Interaction between BDBNs and Reversionary Pensions

How do Binding Death Benefit Nominations and Reversionary Pensions interact?

What happens if a member of a self managed superannuation fund commences a reversionary pension (which is reversionary to their spouse) and later makes a Binding Death Benefit Nomination which provides that their benefit is to be paid to their Estate?

Obviously, the interaction depends on the state of affairs at the time of death of the member: whether the spouse has survived the member and whether the member has other superannuation interests in the fund.

Spouse is alive and eligible to receive pension

In this case, the pension interest reverts to the spouse and the inconsistent binding nomination has no affect on the pension interest.

In short, the binding nomination does not apply to the pension interest as the pension interest has transferred to the spouse. The binding nomination is not invalid: there is simply no interest upon which it can act.

If the member had another superannuation interest then the Binding Nomination would apply to that other interest.  The other interest could be an accumulation interest or a non-reversionary pension interest.

Spouse is alive and ineligible to receive pension

This situation may occur where the spouse and the member have separated and the former spouse has ceased to be a SIS Act dependant.

In this case, the former spouse is ineligible to receive the pension: in short the pension is not reversionary and the pension interest becomes an accumulation interest.

The binding nomination would apply to the pension interest and the trustee would be bound to pay the pension interest to the Estate.

 
Spouse dies before the Member

Unless there is another reversionary beneficiary, the pension will cease on the member’s death and the binding nomination will apply.  Consequently, the trustee would be bound to pay the pension interest to the Estate.

Does it matter whether the Binding Nomination is made before or after the commencement of the reversionary pension?

In short “No”.  Making an inconsistent binding nomination after the commencement of a pension does not alter the terms of the pension.  The pension will revert in accordance with its terms.  If the pension does not revert for any reason, then the binding nomination will apply to the pension interest.

Equally, commencing a reversionary pension after making an inconsistent binding nomination does not amount to a variation of the binding nomination.

Binding nominations, while made in the present, only apply on the death of the member and only, if there is anything left on which they can apply.  The member (until death) can undertake actions inconsistent with the binding nomination – for example, rollout their entire benefit to another super fund, thereby avoiding the binding nomination or, alternatively, cashing out the benefit and applying the cashed out payment in some socially beneficial manner – such as the payment of legal fees.

 
What is the position in relation to the SUPERCentral Governing Rules?

The SUPERCentral Governing Rules expressly provides that a pension reversion will take precedence over a binding nomination.