Advisers missing ‘serious question’ with pension set-ups
Some advisers are failing to address critical questions with clients before setting up reversionary pensions and making incorrect assumptions, a law firm warned.
Speaking at a recent conference, Cooper Grace Ward partner Scott Hay-Bartlem stressed that the number one question advisers need to be asking clients before making their pension reversionary is whether they actually want their super to go to that reversionary beneficiary.
“People need to be asked this question. If the answer is no, I don’t want that person to get my super when I die, then please do not make your pension reversionary to them. I’ve seen it happen,” said Mr Hay-Bartlem.
“Once your pension is reversionary, the reversionary beneficiary gets it.”
Mr Hay-Bartlem gave an example of a previous client who was terminally ill and wanted all of her money to go to her kids from her first marriage rather than her current husband.
“There were [issues with their] relationship with threats of family lawyers and all sorts of things. We went through joint tenancies, and we went through all sorts of things, and then we came to the super and she was drawing a pension. The pension had started 1 July, the year just gone and the pension was reversionary to the husband,” said Mr Hay-Bartlem.
The client was not aware that the pension had been set up in that way, he said.
“Given that the pension had begun at most two months before I saw her, the question became ‘what was the discussion she had with the person who prepared the pension documents?’ There wasn’t any because she would have said ‘no’, but the person who started it presumed she wanted her husband to have the pension when she died,” he stated.
As the pension could not be stopped and restarted without the husband being involved as one of the trustees, this created a difficult situation, he said.
“We did some work to set it up so that after she died, which was not that far away, we got him to agree to give the super to her kids,” he stated.
If the husband hadn’t eventually agreed to do that, however, the adviser may have been sued, Mr Hay-Bartlem warned.
Mr Hay-Bartlem said questions around what clients want to do with their super after death isn’t something that is being thought through enough when pensions are being started.
“A pension that should be reversionary and isn’t, is a bad thing; a pension that is reversionary but shouldn’t be, is also a bad thing.
“So you need to ask the client where they want the pension to go when they die,” he said.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
