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Conflict between a Reversionary Pension (RP) nomination and a Binding Death Benefit Nomination (BDBN) in a Self Managed Super Fund context


At the time of commencing a reversionary pension, the trustees must ensure if there are any binding death benefit nomination attached to their pension superannuation interest are revoked, otherwise the two documents will clash and dispute will arise if nominations are made out to two different individuals.

If a member dies with reversionary pension document and if there is a BDBN pertaining to income stream is not revoked, then the trustees will have to deal with two valid documents. This can create many problems, e.g. which document should take precedence or if there is a conflict, the trustees will have to rely on the trust deed for guidance, some trust deeds are silent on this issue, this article discuss what options trustees have to avoid any future conflicts.


Click here to learn how to commence a pension in an SMSF


Reversionary Pension VS Binding Death Benefit Nomination

In normal circumstances if there is a BDBN in place which reverts an income stream to the beneficiary, there should be no need to prepare any RP documents at the time of commencing a pension, provided the trust deed allows BDBN to pay pensions to the beneficiary.

It has been expressly noted by ATO that a BDBN by itself may not be enough to commence a pension automatically for the beneficiary, BDBN needs the support of the governing rules of the fund.


In most cases Self Managed Super Fund  (SMSF) are established when members are usually in accumulation phase and binding or non-binding nominations are executed by members to distribute (as a pension or lump sum) their accumulation superannuation interests in case of death.

However, when any member commences an income stream, situation changes and depending on the size of the superannuation interest, it is possible that the member will need both documents. A reversionary pension to look after the income stream and a BDBN for any accumulation interest.

Pension documents can be reversionary or non-reversionary, if the income stream is non-reversionary, the superannuation interest of the deceased must be paid out as per SISR 6.21 as soon as practical. However, many trust deeds give trustees the right to pay a death benefit pension to beneficiaries instead of a lump sum, if requested by the beneficiaries.

Since there is no case law to guide professionals, SMSF industry is divided in their opinion on which one of the two document should take precedence.

Many advisors believe since there is a valid reversionary pension in place (which creates a contractual right), there is nothing left over as a part of death benefit to be distributed to the BDBN beneficiary from the pension account (assets), but this is not entirely true as you will read below.

In spite of what the BDBN or RP enforces on the trustees, it is important that trustees find guidelines in the governing rules of the fund. Many trust deed are either silent or do not provide a clear guidance to the trustees to which document will prevail. To make matters worse, there is no consistency among trust deeds on which document will take priority.


Click here to learn more about BDBN





Free Webinar for Members

SMSF Auditors Association of Australia 

Pension Documents: Auditor's prevention is better than any cure

By Scott Hay-Bartlem | Partner | Cooper Grace Ward Lawyers

When: 6th August 2019 Tuesday

Time : 2.00 PM To 3.00 PM

Cost: $0 for SMSF Auditiors Association Members

  • In this presentation, Scott will discuss:
  • - Why pension documents are important and what can go wrong
  • - What to look for in pension documents where a SMSF is paying a pension & What to look for in trust deeds when an SMSF is paying a pension
  • - Tips and traps in reviewing pension documents




Which trust deed is better?

A well drafted trust deed should provide a clear guidance on which document will take precedence when both documents are valid at the time death of a member.

Our opinion is that it does not really matter if either one of the two documents are preferred over the other, if both exist at the time of death.

Once the advisor and the member is aware of what is preferred in the trust deed, they can then write their estate plan to suit the member.

It is to be noted here that a pension member at the time of death can have two accounts due to the superannuation reform changes from 1 July 2017, which introduced transfer balance cap due to the maximum amount of $1.6M that can moved to "pension phase" on 1st July 2017 or later.

This means that the member at the time of death can possibly have superannuation interest in:

  • - income streams; and
  • - accumulation account


Remaining trustees should be aware that the amount supporting reversionary income stream is valued at the date of death, but is not credited to the beneficiary's transfer balance account until after 12 months after death.

Legislation provides that beneficiary is allowed a 12 month window to rearrange their affairs so that they don’t exceed their own transfer balance cap.

It is not necessary that the reversionary beneficiary will have the same amount credited to their pension account which is valued on the date of death. E.g. on date of death the income stream was valued at $1M but when credited within the next 12 months, it could be higher or lower depending on valuations of assets backing the income stream, income credited to the account or pensions withdrawn from the account.

However at the time of crediting the transfer balance account of the beneficiary, the value of $1M will be credited and not the value after 12 months or any date within 12 months.


Click here to attend a seminar on how to audit an SMSF in half the time

It is important that trustees should be aware that if the pension was commenced by the deceased with say with $1.6M and on the date of death, this amount was $1.8M, only $1.6M can be credited to the beneficiaries transfer balance account, the remainder must be paid out and cannot remain in superannuation.


Those funds with good returns, say more than 4% - minimum pension % and members with accumulation account may withdrawing only 4% or the minimum and if required will dip into their accumulation account instead of withdrawing from the income stream will end up with more than $1.6M at the time of their death.


