A leading superannuation law firm has confirmed a binding death benefit nomination (BDBN) can fully replicate a reversionary pension and guidance the regulator has communicated to the contrary is incorrect.
“One thing to think about is can you actually structure your binding death benefit nomination to give you the same effect [as a reversionary pension] in a more certain and possibly more flexible way,” Cooper Grace Ward partner Scott Hay-Bartlem told attendees at his firm’s recent 2023 Annual Adviser Conference.
“The ATO has said ‘no you can’t’, but the ATO’s reasoning, and it is only about four lines in a release, [said] binding death benefit nominations only ever say to whom [a death benefit is paid] and not how.
“[This is] complete rubbish because there are lots of them we’ve done where [the BDBN has stated] to whom [the benefit should be paid] as a continuation of our pension.”
With regard to flexibility, Hay-Bartlem noted the ability to amend a BDBN was significantly more straightforward than changing the reversionary beneficiary of an existing pension.
“Our view is a pension is a contract [and] there is nothing in the SIS (Superannuation Industry (Supervision)) [rules] about them. [So] can we amend the contract? You can if both parties agree [to do so],” he noted.
“What’s the benefit of a binding death benefit nomination over a reversionary pension? Can we change a binding death benefit nomination while we have capacity? Yes we can.
“Can we change the reversion of a reversionary pension while we have capacity? Not sure.”
Fellow Cooper Grace Ward partner Clinton Jackson identified a further benefit of employing a BDBN as opposed to a reversionary pension.
“A binding death benefit nomination can also act as a mop up for anything that is not in pension phase,” Jackson said.
“Our reversionary pension document only covers [the benefits of the deceased member that are] in pension phase and we potentially have an accumulation account for a lot of our clients, or other pensions for that matter, that are sitting out there not dealt with appropriately.”