Revolutionising super: Empowering structured giving for impactful philanthropy

Superannuation funds in Australia hold tremendous value for citizens, yet determining the beneficiaries in the event of the primary recipient's death can be challenging.

Many Australians pass away with a substantial portion of their retirement wealth. According to data from a major super fund, approximately 90 per cent of the super Australians accumulate during their working years remains unallocated after their passing.

Unfortunately, the current laws governing super in Australia means that Australians cannot direct their super benefits to charitable organisations. This is because super death benefits may only be paid from the fund directly to a limited class of beneficiaries (in essence being individuals who are financially dependent on the deceased member).

Barriers to progress: Navigating the changing landscape

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The limitation of only enabling gifts from super death benefits to pass to charities via a valid Will may hinder effective charitable contributions.  Additionally, the current tax penalty on super proceeds passing into an estate (Will), which can amount to up to 15 per cent, poses a challenge to effective charitable giving.

Considering the anticipated growth in super balances in the future, there is a pressing need to simplify and encourage charitable giving. 

A key aspect of reform is enabling individuals to directly donate their excess super to charities. By bypassing the need to go through their estate, this streamlined approach simplifies the donation process, encouraging and facilitating philanthropy.  

The reform seeks to eliminate what is effectively a tax penalty on bequests made to charities from super. By doing so, individuals can support charitable causes more effectively as the burden of taxation is lifted, maximising the impact of their donations.

These changes seek to empower Australians to make a significant impact by supporting charitable organisations and creating a more efficient and straightforward path for giving through super.

Given the tax advantages individuals receive when donating to deductible gift recipient (DGR) charities while they are alive and the necessity for philanthropic contributions to grow in Australia, it is worth considering additional reforms to the regulations within the superannuation industry. 

Promoting philanthropic giving with new reform

The Australian government is already working towards doubling philanthropic giving (currently $13 billion a year) in Australia by 2030. Such a goal, in less than a decade, comes with the need to encourage and promote charitable giving across the country and create easier ways for citizens to donate.

While direct donations over a citizen’s lifetime should be encouraged, as should increasing bequests made through Wills; making it easier for supers to be transferred to charities post-death would also be an added convenient and substantial means of support.

Moreover, a reform in this sector could significantly change the Australian philanthropic landscape when we consider that super accounts in Australia are worth more than $3.4 trillion in assets under management through 23.2 million accounts as of September 2022, according to a study by the Association of Superannuation Funds of Australia (ASFA). 

Australia undoubtedly requires a reform that facilitates tax-free transfer of super funds to local charities. This need is further accentuated by the fact that not everyone opts to create a Will.  Given the existing prevalence of super funds among Australians, eliminating the necessity for a separate Will to include a charitable gift – and donating it directly from super - would streamline the process and encourage more philanthropic contributions.

Implementing tax-free charitable giving through super is poised to incentivise individuals to contribute even more generously to charitable causes. By availing of this option, Australians can effortlessly support charities without the burden of taxation, amplifying the impact of their donations.

For the reform to be truly effective, it should ideally complement broader tax reforms that enable deductible gift recipients, such as charitable organisations, to directly receive super death benefits as tax-free payments from the fund. This synergy between the super sector and tax policies would create a cohesive and supportive framework for charitable giving, fostering a culture of philanthropy and driving positive change in society.

Harnessing new opportunities for charitable giving

For charities, super funds can serve as a significant source of income. It is a chance for citizens who regularly donate to charities and those who have never donated. It also includes those that may not have a Will or have a Will but hesitate to include a charitable gift. It both inculcates a sense of giving back to society and leaving a future legacy.

'Include a Charity', which is a campaign from the Fundraising Institute of Australia and its Wills and Legal Taskforce, is advocating for a super reform allowing Australians to make bequests through their super.

Charitable giving through Wills and super entails no cost during the donor's lifetime, yet it has the potential to impact numerous lives and causes after their passing. By leaving a lasting legacy, individuals are remembered for their contributions long after they are gone.

Katherine Raskob, CEO of Fundraising Institute Australia, said: “We are working diligently as the peak body for the fundraising sector to bring about policy changes like this, which will profoundly impact the further development of charitable donations in Australia. It is also an opportunity for all Australians to use their trusted asset to ensure the charity organisations they hold dear or the causes they believe in continue to thrive, leaving a lasting legacy for themselves that extends beyond their lifetime."

She further added, “Over the next two decades, $2.6 trillion will be passed on to the next generation – if just 5 per cent were left to charity, this would release $130 billion to help all charities, big or small."

The government’s resolve to increase charitable giving can substantially increase contributions towards various vital causes, such as children's health and education, care for the elderly and individuals with disabilities, human rights protection, and more. These funds can also help address broader concerns such as environmental conservation, preservation of natural resources, animal welfare, and the safety of endangered species. 

Rohani Bixler is principal lawyer at Sage Succession Law.