STRATEGY
The case for nonreversionary pensions
Making a pension reversionary is a popular estate planning strategy for many SMSF members. However, having a non-reversionary pension can be beneficial as well, Meg Heffron writes.
MEG HEFFRON is managing director of Heffron.
36 selfmanagedsuper
Back in the day when reasonable benefit limits still existed, I was an advocate of reversionary pensions. The decision had a huge impact on the tax treatment of any ongoing pension for the recipient and in some cases made the difference between leaving money inherited from a spouse in superannuation as opposed to withdrawing it. All that changed when superannuation was simplified in 2007 and making a pension reversionary suddenly became less critical. Changes to the income test for the Commonwealth Seniors Health Card (CSHC) in 2015 and the next major round of superannuation tax changes in 2017 swung the pendulum back the other way, but even today there are some
circumstances where making a pension nonreversionary can be very beneficial.
Why are we even asking the question? There are well-known benefits to making a pension reversionary when it comes to transfer balance caps. Critically, when a person dies and their pension reverts to someone else, let’s assume their spouse as is usually the case, the spouse gets two important benefits: • even though they start receiving the reversionary pension immediately, nothing counts towards their transfer balance cap until 12 months later, and • the amount that counts is the value of the pension account on death, not 12 months later.
