What are the differences between a pension which reverts to the spouse and a BDBN which provides that the benefit to the spouse is to be paid as a pension?

• There are three principal differences between a reversion of the pension to the spouse of the deceased member and the issue of a new pension to the spouse of the deceased member.
• The first difference is that when a pension reverts – the pension which was previously payable to the deceased member is now paid to the spouse. There is no break in the continuity of the pension.  In contrast, when a BDBN nominates the spouse as the beneficiary of a pension, the pension payable to the deceased member has stopped and a new pension has been issued to the spouse. 
• The second difference involves the time at which the transfer balance account of the spouse is updated by the ATO. If the pension reverts, the ATO (while notified of the credit to be made to the transfer balance account of the spouse) will only update the account with the credit on the first anniversary of the transfer occurring.  However, when a pension is issued to the spouse, the transfer balance account will be updated with effect from the date the new pension is issued.
• The third is that the spouse will on the reversion of the pension have a 12 month period in which to identify and deal with any potential excess balance issues (and may, during this 12 month period, have the benefit of having excess pension balances without incurring excess balance tax). Pensions issued pursuant to a BDBN will generate excess pension balance issues (if any) immediately on the pension commencing and the 12 month grace period does not apply.

Reversionary pension

A pension reversion to the spouse will take effect on the death of the deceased member and does not require the consent or approval of the trustee.

Obviously the trustee (or administrator) may have to attend to changing the payment details (but even this chore can be avoided by having the pension payable to a joint account of the member and the spouse).

As there is continuity of the pension, the minimum pension drawdown requirement applicable to the deceased member applies to the spouse (and payments made to the deceased member are counted to determine whether the minimum pension requirement has been satisfied for the financial year in which the pension reverts). The minimum drawdown requirement is then recalculated as at the next 1 July based on 30 June figure using the pension factor appropriate to the then attained age of the spouse. Importantly, there is no need to strike a balance for the pension account at the date of death.

BDBN allocation

Where a BDBN allocates a death benefit which is paid as a pension –a new pension must be issued. Therefore it will be necessary to determine the account balance which generally requires preparing financial statements for the fund at a date other than 30 June.

Additionally, as a new pension the drawdown amount is determined by applying the attained age of the spouse at the date of issue.

Generally, the process of issuing a new pension will also require the trustee to pass various resolutions.

When a pension transfers to a reversionary beneficiary, the pension account balance (as at the date of transfer) while reported to the ATO in the normal timeframes, will only be credited to the transfer balance account of the reversionary beneficiary on the first anniversary of the transfer. In the case of the issue of a new pension, the pension balance will be credited to the transfer balance account as at the date of issue. This difference will be significant when the surviving spouse has an excess transfer balance as result of the death of the former spouse.