Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 206

Is it time to review your super pension?

The financial media is replete with advice on the new super laws. Advisers, accountants, SMSFs specialists (myself included) and product providers are flat out getting ready in time.

The $1.6 million transfer balance cap is receiving most attention as existing pension balances will be measured on 1 July 2017. If your pension balance is under $1.6 million, you may think you don’t need to worry about it, but what if you and your spouse have over $1.6 million between you?

Importance of dealing with transfer balance cap

In this circumstance, if one of you dies and the survivor wants to keep the assets in the advantageous superannuation environment, the transfer balance cap becomes very relevant.

Check how the pension is structured to be paid out after a death. Under the transfer balance cap rules, where the pension is not ‘reversionary’, but the surviving spouse elects to receive the benefit as a pension, the balance will count towards that spouse’s cap straight away, and that could tip his or her pension transfer balance over $1.6 million. This will need to be dealt with as soon as possible.

In the past, a surviving spouse was able to roll over a pension from a deceased spouse (known as a ‘death benefit pension’) after a specified time period (six months from date of death, or three months from grant of probate). This provision has been removed and it will always be a death benefit pension and unable to be rolled over.

So, if you receive a death benefit pension from your spouse which results in you exceeding your $1.6 million transfer balance cap, the only way to keep the money in the superannuation system is to roll your own pension back to accumulation.

A ‘reversionary’ pension, on the other hand, will not be assessed to the surviving spouse for 12 months from the date of death, buying a bit of time before having to deal with the excess. The same issues arise, but you have a year to figure out what to do.

Correct set-up makes a difference

Hence, setting up the pension correctly while you’re alive can make all the difference to your spouse on your death. Let me put that into a case study to illustrate.

On 1 July 2017, Brian, 76, has an account-based pension valued at $1,400,000, while his wife, Jenny’s, 72, is worth $900,000. Both pensions are ‘reversionary’ to each other.

On 25 July 2017, Brian passes away. His pension is valued at $1,380,000 and continues uninterrupted to Jenny. Technically, Jenny’s total pension balance is now over $1.6 million, however, the reversionary pension will not count towards Jenny’s cap until 25 July 2018, giving her time to consider her options.

Jenny cannot roll over any of Brian’s pension, she can elect to roll over some or all of her pension to accumulation. She decides to roll over enough to bring her transfer balance cap to $1.6 million.

Jenny’s Transfer Balance Cap

Had Brian’s pension not been reversionary, Jenny would have had to deal with this soon after his death, at a difficult time for her. Being reversionary also gives tax free income and capital gains for an extra year. Jenny has time to decide that the assets supporting her own pension should be sold before being transferred to accumulation.

If Brian’s balance was over $1.6 million, Jenny would have no choice but to commute the amount over $1.6 million to a lump sum payment, and transfer her whole balance back to accumulation.

If both partners are still in accumulation phase, what happens if one dies? This is similar to a non-reversionary pension. If a surviving spouse elects to take the benefits as a pension, the value of the pension account will count immediately towards his or her transfer balance cap.

Can anyone be nominated to receive a reversionary pension on my death?

A death benefit pension can only be paid to a:

  • Spouse, including de facto and same sex partner
  • Person who was financially dependent on the deceased
  • Person who had an interdependency relationship with the deceased person, and
  • Child, including adopted, step and ex-nuptial, who is under 18, over 18 with a disability, or 18 to 24 and financially dependent on the deceased.

Next time you’re in for an investment review, speak to your adviser about the structure of your pension. It may need some tweaking.

 

Alex Denham is a Senior Adviser with Dartnall Advisers. Prior to becoming an adviser, she spent 20 years in senior technical roles with several financial services companies. This article is general information and does not consider the circumstances of any individual and is based on a current understanding of the rules.

 


 

Leave a Comment:

RELATED ARTICLES

Timing on transfer balance cap and CGT relief

So, we are not spending our super balances. So what!

Meg on SMSFs: Winding up market linked pensions with care

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.