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

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

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.