Q. I am 54 and my wife is 45. We currently have separate superannuation arrangements. The majority of our super is in my account. Assuming the statistical certainty that I will die before my wife, would we benefit from combining our superannuation into a joint account?
If so, would there be any complications in a joint account of me drawing a pension, or implementing a Transition to Retirement arrangement while my wife is still under her preservation age?
A. Superannuation benefits are always reported on an individual basis. Legally you cannot combine your Superannuation accounts into the one account and run it as a joint account.
Whilst the individual member accounts must remain separate, if you were to operate a Self-Managed Superannuation Fund (SMSF) the assets of your funds can be invested in aggregate. The Trustee would collectively invest the assets of the fund on behalf of the two members being you and your wife.
However I infer from your question that your primary concern is what happens to the balance of your Superannuation fund on your death?
Typically, the mechanism to instruct the fund trustee on how to distribute the proceeds of your Superannuation on your death is a “Death Benefit Nomination”.
Even under a death benefit nomination, a death benefit can only be paid to an eligible beneficiary or to your “Estate”. Your wife is an eligible beneficiary and would be entitled to receive the proceeds either as a lump sum or as a Death Benefit Allocated Pension. Your wife will also be classified as a tax dependent, so any lump sum proceeds would be tax free.
Broadly, there are two types of Death Benefit Nominations; Binding and Non-Binding. A Non-Binding Death Benefit Nomination is not binding on the fund Trustee to pay out the funds to your specified beneficiary. On the other hand, a valid Binding Nomination compels the Trustee to pay the death benefit to your nominated beneficiary provided they are an eligible beneficiary at the time of your death.
If you establish an Allocated Pension you may have a further option to nominate your wife as a Reversionary Pension Beneficiary. Under this option the pension does not cease on your death but would continue to be paid to your wife as the Reversionary Pensioner. As a Reversionary Pensioner, the assets and the income stream would revert to your wife regardless of her age at the time of your death.
Under this option, if you were to die under age 60, some tax may be payable on any taxable portion of the income stream payments made to your wife until your wife turns 60 – when any taxable component becomes tax free.
A drawback of a Reversionary Pension Beneficiary is you cannot allocate a portion of your Allocated Pension to another beneficiary or replace a nominated beneficiary. If you wish to change or amend the reversionary nomination, you would generally be required to commute the Allocated Pension and commence a new Allocated Pension with the revised Reversionary Pension beneficiary.
Death benefits can be paid out to a Spouse either as a Lump Sum Death benefit, a Death Benefit Allocated Pension or a Reversionary Pension regardless of the age of the Spouse or the preservation status of their Superannuation.