Q.  I have noted in a recent answer that when one member of a two member SMSF dies, and the surviving member is the nominated beneficiary, the surviving member can request the benefit to be received as a reversionary pension, providing that the Trust Deed permits this to occur.  In this way, it is not necessary for the deceased member’s share of the Fund’s assets to be immediately sold to pay a lump sum benefit to the surviving member.

However, I have also read that under Super law, the benefits of a deceased member are required to be paid out of the fund as soon as practicable after the member’s death.  If this is so, does this requirement in any way affect the payment of a reversionary pension for the life of the surviving member?

Further, can you advise how an eligible beneficiary of a SMSF can nominate to receive a death benefit as a reversionary pension?  Is this done as a request to the Trustees after the death of the member, or must it be documented beforehand?

A.  In order to allow for a Reversionary Pension, a member of a Superannuation fund is required to nominate a person as a “Reversionary Beneficiary”, this is declared as a “Pension Payment Agreement”.  The Trust Deed needs to permit this to occur and documents the options available to the beneficiary in receiving the benefit.  The Reversionary Beneficiary must be eligible to receive this benefit under the law.

You can nominate the following as Eligible Reversionary Beneficiaries:

  • Your Spouse
  • Your child provided they are under 25 and financially dependent upon you, or children that are permanently disabled of any age.
  • Anyone you have an interdependency relationship.

The Reversionary Beneficiary can change their mind and take the benefit as a lump sum if they wish.

The advantage of a Reversionary Pension nomination is that there is certainty to the member as to who will receive their funds on death.  Additionally as you point out, there is no requirement to sell assets to pay out a benefit.

The major disadvantage is that if your circumstances change (divorce, separation etc) you may wish to change your Reversionary Beneficiary.  This will require the Pension to be commuted and recommenced.

 

Q.  We are self-funded retirees with a share portfolio and rely on dividends for our retirement income. We have done alright up till now but realise that portfolios need re balancing from time to time and would like your advice on who and where we can consult for professional advice. We do not have much faith in brokers and would like independent consultation.

A. Share portfolios are like gardens, from time to time they need a prune and “make over”.  You have 2 options; accept advice or DIY.
There are generally two types of brokers; full service brokers who offer advice on buying and selling shares, managing your portfolio and provide access to research.  The other is a non-advisory broker who will facilitate a trade without advice.  They are generally internet or telephone based.

When selecting a Broker, ensure that their service will meet your expectations.  You may wish the Broker to provide a sanity check on your existing portfolio only.  Do you wish them to actively trade the portfolio or come to you with suggested changes or with new ideas?  They should understand your objectives for the portfolio and you appetite for risk.  They should provide a written recommendation to you.

Independence is important to you so ensure you know where they source their research from.  Understand how and how often they rate stocks and how wide their universe of stocks is.

Understand their fees.  Brokers can be remunerated on a per trade basis or on an annual portfolio management fee.

The ASX has a “find a broker” service on their website www.asx.com.au.  Seek a referral from your Accountant or Financial Planner.  Continue to monitor their service to make sure you are getting what they promise.

Alternatively you can manage your own portfolio and subscribe to stock research.  Be careful relying on one source of information, most sites will offer a trial period so try a few out.  It is also worth registering with on line stock forums.  Please recognize that they are not research houses but “gossip” sites where people share their views on stocks.

This is our last Q and A for 2012, thank you for all your questions during the year.  Apologies for those we haven’t published yet.  Have a great Christmas and we will be back in February, so keep your questions coming in.

 

The above Q&A was originally published in The Australian