Child Pensions under

Child pensions have a special treatment under the Fair and Sustainable Super regime, which regime applies on and from 1 July 2017.  In very broad terms, while child pensions will be subject to the pension transfer balance cap, the cap will apply separately to each “source” from which the pension arose rather than applying on a global basis – which is the treatment for all other pensions.  Additionally, child pensions which terminate on or before age 25 will have no impact upon the pension transfer cap which applies to all other pensions of the child.  

The “source” of a child pension is the individual who has died.  If the deceased had two separate superannuation interests (whether in the same or separate funds) from which child pensions are payable then each child pension would be subject to the same pension cap.  It is irrelevant whether the pensions were payable to different children, they would still be subject to the same pension cap, albeit, the pension cap in this case would be shared between the different children.

However, if two child pensions were payable to the same individual from different sources – say, the first pension from the deceased father’s superannuation interest and the second from the deceased mother’s superannuation interest, then each child pension would be subject to separate caps: one cap based upon the father’s superannuation interests and the other based upon the mother’s superannuation interest.

The following examples illustrate the position where child pensions commence on or after 1 July 2017.

Example 1

Bill, an only child, is aged 22 and is financially dependent upon his two parents: George and Mildred who each have their own superannuation interests.  Unfortunately George and Mildred both die.  Each has a binding death benefit nomination which ensures that their benefits are paid as pensions to Bill.   Consequently, Bill receives two child pensions.

As each child pension has a different source, each child pension will be subject to separate pension transfer caps.  

Example 2

If Mildred did not have any superannuation interest but George had two superannuation interests, one in his self managed superannuation fund and the other in a retail fund and each interest is used to pay a child pension to Bill, then each pension would have arisen from the same source.  Consequently both pensions would be subject to the same pension cap.

Example 3

If, George and Mildred also had a younger child, Jane aged 17, in addition to Bill, then the pension cap in relation to George’s superannuation interest would be shared between Bill and Jane.  Similarly, the pension cap in relation to Mildred’s superannuation interest would also be shared between Bill and Jane.

In this situation, the relevant pension cap is shared in proportion to the entitlement to the relevant superannuation interest.

The Bill uses the term “cap increment” to describe the pension cap which applies to each “source” from which a child pension arises.  The “source” is not the particular superannuation fund from which the interest arose but the individual to whom the superannuation interest belongs.  

In Example 1, Bill has two “cap increments” as he receives pensions from two different sources – one source being George’s superannuation interest and the other being Mildred’s superannuation interest.  In Example 2, Bill has only one “cap increment” as the two pensions have only one source being George’s superannuation interests (even though each interest is in a different superannuation fund).  In Example 3, Bill and Jane each have two “cap increments” as each receives a pension from George’s superannuation interest and also receives a pension from Mildred’s superannuation interest.