Superannuation law remains unclear as to whether an SMSF member can change the person they initially nominated to be the beneficiary of a reversionary pension, but one course of action remains the best solution to this issue, a specialist lawyer has said.
“When you boil a reversionary pension down, it’s effectively a contract between the trustee and the member. So you should be able to, by agreement, change a reversion [to] knock it off [and] put it back on again,” Cooper Grace Ward partner Scott Hay-Bartlem said at his firm’s 2022 Annual Adviser Conference last week.
Hay-Bartlem pointed out the ATO’s instruction has been contradictory on the subject as during a 2019 National Tax Liaison Group meeting it said changing a reversionary pension beneficiary is allowable, but at the same forum had previously advised trustees they cannot make this type of amendment to an existing pension and have the income stream continue.
Further, he noted coverage of reversionary pensions in the existing legislation is scant.
“There are risks with changing our reversions on the fly. Our trust deed allows people to change their reversions [and] the pension documents we provide do allow people to change their reversions [and] if you’ve got that, you’ve got some really good arguments [to be able to do so],” he said.
However, he acknowledged there is a more prudent path to follow guaranteeing a change in reversionary beneficiary of an existing income stream that can also withstand legal challenges.
“If you’re going to have a fight about it after death, your better option is probably to [stop and restart the pension] to be absolutely certain,” he advised.
“If you’re going to fight, you’d rather have a clean set of pension documents that from the beginning nominate your reversionary beneficiary you ended up with or maybe deserve.”
