Tuesday, February 27, 2018

BDBNs v reversionary pensions – it’s not enough to debate **

Matthew Burgess BDBNs v reversionary pensions – it’s not enough to debate

Last week’s post (Scissors, paper, rock (you win again) – BDBNs v pensions **) considered the situation where there is a binding death benefit nomination (BDBN) in place for superannuation savings that are also the subject of a reversionary pension

As with many areas of potential conflict, the starting point for an answer to this type of situation will be the terms of the trust deed and pension documents.

In the absence of a clear answer in the legal documents (and as mentioned briefly last week), the Tax Office’s position appears to have been confirmed via a National Tax Liaison Group (Superannuation Technical Sub-group) in March 2010.

The minutes confirm as follows:
‘There are no SIS Act or SISR provisions that are relevant to determining which nomination an SMSF trustee is to give precedence where a deceased pension member had both a valid reversionary nomination and a valid BDBN in existence at the same time of the member’s death.

While section 59 of the SIS Act and Regulation 6.17A of the SISR place restrictions on superannuation entity trustees accepting BDBNs from a member, as explained in SMSF Determination SMSFD 2008/3, the Commissioner is of the view that those provisions do not have any application to SMSFs.

It must also be remembered that section 59 of the SIS Act and regulation 6.17A of the SISR are necessary because of the general trust law principle that beneficiaries cannot direct trustees in the performance of their trust.

The ATO’s view is that a pension that is a genuine reversionary pension, that is, one which under the terms and conditions established at the commencement of the pension reverts to a nominated (or determinable) beneficiary must be paid to the reversioner.

It is only where a trustee may exercise its discretion as to which beneficiary is paid the deceased member’s benefits and/or the form in which the benefits are payable that a death benefit nomination is relevant.’
** For trainspotters, ‘It’s not enough to debate’ is a line from a song named ‘Weenie Beenie’ on the first Foo Fighters album in 1995, listen here – https://www.youtube.com/watch?v=oI1xAkzHgXc

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