An SMSF technical panel has recognised the potential to receive a life insurance payout is a genuine reason to make a pension reversionary from a tax perspective.
Accurium senior SMSF educator Anthony Cullen stated this was now the case given the impact a reversionary pension has on an individual’s total super balance and the effect it could have from a Division 296 tax perspective.
Lending weight to this notion was the fact taking this action in order to extend eligibility to claim exempt current pension income was no longer valid as superannuants now qualify for this tax benefit regardless of whether an income stream is reversionary or not.
“The one area I’d say that making a pension reversionary might still be suitable from a tax point of view, not from an estate planning point of view, is where you have life insurance,” Cullen told delegates at the recent SMSF Professionals Day 2026.
“The reason why I say this is because the impact of a life insurance payout to a person’s total super balance is completely different between a reversionary pension and a non-reversionary pension.
“So if you ae looking at that life insurance situation, it may be one reason why you might have a reversionary pension.”
Fellow panellist Accurium head of SMSF education Mark Ellem shed light on the logic behind Cullen’s call.
“The life insurance proceeds that go towards a reversionary pension after the death of a primary beneficiary won’t count for transfer balance cap purposes,” Ellem explained.
Cullen pointed out how advantageous a reversionary pension could be if a surviving member receives a life insurance payment.
“So you could potentially have a pension that reverts for $2 million and six months later $5 million worth of insurance proceeds come in, and that $5 million gets to stay in the pension account,” he indicated.
“Whereas if it’s a non-reversionary pension, even if you start the income stream with $2 million, when the life insurance proceeds come in later you would have to deal with that separately.”
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.
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