Advisers need to ensure absolute clarity around the intended beneficiaries of reversionary pensions before setting them up for clients, an SMSF technical expert has said.
Verante Financial Planning SMSF specialist adviser Liam Shorte said the intention of trustees and members in terms of who their beneficiaries should be was the biggest consideration for advisers when establishing a reversionary pension for clients.
“Don’t always assume that a reversionary pension is the right option for clients. You’ve got to ask them what [are] their actual intentions? Who do they want to receive their money?” Shorte said at the SMSF Association Technical Day 2020 last week.
“In some cases you may have to have a separate meeting with each of the trustees or each of the members to understand their own specific circumstances away from their partner.”
He noted in situations involving blended families, advisers needed to pay particularly close attention to clients’ intended beneficiaries as establishing reversionary pensions without this clarity could easily result in conflict.
“It may be that [the trustee wants] to make sure their partner is taken care of but they want to make sure that some money goes to their children from a first marriage,” he added.
“I have some [clients] now who are bypassing their own children and going to the next generation and looking to make sure that some money is left to their grandchildren. So all of that needs to be discussed upfront before you assume reversionary or non-reversionary.”
He also pointed out advisers needed to ensure they took members’ actual income needs and external sources of cash into account when applying the reduced minimum pension amount measures introduced by the government as part of its economic response to the COVID-19 pandemic.
Last year, DBA Lawyers director Daniel Butler warned advisers to be aware of the risk they were taking on when establishing reversionary pensions for their clients that would override any previously existing binding death benefit nominations.
