Lets take a look at the key differences and considerations when deciding whether to have an automatically reversionary nomination, or a binding / non-lapsing death benefit nomination for account based income streams.
Under superannuation legislation, members commencing an account based pension have several options (subject to the fund’s governing rules) for death benefit nominations. The most common are:
Regardless of the type of nomination selected, the SIS death benefit payment standards always apply. Broadly, the SIS death benefit payment standards require:
Any nomination that would otherwise require these rules to be breached is invalid.
The SIS Regulations specifically allow account based pensions that are payable for the life of both a primary and reversionary beneficiary. Members can therefore, commence an account based pension that automatically reverts to a reversionary beneficiary upon the pensioner’s death.
In simple terms, the reversionary pensioner will automatically continue receiving the pension payments in the event of the primary pensioner’s death.
Reversionary pensions have a number of practical advantages over non-reversionary pensions. These include:
A binding death benefit nomination enables the client to specify which SIS dependant(s) they want to receive their super death benefit and (usually) in what proportions. A binding nomination can also be used to direct the death benefit to the Legal Personal Representative (LPR).
A binding death nomination can provide more choice in how to receive the death benefit as a lump sum or, if eligible, a pension, depending on the rules of that fund.
It really depends.
There are several differences and considerations when deciding whether to put in place a reversionary nomination when commencing a new superannuation income stream or simply putting in place a binding or non-lapsing nomination.
When assessing which type of nomination is appropriate, you should consider your specific circumstances, including need for flexibility and other factors such as grandfathering of an account based pension for social security purposes and the ability to amend the type of nomination without having to restart the income stream.
In making a decision the most important thing is to make sure you have thought through the implications and how this fits in with your broader estate planning strategy.
If you’ve got any questions about reversionary pensions and binding death benefit nominations, please book a chat with one of our financial planners.
Pete is the Co-Founder, Principal Adviser and oversees the investment committee for Pekada. He has over 18 years of experience as a financial planner. Based in Melbourne, Pete is on a mission to help everyday Australians achieve financial independence and the lifestyle they dream of. Pete has been featured in Australian Financial Review, Money Magazine, Super Guide, Domain, American Express and Nest Egg. His qualifications include a Masters of Commerce (Financial Planning), SMSF Association SMSF Specialist Advisor™ (SSA) and Certified Investment Management Analyst® (CIMA®).