A senior SMSF executive has suggested the decision to make a pension reversionary is not afforded the proper attention and is potentially not being made for the correct reason and not by the relevant fund member.
“I’ve asked why people set up a pension as reversionary and in a lot of cases the response is: ‘Oh, it’s because the transfer balance cap credit to the beneficiary is deferred for 12 months for Division 296 purposes.’ So is the decision tax driven instead of estate planning driven?” Accurium head of SMSF education Mark Ellem told delegates at the recent SMSF Professionals Day 2026.
“Another question I often ask is: ‘Who is making the decision to set up a pension as reversionary?’ because a lot of the time these pension documents are ordered by an adviser or an accountant using a document service and legal provider.
“It means they fill in the forms and they enter all the details and they are presented with a check box asking is this pension reversionary or not.
“Now the practitioner may ask the client: ‘Will this pension be reversionary or not?’ and the client might say: ‘I don’t know, what do you think?’
“In response, the adviser or accountant might say: ‘It gives you a 12-month transfer balance cap deferral in relation to Division 296 tax.’
“So who has made that decision from an estate planning viewpoint?”
Ellem said these common scenarios indicate to him that not enough consideration is being given to the reasons justifying the decision to make a pension reversionary and may also show there is a lack of understanding as to how this decision interacts with the fund’s trust deed or any binding death benefit nominations in place.
Hall and Wilcox partner Laura Hanrahan emphasised the importance for a reversionary pension to be put in place for the right reasons to allow the action upon death to be fit for purpose. To this end, Hanrahan noted a recent set of client circumstances highlighted this point and also illustrated the need to revise these arrangements on a regular basis.
“We’ve redone two pensions recently that were reversionary, had been in place for a long time and made sense when they were set up,” she noted.
“But in one case the wife now has very severe dementia and is in a home. So when we were reviewing the pension it didn’t make sense, when she has everything she needs, to revert the husband’s pension to her.”
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
Articles by Darin