Death pensions go beyond TBC focus

Reversionary pension TBC

The effect a reversionary pension has on an individual’s personal TBC is not the only element SMSF trustees should examine upon the death of a member.

Advisers and their SMSF clients need to take into account issues beyond the transfer balance cap (TBC) when processing a reversionary pension upon the death of a member.

According to BT Financial Group advice strategy and technical specialist Tim Howard, practitioners should also consider the effect a reversionary death pension will have on other critical superannuation thresholds.

In particular, Howard warned that the recognition of the reversionary death benefit pension within the system is not consistent for every superannuation measure in the system.

For TBC purposes a reversionary death benefit pension will not trigger a credit to the recipient’s personal TBC until 12 months from the date of death of the deceased member. The value of the income stream will be that as at the time of death of the deceased member as well, Howard said.

“We [tend just to] focus on [the TBC], but when we receive a death benefit pension and when we receive a reversionary death benefit pension, while we’ve got this 12-month delay under the transfer balance cap, we need to consider that the value of that pension still counts towards [the surviving member’s] total superannuation balance,” he said.

To this end, under the current rules the value of the reversionary death benefit pension will be counted toward the beneficiary’s TSB as at 1 July following the deceased member’s death. Again, the value will be that at the time of the member’s death, Howard noted.

Further, he pointed out the effect this could have on the contribution strategies of the death benefit pension recipient.

“[It means] for whatever combination of reasons [the surviving member] is looking to make NCCs (non-concessional contributions) next year, we might be in a position where the client is over the total super balance of $1.7 million, so you might need to keep that in mind and bring those non-concessional contributions if you can into the current year before we pass through 30 June [when the] total super balance, including the reversionary pension, takes the client’s total super balance over [the NCC threshold],” he told attendees of the latest BT Academy technical webinar.

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