Nominating a Beneficiary to receive your Pension on Death
You can pay a Members Pension Benefit as a Pension to a Beneficiary on death in 2 ways:
Option 1: Reversionary Beneficiary Nomination
This is a nomination executed when implementing the Pension to have the Pension revert to a Dependant on Death.
Option 2: Death Benefit Agreement
The same result as a Reversionary Beneficiary Nomination can be achieved by simply executing a Death Benefit Agreement leaving your Super Benefit to a Dependant as a Pension on death.
Death Benefit Agreement is Preferred
Whilst it is commonly advised that a Reversionary Pension should be implemented when establishing a pension to continue paying the Pension to a Dependant on death, the same result can be achieved by simply executing a Death Benefit Agreement, nominating a Dependant to receive your Super Benefit as a Pension on death. This is our preferred option of leaving your Super Benefit on death as a Pension to a Dependant for the following reasons:
Reason 1: Avoid conflicting nominations
At ESUPERFUND we typically find that clients who execute a Reversionary Pension Nomination also complete a Death Benefit Agreement. The nominations are typically submitted some time apart and in many cases conflict with one another. That is you may nominate your spouse to receive your Pension Benefit on death in your Reversionary Pension Nomination, but nominate your spouse and kids to receive your Super Benefit on death when completing a Death Benefit Agreement. In this case the two nominations conflict. The general ATO view in this case is that the Reversionary Pension Nomination takes precedence but this is open to judicial dispute. To avoid this administrative complication it is preferred that only a Death Benefit Agreement is implemented meaning that there can be no conflict.
Reason 2: Death Benefit Agreement covers your Total Super Benefit
A Reversionary Beneficiary Nomination only covers your Pension Benefit on death. It however does not cover any balance in your Accumulation Account which can be significant particularly if you have added funds to your Super after commencing a Pension. This means that if you die that part of your Super Benefit not covered by the Reversionary Pension Nomination (ie the amount in your Accumulation Account) must be paid as a Lump Sum to your beneficiaries on death. This is avoided by a Death Benefit Agreement which covers your total Super Benefit including your Pension and Accumulation Account.
It is strongly recommended that when you establish a Pension for your SMSF you should also immediately ensure that you have executed a Death Benefit Agreement. Where possible, you should strongly consider leaving your Super Benefit to a Dependant on Death as a Pension. More on Pension Death Benefits payable to Dependants can be found here.
Apply for a Death Benefit Agreement
To apply for a Death Benefit Agreement click here.