not necessarily reflect the views of Australian Retirement Trust Pty Limited.
The authors would also like to thank Ashwin Retnakumar, Manager – Financial Crimes Strategy and Policy, Australian Retirement Trust, for his contribution to this paper.
