Anthony Cullen, senior SMSF educator for Accurium, said he is often asked whether a death benefit pension can be started from an accumulation interest.
“Some people believe you can only start a death benefit pension with benefits that come from a pension interest already, but that is not true,” he said.
“There is nothing in the regulations differentiating between whether the deceased member’s benefits are an accumulation, non-reversionary, or reversionary. The reality is regulation 6.21 in the SIS Act only tells us that the death benefits have to be dealt with as soon as practicable.”
Cullen said there are several other “myths” or questions surrounding payment of death benefits, including what happens if the recipient is under preservation age and has not met the condition of release on their own.
“The fact is that the death of the primary member is the condition of release, so that makes everything unrestricted.”
“So regardless of the recipient’s age, they are going to be able to start the death benefit if they’re eligible.”
It is also possible to roll over death benefits since reforms made in July 2017 and the introduction of the transfer balance cap.
“However, when you roll it over, you’re using a specific death benefit rollover form, so the receiving fund knows it’s a death benefit.”
“The receiving fund will need to treat it as a death benefit and consider cashing requirements as well.”
He continued that reg 6.21 also stipulates who can start a death benefit pension, and although it is usually the spouse or partner of the deceased, children can also potentially be included.
“But there are specific requirements. They have to be younger than 18, or if they are between 18 and 25 they need to be financially dependent on their parents. If they are over 25 and they meet a definition of a disability described in the Disability Services Act, they also may be eligible.”
“Where a child does get a pension, whether under age 25, regulation 6.21(2B) goes further to say, once that child reaches age 25 then the benefits have to be removed from the superannuation system.”
He added there is a compulsory lump sum payment requirement once the child turns 25 unless they meet that definition of having a disability.
“It is also important to be mindful that when talking about children, from a transfer balance account point of view, there are specific rules around children receiving benefits from their parents, not like when a spouse receives entitlement,” Cullen said.
“It’s all going to depend on whether their parent is in receipt of or has a transfer balance account at the time of their death, and then whether the payments are from an accumulation account or pension account, and also whether there are other beneficiaries.”
