Lack of pension documentation will not necessarily prevent an income stream from being continued and retained in the superannuation environment once the recipient has died, even if it cannot be treated as an automatic reversionary pension, a senior SMSF executive has said.
Accurium head of SMSF education Mark Ellem confirmed this outcome could be achieved, particularly if the fund trust deed allows for trustee discretion regarding the treatment of death benefits.
“If you’ve got no evidence showing a pension is reversionary, the default position will be it is not reversionary. That doesn’t mean, however, it has to be cashed out of the fund. If there is trustee discretion and the member has died and there’s no valid binding nomination … the law says we’ve just got to pay it to a Superannuation Industry (Supervision) (SIS) Act dependant,” Ellem told delegates at the recent SMSF Professionals Day 2025 co-hosted by selfmanagedsuper and Accurium.
“So if we’re going to pay the death benefit to a SIS dependant, for example, the surviving spouse, that the trustees can resolve, well we’re now going to cash the deceased member’s benefit in the form of an income stream to a SIS dependant being the surviving spouse.”
He pointed out other elements of the relevant spouse’s situation will have to be considered before this course of action can be taken.
“This strategy is keeping the capital in the fund, but is subject to the surviving spouse’s transfer balance cap space available,” he explained.
“The difference with a reversionary pension is the instruction says the pension automatically reverts to the death benefit recipient and it defers the transfer balance cap credit for the recipient for 12 months.
“That’s all a reversionary arrangement is doing. It doesn’t mean we can only keep pensions in a fund if they are reversionary.
“If the pension is not reversionary, we can still keep it in the fund upon the member’s passing as long as the recipient is a valid recipient of a death benefit income stream and they have the transfer balance cap space to accommodate it.”
