Superannuation savings in Australia, valued at $3.5 trillion, provide a better retirement income for many Australian employees. But when retirees finally ‘shuffle off this mortal coil’, it is paid out in superannuation death benefits. And charities are losing out.

In 2018, $17 billion in superannuation death benefits were paid out, with projections indicating this could grow to $130 billion by 2060. But current complex tax laws discourage Australians from bequeathing a portion of their superannuation savings to charities.

A report commissioned by Philanthropy Australia recommends three key changes:

• remove the 17% tax on making superannuation death benefits to charities,
• allow charities to be direct recipients of death benefit nominations, and
• consult with the superannuation industry to work out design and implementation details.

According to Impact Economics and Policy estimates, these reforms could generate between $4.8 and $21.9 billion in income for charities from superannuation bequests by 2060. It’s a significant increase compared to the $13.4 billion Australians donated to charities in total in 2021.

Jack Heath, the CEO of Philanthropy Australia, highlighted the importance of this reform.

“This reform can transform giving in Australia. It would also streamline tax policy and remove the anomaly that if you donate to a charity the day before you die you get a tax break but if it goes to charity the day after your death the charity loses up to 17 per cent,” Mr Heath said.

The report emphasises that these recommendations do not alter the primary purpose of superannuation, which is to provide retirement income. Instead, they recognise the opportunity to enhance the social value of superannuation by removing barriers to bequests to charities. This change could make a substantial impact and should be pursued.