Q: I am 65 and married. I have a Superannuation fund and an Allocated Pension. The Superannuation fund has a Binding Death Benefit nomination to my Wife. However, the Allocated Pension has my wife as a Reversionary Beneficiary. What is the difference and why are they not the same instructions?
A: A Binding Death Benefit nomination is an instruction to the Trustee of the Superannuation fund by the member on who is to receive their Superannuation benefits when the member dies.
The nomination must be to someone who is defined as a Dependant under the Superannuation (Industry Supervision) (SIS) act, or your estate. A dependant for super purposes can be a spouse, a child, someone who is financially dependent on you or with whom you have an interdependency relationship.
As your nomination is binding and provided that it is valid, the Trustee must comply with your instructions on death. Binding Nominations usually need to be renewed every 3 years unless they are a Non-lapsing Binding Death nomination which as the name infers does not expire. The alternative is a non-binding nomination where the Trustee has the discretion to vary how to pay the funds to your beneficiaries.
To receive superannuation death benefits as a tax-free lump sum, the dependent must also be a tax dependent. A spouse is considered a tax dependent and would receive the benefits tax-free. So in your case, on your death, the Trustee is compelled to pay your Superannuation benefit to your wife and the proceeds would be tax-free.
You have elected to have your wife as a Reversionary Pensioner for your Allocated Pension (Account-Based Pension). This means that in the event of your death, the Account-Based Pension will automatically continue to be paid to your wife.
The primary advantage of this election is that the Account-Based Pension seamlessly transfers to your wife on your death. Thus any rights or benefits applicable to your existing Account-Based Pension would continue after your death. Having said that, your wife is subsequently able to commute this pension and take the remaining balance as a lump sum if this better suits her needs at the time.
Reversionary Pension nominations can be restrictive as you can only nominate one recipient. Also, only certain dependants are eligible to be nominated (eg all SIS dependants with special rules applying for children). Other limitations may apply if you wish to change your election. You would commonly be required to commute (i.e. stop) the Account-Based Pension and recommence a new Account-Based Pension with the new election. This may be necessary if your Spouse was to die, you were to divorce or you wished to change your distribution to beneficiaries.
By commuting an Account-Based Pension, any rights or benefits applicable to your existing Account-Based Pension that are “grandfathered” or protected from legislative change would be subject to the rules applying to a new Account-Based Pension.
As with a Superannuation fund, you can typically elect to have a Binding or Non-Binding Beneficiary nomination for an Account-Based Pension. You have the flexibility to elect multiple dependents or your Estate and make changes as your circumstances change.