Anthony Cullen, senior SMSF educator for Accurium, said if the member chooses to establish it based on the life expectancy of the primary beneficiary, even if the pension is reversionary it can be commuted at any time “after it is death benefit money”.
“It can’t be commuted before the original member dies, but once it reverts to the recipient, such as a spouse, they can consider commuting,” he said.
“When they commute it, it is still death benefit money, so they need to think about having it in the system, such as being in a retirement-based pension, but it allows them to potentially put it into an account-based pension as well.”
Cullen said that process can happen at any time, and is not dependent on the 12-month timeframe for other death benefit payments.
“If the term is based on the life expectancy of the recipient, you are not going to be able to do that. It will remain as a market linked pension until that term ends for the recipient,” he said.
“The reason we can do that is because of the very specific wording of the SIS regulation 1.06, paragraph 8.”
He continued that with these types of pensions, and dealing with the death of the member, it is important to look at the original pension documents and the details contained within them.
“Unfortunately, what you’ll find is that there aren’t going to be too many people that run to find the documentation and when they can find the documentation, it very specifically says it is based on the life expectancy of the primary beneficiary,” he said.
“I’ve certainly seen documentation that goes to that extent but generally it doesn’t, and so then you have to ask on whose life expectancy the documents are based?”
Cullen said with lifetime pensions, which are non-reversionary and revolve around the date of death, there is one thing that is not well appreciated – when somebody starts a lifetime pension, they give up their right to the capital in that pension in exchange for an ongoing income stream.
“So when you die with a lifetime pension, there is no capital belonging to the member, any capital left over belongs to the super fund and is sitting in a reserve. Then you have got to think about how to get money out of the reserve.”
