Superannuation death benefit payouts: do stepchildren and adopted out children qualify as 'dependants'?

The Australian Financial Complaints Authority (AFCA) has jurisdiction to deal with a superannuation complaint about fund decisions on benefit claims, payments and distributions under section 1053 of the Corporations Act 2001 (Cth). Its  recent publication, ‘The AFCA Approach to superannuation death benefit complaints’, discusses this definition of ‘child’ and how it should be interpreted in the context of superannuation death benefits. 

Under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), a deceased member’s superannuation death benefit may be paid to their legal personal representative or dependants. Section 10 of the SIS Act defines ‘dependant’ to include a spouse, any child of the person, and any person with whom the person has an interdependency relationship. 

The definition of ‘child’ is broad, encompassing adopted children, stepchildren, ex-nuptial children, children of the person’s spouse, and those considered a child under the Family Law Act 1975. However, the legislation does not clearly articulate whether former stepchildren and adopted out children are within the scope of the definition, and thus are considered 'dependants' eligible to receive distributions from death benefit payouts.

The status of stepchildren, and, in particular, former stepchildren, has been the subject of recent attention. 

AFCA's current approach is that the death of a biological parent does not necessarily sever the stepchild relationship with the surviving spouse. But if the relationship between the stepchild and the stepparent is not maintained after the biological parent’s death, the stepchild may be considered a 'former stepchild' and may not qualify as a dependant for a death benefit payout of the stepparent. AFCA has identified two key conditions for maintaining stepchild status:

• the marriage or de facto relationship between the biological parent and the surviving spouse (stepparent) was intact at the time of the biological parent’s death (ie no divorce or separation); and
• a parental relationship was maintained between the stepchild and the surviving spouse (stepparent) after the biological parent’s death (together, the Stepchild Status Conditions).

If the Stepchild Status Conditions are satisfied, the stepchild may continue to be recognised as a dependant. If not, the stepchild may be regarded as a former stepchild and may not be eligible for a death benefit, unless they can establish an interdependency or financial dependency relationship with the deceased member. 

In the published decision of AFCA case number 12-00-1031370 against AustralianSuper Pty Ltd (trustee) dated 11 February 2025, AFCA found the four adult stepchildren of the deceased, none of whom were financially dependent on the deceased, were potential beneficiaries. 

The case involved a member (deceased stepparent), who was widowed at the time of her death. Her marriage with her late husband was intact. She had two biological children and four stepchildren. The complainant, who was one of the four stepchildren, objected to the trustee’s initial decision to pay out 50 per cent of the benefit to each of the biological children, with no payout to any of the stepchildren. 

On the issue of whether the complainant was a potential beneficiary, the question was whether their status remained that of a stepchild or of a former stepchild. AFCA found that the stepchildren’s relationship did not end, as the complainant said she continued to maintain contact with the deceased. This was sufficient to satisfy the test of ‘maintaining a relationship of affinity with the stepparent’.^[1] In applying this test, AFCA’s decision cites the case law of Bail v Scott-Mackenzie [2016] VSC 563. The judgment explores the text, legislative history and extrinsic material of the Administration and Probate Act 1958 (Vic), as well as other case law that concerns 'stepchild' before forming the view at para 107-108 that:^[2]

‘…if the marriage remains undissolved at the time of death of the natural parent, the relationship of affinity between stepparent and stepchild will continue.’

At para 119, the court concluded that:^[3]

‘The relationship of stepparent and stepchild continues unless, before the death of the deceased, the relationship is ended in the sense of dissolved otherwise than by death of the natural parent. If the natural parent died before the deceased and at the date of that death remained in the domestic partnership with the deceased, then the stepchild continues to be the stepchild of the deceased… ’

It would seem that AFCA has decided to carry over Associate Judge Derham’s interpretation of ‘stepchild’ under Part IV of the Administration and Probate Act 1958 (Vic) in the case above, to the interpretation of ‘stepchild’ under section 10 of the SIS Act. 

Similarly, AFCA’s decision in case number 12-00-990774 against Nulis Australia (Australia) Limited (trustee) applied this test of ‘maintaining an affinity with the deceased in favour of the complainant stepchild’,^[4] finding that the stepchild relationship was never severed, despite the biological parent having predeceased the member. 
 

We consider AFCA’s current interpretation to be the standard approach for now. 

The Stepchild Status Conditions mentioned earlier constitute the basis for determining whether a stepchild maintains their status as a stepchild, and thus their eligibility to receive distributions:

• if both conditions are not satisfied, then the stepchild is a former stepchild and not qualified to receive benefits; or
• if both conditions are satisfied, then the stepchild status is not severed, and they are qualified to receive benefits. 

We previously discussed in Issue 101 of our Financial Services in Focus update ASIC’s recommendations to superannuation trustees in its death benefit claims handling report.

Where the relationship between the biological parent and the stepparent ends by divorce or separation, AFCA’s view is that the stepchild relationship is generally severed. In such cases, the stepchild may only qualify as a dependant if an interdependency or financial dependency relationship can be established under the definitions provided in the SIS Act.

Examples of interdependency or financial dependency may include situations where a child is caring for a disabled parent, a child with a serious illness, or where there is ongoing financial support for living expenses.

AFCA's view  is that a biological child who has been adopted out is considered a ‘child’ for superannuation law purposes, unless the governing rules of the fund state otherwise.

However, this interpretation has been questioned by some legal commentators, including the Australian Law Council and the Financial Services Council, who note that state and territory adoption laws generally provide that, following adoption, a child is legally the child of the adoptive parents and ceases to be the child of the birth parents.^[5] 

This potential inconsistency highlights the importance of reviewing a fund’s governing rules, and updating them if required.

This article was prepared with the assistance of Dylan Chan, Law Graduate.

[1] At [2.3].

[2] At [3.4].

[3]Bail v Scott-Mackenzie [2016] VSC 563 at [118].

[4] AFCA determination, case number 12-00-990774 at [2.2].

[5] Law Council of Australia submission to the Australian Financial Complaints Authority’s Draft approach to Superannuation Death Benefit Complaints dated 12 November 2024 on pg 12-13; see also Financial Services Council submission to the Australian Financial Complaints Authority’s Draft Approach to Superannuation Death Benefit Complaints dated 25 October 2024 on pg 6.