A reversionary pension is an income stream pension that automatically passes to the reversionary beneficiary upon death of the original owner of the pension.
A reversionary pension beneficiary is a person who will receive an income stream pension when the original owner and recipient of the pension passes away.
In the event that the original owner of the pension passes away, the pension will revert seamlessly to the beneficiary.
The reversionary beneficiary will become the new owner of the pension and recipient of pension payments.
The transfer of a reversionary pension to the beneficiary is not dictated by the deceased’s Will or superannuation death benefit nominations.
The reversionary beneficiary is nominated at the commencement of the income stream, as part of the pension components.
Who Can Be A Reversionary Pension Beneficiary?
A reversionary beneficiary must fall within the definition of an eligible pension dependant. If you are considering nominating a reversionary beneficiary for your pension, it is important to know who you can choose. An eligible pension dependant is very similar to the general superannuation definition of a dependant. The only difference being that the superannuation definition of dependant includes a child of any age. Whereas, the eligible pension dependent definition is restricted to certain types of children.
Specifically, an eligible reversionary pension beneficiary can only be:
- A spouse
- A child (under age 18)
- A child (over 18 in certain circumstances)
- A person in an interdependency relationship with the pension owner
The certain circumstances referred to above for children over 18 includes:
- a child aged between 18-25 who is classified as a financial dependant; or
- a child of any age who has a disability, as defined in the Disability Services Act.
An interdependency relationship includes two people (related or unrelated) who:
- have a close personal relationship;
- live together;
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic support and personal care
It should be noted that not all superannuation funds will provide the option of reversionary pensions.
Reversionary pensions are available under superannuation legislation, but that does not make it compulsory for your super fund to offer them to you.
This video explains how reversionary pensions work and some things to consider before starting one.
How Do I Nominate a Reversionary Pension Beneficiary?
A reversionary pension beneficiary must be nominated at the commencement of the income stream
You will do this by notifying your super fund who you would like to be the reversionary beneficiary of your pension.
With an industry super fund or retail super fund, the nomination should be able to be done as part of the new pension application documentation.
For a self managed superannuation fund (SMSF), the pension documentation will specifically state the pension as being reversionary and will detail who the beneficiary is.
This will be arranged by the administrator of your SMSF.
Can I Nominate More Than One Reversionary Pension Beneficiary?
Only one person can be nominated as the reversionary pension beneficiary.
You are unable to nominate more than one reversionary beneficiary.
If you would like your retirement income stream to be divided up and paid to more than one beneficiary when you die, you should consider making your pension non-reversionary, or having multiple reversionary pensions.
Non-reversionary pensions are paid in accordance with a binding or non-binding nomination, or at the trustee discretion.
Can You Change a Reversionary Pension Beneficiary?
If you have established a retirement income stream with a reversionary pension beneficiary, the beneficiary nominated is unable to be changed.
There are options available to you if you have changed your mind, your relationship status has changed, or if your nominated beneficiary is no longer an eligible pension dependant.
Rolling the pension income stream back to accumulation phase and starting a new reversionary or non-reversionary pension will effectively cancel your existing reversionary pension and nominated beneficiary.
You can then nominate a new reversionary beneficiary for the new pension, or make the pension a non-reversionary pension.
Keep in mind that, commuting the pension back to accumulation phase may have other implications (e.g. Centrelink assessment).
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If you would like to keep the pension in place, the reversionary beneficiary must remain. There is no way around this.
However, if the reversionary beneficiary is not an eligible pension dependant (as defined above) at the time of death, the pension will not revert to them.
Instead, the trustee of the super fund will consider any superannuation death benefit nominations that they have received from you.
If no nomination has been made, the trustee will retain discretion as to who the remaining pension balance is paid to, based on relationships with the deceased at the time of death.
What Happens if the Reversionary Pension Beneficiary Dies?
If the reversionary beneficiary dies prior to the original pension owner passing away, the pension will automatically become a non-reversionary pension.
Given that the pension will now be non-reversionary, you should consider providing the trustee of the super fund with a death benefit nomination.
Alternatively, you can roll back your pension and recommence a new one, with a new reversionary beneficiary, if you wish.
Do I Have To Nominate a Reversionary Pension Beneficiary?
A reversionary beneficiary of an income stream is only required if you want that income stream to automatically revert to a certain person in the event of your death.
You can, instead, simply have a non-reversionary pension.
Upon death, a non-reversionary pension is generally paid out as a lump sum to the nominated beneficiaries or the deceased’s Estate.
It can, however, be paid as an income stream (without it being a reversionary pension), provided the beneficiary is an eligible pension dependant.
The decision as to who the death benefit pension is paid to is determined by any superannuation death benefit nominations.
Should there be no death benefit nominations in place, the trustee of the super fund will determine who it should be paid to.
Reversionary Pension Beneficiary Alternatives
As eluded to above, a pension income stream does not need to have a reversionary beneficiary.
In fact, most income streams are non-reversionary.
Reversionary pensions are preferred by people who want certainty in knowing who and how their pension balance will be paid in the event of death.
However, some people prefer to provide their potential beneficiaries with flexibility as to how they receive pension death benefits, based on superannuation rules, personal relationships and tax treatment of reversionary pensions at the time of death.
The alternative to a reversionary pension is to use binding or non-binding death benefit nominations.
Binding death benefit nominations can be lapsing or non-lapsing.
The availability of binding nominations and whether they can be lapsing or non-lapsing depends on whether your super fund provides you with ability to put one in place.
Most super funds will give you the opportunity to put in place non-binding nominations, but not always binding nominations.
If you do have a reversionary pension in place, the nominated beneficiary will relate to that pension only.
Therefore, you need to consider who will receive any other superannuation savings in the event of your death, such as accumulation savings, other pension accounts, or life insurance proceeds.
