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

Did retirees lose out when they accepted defined benefit schemes?

How to prevent excessive superannuation balances

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

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.