When talking about Anti Detriment Payments (ADP), the response is often, Anti Detri what? But the reality is ADP are a little known part of superannuation that can be of large value.
An ADP is a additional payment, paid on death, to eligible dependents on receipt of a superannuation lump sum death benefit. It is meant to be a refund of the contributions tax paid by the member over the life of their superannuation benefit. As it is almost impossible for any member to calculate the actual contribution tax paid over the life of their superannuation, the ATO have provided a formula to calculate it (this formula is provided at the end of this blog). ADP are funded by providing the fund with a tax deduction equal to the ADP grossed up by the superannuation tax rate of 15% but not all superannuation funds pay ADP though.
You might be thinking, this is all a bit complicated and so what?
This is not a payment which is only applicable to deaths in younger people and it isn't only applicable for deaths in older people. It's a payment which is available at any age! So, how much can this benefit be?
Lets have a look at John, a 40 year old with a wife and 2 children, who unfortunately has been diagnosed with a terminal illness. He has a superannuation balance of $300,000 (100% taxable component) with an eligible service date of 1 July 1993 and an insurance death benefit of $120,000. Often people would claim the insurance benefit (virtually all death benefits will pay on diagnosis of a terminal illness) and then withdrawal the entire $420,000 under the terminal illness condition of release of superannuation. They then can use the funds to enjoy their final months together and leave the spouse with the balance so she isn't waiting for the death benefit after death. If you don't have anyone eligible for an ADP, then this would be a good strategy.
Unfortunately, when you withdrawal your superannuation balance prior to death under terminal illness, you are no longer eligible for ADP. In this case for John, his ADP could be $52,941, that's right, over $50,000! That is a lot of extra money for the spouse and children. I've seen people miss out on this sort of money. Even if they wanted some funds from superannuation prior to Johns death, they could have rolled the majority of the balance over to another fund that pays an ADP, then claim the insurance benefit, and withdrawal those funds. It is important not to mix the insurance proceeds with the superannuation balance if you want to withdrawal some funds prior to death.
ADP can also apply to older people. As the superannuation system ages, so does the number of retirees dying with a superannuation balance remaining. Some funds, but not many, also pay ADP from pensions as well as accumulation accounts.
Bob is 74 and has $450,000 in a pension. He has an eligible service date of 1 July 1980. If Bob has his pension in a fund which offers ADP and Bob's wife Mary receives his superannuation as a lump sum, she could receive an ADP of $64,671.
So, to conclude, I would just like to run through a few main points when it comes to ADP:
- Not all superannuation funds offer it and even less pensions offer it. Ensure yours does.
- To receive an ADP, the beneficiary must be a spouse, former spouse or child. They must receive the benefit as a superannuation lump sum death benefit. Withdrawing funds prior to death or nominating a reversionary pensioner on a pension means they will not get it.
- If the person receiving the ADP is to old to re contribute the funds back to superannuation, you need to determine if the ADP is worth it if there is negative tax and Centrelink implications by having the funds outside the superannuation environment.
- It is very very difficult to get the benefit from a Self Managed Super Fund. You need to have sufficient funds in reserves of the fund prior to death (which is essentially your own money), then you pay the reserves as an ADP (which again is your own money). Then the SMSF will receive a large tax deduction to carry forward so the funds are then recouped over many years of not paying tax within the fund. For people nearing retirement or in pension phase. This is of no use to them. For those who are paying tax within a SMSF, recouping a $50,000 or $60,000 ADP can take decades.
If you would like any further information on Anti Detriment Payments or any other financial matter, please contact me on 1300 200 012 or glenn@precisionwm.com.au
The formula for calculating an ADP is in the picture below. Although it looks complicated, for people with an eligible service date (the date you first started working and received superannuation contributions) after 30 June 1983, it will simply be the taxable component of your superannuation fund multiplied by 17.647%.
The formula for calculating an ADP is in the picture below. Although it looks complicated, for people with an eligible service date (the date you first started working and received superannuation contributions) after 30 June 1983, it will simply be the taxable component of your superannuation fund multiplied by 17.647%.
