Interdependency and complexity to go hand in hand

Death benefit claims have always been difficult for trustees, but picking the interdependency relationships from the deceased’s mere friends, relatives or housemates might take the process to a whole new level of complexity and invasiveness.

For fund members dying after July 1, 2004, the category of Dependant now includes any person with whom the member had an interdependency relationship.

Under the Superannuation Industry (Supervision) Act, two people have an interdependency relationship if they have a close personal relationship, they live together, one or each of them provides the other with financial support, and one or each of them provides the other with domestic support and personal care.

An interdependency relationship also exists if two people have a close personal relationship, but do not satisfy the other criteria because one or both of them suffers from a physical, intellectual or psychiatric disability.

New draft regulations specify matters to be taken into account when identifying interdependency relationships and the circumstances in which they exist.

The list of matters to be considered by trustees includes:

* duration of the relationship;

* whether or not a sexual relationship existed;

* the ownership, use and acquisition of property;

* the degree of mutual commitment to a shared life;

* care and support of children;

* the reputation and public aspects of the relationship;

* the degree of emotional support;

* the extent to which the relationship was one of mere convenience, and

* any evidence suggesting that the parties intended the relationship to be permanent.

There will still be interdependency if a close personal relationship exists but the other criteria are not met. The reason may be that the people are temporarily living apart, or either or both has a permanent incapacity within the meaning of SIS Regulation 6.01.

Incidentally, this permanent incapacity test is much stricter than the mere existence of a physical, intellectual or psychiatric disability.

Finally, the draft regulations will allow the domestic support and personal care test to be met if one or each of the people provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.

The interdependency concept was intended to relieve the difficulties experienced by people in same-sex or other relationships that are close and personal, but non-spousal in nature.

One example is that of mothers and daughters who live together, share financial resources, and look after each other.

Until the change was introduced, people in these situations were unable to nominate each other as their preferred superannuation beneficiary if the other person was not financially dependent.

The changes were broadly welcomed, on the basis that they recognised the range of relationships existing in the community, and addressed the inequities faced by those whose partnerships did not fall into a standard husband and wife mould.

But in seeking to clarify how an interdependency can be identified, the draft regulations highlight the flaw in this approach: who are trustees to judge the nature of a relationship? To decide whether a couple’s care for each other went beyond mere friendship? To enquire about the sex life of a deceased member? To ask friends and neighbours what they thought about a relationship?

No trustee wants to be put in this position. No fund member will relish the thought that after their death their interdependent partner will have to put aside their grief, prepare a submission detailing the most intimate details of their relationship, and wait for a fund trustee to sit in judgment.

Restrictions on who can receive a superannuation death benefit exist because of the sole purpose test and the theory that the benefit of superannuation tax concessions should only flow through to members, their spouses and children, and their financial dependants.

But superannuation now forms part of our remuneration, and a large part of it can be made up of our own contributions.

Are there any compelling reasons for maintaining restrictions on how a fund member can dispose of this, often significant, asset on their death?

Why should members not have the right to make their own decisions about those for whom they want to provide? Are we so concerned about the cost of superannuation tax concessions that we cannot risk a small amount of superannuation money going to people who have not passed a government-mandated relationship check?

The sheer complexity and intrusiveness of the investigations trustees will have to make into interdependency relationships suggests that it is time we started to ask these questions.

Heather Gray is a partner at Holding Redlich, where she heads the superannuation practice. She has more than 20 years’ experience in superannuation law, and has acted as a trustee director of an industry fund.