Making giving easy: Charitable Superannuation Bequests
Australia is one of the wealthiest countries in the world. Despite our relative wealth, we lag our international counterparts in charitable giving. We can increase Australia’s levels of giving through creating the right policy conditions.
One of the most significant areas of potential giving is superannuation balances remaining at the end of life. Australia’s superannuation savings are currently valued at $3.5 trillion, and they are designed to provide a better standard of retirement income for Australian employees.
However, many people die with significant superannuation savings intact: in 2018, $17 billion in superannuation death benefits were paid by superannuation funds. This has been forecast by Treasury’s Retirement Income Review to grow over seven fold in real terms to $130 billion by 2060.
Current policy settings discourage Australians from giving a portion of these remaining savings to charities. Donations to eligible charities when people are alive are tax deductible. Gifts or bequests through a will are also tax free. By contrast, bequests to charities from superannuation are subject to a 17 per cent tax.
In addition to the tax implications, the process for making a bequest to a charity from remaining superannuation is complicated, differs between superannuation funds, and is often an area of legal dispute. Currently, people are unable to directly bequest funds to a charity from any remaining superannuation when they pass away.
To bequest remaining superannuation to a charity, individuals must have a valid will in place that nominates a charity, and rely on the superannuation fund trustee using its discretion to pay the funds to the executor of the estate, for distribution to the charity. Given the complexity, time and cost involved, relatively few people are taking up this option.
In this report we model the significant potential of a simpler approach: allowing people to instruct the trustee of their superannuation fund to make a direct bequest to a charity from remaining superannuation. We outline the policy reforms necessary to make this avenue of giving fair and simple.