Many existing SMSF trust deeds may not include clearly stipulated terms required for funds to properly deal with reversionary pensions under the incoming superannuation rules, according to a technical expert.
“It’s really important that the trust deed of the fund and/or the pension agreement must stipulate reversionary terms in order for it to be valid,” NowInfinity SMSF technical director Julie Dolan said.
“I’ve seen this many a time where a member thinks that they’ve got a reversionary pension, but then going back and looking at the documentation has revealed that it’s questionable if there is a reversionary pension in place.
“Either the trust deed doesn’t allow for it or there’s no paperwork that stipulates those reversionary terms.
“So that’s a critical point.”
Dolan added that previously if a client wanted to change the pension to a reversionary pension or change the status back to non-reversionary, it required a rollback and restart, however, it could now be achieved via a trust deed resolution, which was much easier from an administration approach.
“Also, when it comes to what ranks over a binding death benefit nomination (BDBN) versus a reversionary pension, once again it comes back to the trust deed and the validity of the reversionary, but usually a valid reversionary pension, as stipulated in the trust deed, takes precedence over any BDBN,” she noted.
Reversionary pensions, which automatically revert to a beneficiary with no trustee discretion, have a different timing impact on the personal transfer balance cap than a non-reversionary or discretionary pension.