Accepting pension not fait accompli

Reversionary pension

A reversionary pension can be knocked back if it threatens other aspects of an SMSF member’s financial arrangements.

Surviving spouses who may be receiving a reversionary pension from a deceased partner are not automatically required to accept that pension and can “turn it off”, an SMSF expert has advised.

LightYear Docs chief executive Grant Abbott said the automatic acceptance of a reversionary pension did not have to occur and there were a number of strategies to prevent that happening, including giving up the pension.

“If you have social security concerns and if a reversionary pension comes, you can always renounce it provided that under the deed there is provision to renounce an entitlement to that pension. This means it stops there and then it is up to the trustee of the fund to make a decision around that based on their needs,” Abbott said during a webinar today.

He also noted there was no need for reversionary pension recipients to rush into making a final decision about how they would receive a reversionary pension where it caused them to exceed the $1.6 million transfer balance cap, but they could access their own pension as a tax-free lump sum.

“If a deceased member had, for example, $2 million, then under the transfer balance account report they have got 12 months to choose what to do with it, but unlike the old days they cannot roll back that pension to the accumulation account,” he noted.

“For the surviving spouse, they can keep it going in their own name and within 12 months that would be tested as it was back at the time of death of the deceased member.

“If there is an existing pension, what we can do there is roll back that pension to the accumulation side and then continue on with the reversionary pension because that’s the only one tested, not the one that’s rolled back.

“With the amount rolled back, it might be an idea to pull that out of superannuation because it’s going to come out tax-free and put it into a family protection trust.

“We would do this because in the event they die the next day, and they haven’t got any financial dependants, it is going to be taxed at a rate of 17 per cent.”

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