“You can cash death benefits in two ways. One of them is to pay out a lump sum, which means money or assets are going to leave the fund and the super system. That could be cash, or off-market transfer of assets at market value, but we're looking at that change in ownership or transfer of assets.”

This requires more than a journal entry, she added.

“For example, doing a benefit payment on one side of the journal and a contribution for somebody else as the other side of the journal won't cut it. You need to see a physical transfer of something out of the super system for it to be a lump sum death benefit,” Dawson said.

“The other way to cash death benefits is in the form of a retirement phase pension. What we're talking about here is when we talk about death benefit, retirement phase pensions, there are essentially two types, a reversionary pension, or a new death benefit that commences to be paid from the deceased person’s super for somebody else.”

When cashing a death benefit in the form of a pension, trustees must make sure they have a “continuously rolling pension”.

“What you can't do is pay it in the form of a pension, and then turn it off and roll it back to accumulation phase,” Dawson said.

“Either you have to cash it out of the super system entirely, or cash it in the form of a pension.”

Dawson said another concept with paying out death benefits is that the account balances the deceased member had doesn't necessarily determine what's going to happen with the death benefit.

“We know there are two forms [of payment], lump sum and retirement phase pension. They're the forms you can cash a death benefit in. But what the deceased member has doesn't predetermine what you do.”

“If you've got somebody who had an accumulation account, you could end up paying lump sum death benefits out of the fund for them, or you could commence a brand new death benefit pension. If the deceased member had a pension account, we can pay a lump sum out to beneficiaries.”

An individual is not required to take a lump sum benefit if they've got an entitled beneficiary.

“You can always commence a new death benefit pension for them and move forward from there, so don't rule out pensions if there's no reversion in place when your client dies.”