What is being highlighted here is that although the pension is to revert to the beneficiary, it cannot be reverted in totality to the beneficiary due to the recipients incapability to accept a higher amount than $1.6M. This is with the assumption that the beneficiary will switch off their own income stream, if any, to accumulation account before the 12 months expires to accept the maximum amount of $1.6M.

Since the higher amount cannot be reverted to the beneficiary, it can be disputed that it can be paid as a lump sum to the same beneficiary because of a valid reversionary pension document, if there is a valid BDBN in place for another beneficiary, it is quite likely that they can put a claim on the excess amount.


Click here to learn how to update your SMSF Trust Deed


Example: Jack commenced a reversionary pension with $1.6M and had an accumulation account of $1.8M on 1st July 2017. He dies on 1st Aug 2019 with $1.9M in pension account and $600K in the accumulation account. The trustee of the fund can revert $1.6M only within 12 months of 1st Aug 2019 and must pay out $300K from the pension account and all of the $600K from the accumulation account as soon as practical. If RP and BDBN is to two different people then the $300K can be claimed by the BDBN beneficiary because the reversion of pension cannot be more than $1.6M.

But the reverse may also be true, if the pensioner dies with less than $1.6M in their pension account which commenced with $1.6M and if there is an accumulation account of the deceased, then the trustees can revert the pension to the pension reversionary beneficiary and also commence a death benefit pension from the accumulation account of the deceased member on the date of death of the member up to $1.6M because at the time of commencement of pension, there was $1.6M in the pension account.

This is possible if the reversionary pension takes priority over any BDBN and the trust deed is silent about the amount which the reversionary beneficiary can claim. Hence, the full $1.6M can be reverted even if the pension account does not have $1.6M in it. Please note that the death benefit must be credited to the transfer balance account of the beneficiary on the date of death.


Example: Jack commenced a reversionary pension with $1.6M and had an accumulation account of $1.8M on 1st July 2017. He dies on 1st Aug 2019 with $1.2M in pension account and $600K in the accumulation account. The trustee of the fund can revert $1.2M within 12 months of 1st Aug 2019 and commence a death benefit pension with only $400K, the remainder $200K of the accumulation account must be paid out as soon as practical. The reversionary beneficiary can claim that the reversion was for the full $1.6M (commencement balance) and the amount at the time of death - this offcourse has to be supported by the wording of the pension documents and the trust deed.

This means those members commencing a RP with superannuation interests with the maximum amount of $1.6M and with an accumulation will need both, pension documents for income streams and BDBN for anything over, as they will not know their pension account balance or accumulation account balance at the time of their death at the time of commencement of their pension.

Since both documents must co-exist, those trust deed which provide a clear guidance as to which type of nomination takes precedence and of what amount, over the other is extremely important.


Commencing a pension with BDBN

Some lawyers write trust deeds and BDBN in such a way that members commencing pensions do not need RP as BDBN can cover income streams with automatic reversions. What is important for the readers to understand is that RP can only revert income streams to beneficiaries and not accumulation accounts.

And if the income stream crosses over $1.6M at the time of death, then BDBN or RP used as a reversionary tool will not work, they will need both.

In our opinion, trustees must use pension documents to revert pensions and use BDBN for any possible amounts over the $1.6M in income streams at the time of death. Even if the pension reversion and lump sum payments is to the same person, just to avoid any confusion.

Confusion can stem from this overlap where BDBN attempts to do RP job and matters can get very complicated where beneficiary is not the same person.


Click here to learn more about bulk SMSF update discounts


How to mitigate any confusion

Once the advisor or the trustees discover that there is a possible conflict in the governing rules or there is no clear guidance on which document will take precedence, they can consider updating their trust deed.

One way of identifying conflict is to check if the BDBN takes priority over RP. Trustees must be very cautious whilst updating their trust deeds as some deed of variations also delete existing BDBNs.



Melanie (62 Yrs) is married to David (67 Yrs) and has two children John (20 Years) and William (14 Years) from previous marriage. David first wife died some 15 years back and David has an adult child Jose (36 years). Melanie and David are Directors of Melda Pty Ltd which is the trustee of the Damel superannuation fund. Melanie has no super interests as her monies were withdrawn to pay the home loan.

David is on pension which he commenced in 2016 and on 1st July 2017 was redone, he had an accumulation account of $460,427 and a pension account of $1,600,000. David had $1,400,000 on 1st July 2019 in his pension account. David died on 1st August 2019 without making any withdrawals. On the date of death his accumulation account balance was $201,000 and the pension account balance of $1,404,000. Melanie is the sole director of the trustee company after David's death.

As part of his estate planning, David had arranged:

  • a reversionary pension nomination directing the income stream created on 1st July 2017 will automatically revert to Melanie and
  • a binding death benefit nomination dating 1st July 2017 directing the 100% to be paid to Jose.


Variation 1 The trust deed is silent on which document should take precedence.

The trust deed allows both documents, but provides no guidance as to how they are to operate.


Jose claims that the entire balance of $1,605,000, including the income stream as he is of the opinion that BDBN takes precedence over a RP.


Melanie Claims $1,600,000 from the entire balance of $1,605,000 since that was the balance at the time of executing RP.


Solution: As both claims are legitimate, the matter will end up in court but a properly drafted trust deed could have clear instructions as to which document takes precedence and which balance has to be to considered when the trustee has to determine the death benefit - the balance at commencement of pension or the balance at the date of death.



Variation 2: The BDBN is determined invalid as it was not executed properly.

This means that Melanie can keep the income stream and being the sole director of the trustee company decides to pay herself most of the balance of the accumulation account as a pension. The following actions have to be taken:

a) must withdraw 5% (David's minimum pension amount) of $1,400,000 (balance as on 1st July 2019) as pension minimum pension payment before 30th June 2020;

b) the following financial year 2020-21, she can withdraw 4% (as she will be below 65 years);

c) $1,404,000 will be credited to her transfer balance account anytime within 12 months from date of death, she can also pay herself or to William (less than 18years old) a death benefit pension of $196,000 from the accumulation account of $201,000;

d) The balance of $5,000 can be withdrawn as lump sum or a death benefit pension to William.


Click here to download 30 reasons why you should update your SMSF trust deed



As can seen by the variations above, commencing a pension from an SMSF is not a simple tick off - care should be taken to ensure that there are no loose ends and RP, BDBN and the trust deed all sync so that the wishes of the member are followed upon death.




SMSF Auditors Association of Australia Ltd

Members can attend 20 Free Webinars in a Year 

Each Webinar = 1 CPD hour for Audit & FESEA Allocation "Technical Competence"

Schedule for 2019 Calendar Year



1) 5th Feb - What SMSF Auditors should do now to avoid being sued by Trustees  - By Grant Abbott | SMSF Author - Recorded Version available for members 

2) 19th Feb -When & When not to lodge a Contravention with ATO - By Manoj Abichandani | SMSF Technical Director |

3) 19th March - Audit Issues when a member losses Capacity - By Clinton Jackson | Partner | Cooper Grace Ward Lawyers

4) 2nd April  - Audit Issues for the payment of Death Benefits - By Mark Wilkinson | Partner Superannuation | BDO Wealth Advisers 

5) 30th April -Yes, property development in an SMSF can be done BUT... - By Phil Broderick | Principal Sladen Legal

6) 14th May - Sole Purpose Test - By Chris Ketsakidis | Partner Corporate Advisory | Mills Oakley

7) 28th May -  Contributions to SMSF - Auditor's Prospective - By Mark Wilkinson | Partner Superannuation - BDO Private Wealth Advisers

8) 25th June -Audit Issues for Paying Member Benefits - By Lyn Formica | Head SMSF Technical Services | Heffron SMSF Solutions

9) 9th July - What SMSF auditors need to know about super proceeds & testamentary trusts - By Bryce Figot | Special Counsel DBA Lawyers

10) 23rd July -Validity of BDBN - What Auditors needs to check - By Rebecca van Langenberg | Special Counsel Madgwicks Lawyers

11) 6th Aug - Pension Documents: Auditor's prevention is better than any cure - By Scott Hay-Bartlem | Partner | Cooper Grace Ward Lawyers

12) 20th Aug - To Be Advised - By Peter Bobbin - Managing Principal | Argyle Lawyers

13) 3rd Sept  -In-House Assets - Audit of SMSF's that invest in Trusts - By Manoj Abichandani | Technical Director

14) 17th Sept - Executor conflict of duty and death benefit payments from an SMSF - By Shaun Backhaus | Lawyer | DBA Lawyers

15) 1st Oct -SMSF Residency Issues - By Chris Ketsakidis | Partner Corporate Advisory | Mills Oakley

16) 15th Oct - To be Advised

17) 29th Oct - How GST applies to SMSF - By Mark Ellem | Executive Manager | Super Concepts

18) 12th Nov - SMSFs and Asset Protection - By Phil Broderick | Principal Sladen Legal

19) 26th Nov -To Be Advised - By Mark Wilkinson | Partner Superannuation - BDO Private Wealth Advisers

20) 10th Dec. - To be Advised

Membership Fees for 2019 - 20

SMSF Auditors Association of Australia membership is open to only ASIC approved SMSF Auditors, it currently has 366 financial members.

How to pay your Membership Fees: Visit and log in - the system will take you to the payment area.

Memebers please note that all webinars booked from 1st July 2019 will have to be re-booked.


From 1st July 2019 - 30th June 2020 financial year $240 + GST per year (Fees are charged from month of joining to 30th June each year) The benefits of being a member of the association are :

1) Real time Online Chat with focus members (more experienced) on complex audit issues relating to your current audit. The chat button is after you log in to the website and if no focus members are online, your question is emailed to them for their response.

2) Attend 20 free webinars per year by various SMSF industry experts. For attending each webinar you should be able to claim 1 CPD hour in SMSF Audit. To book for any session, simply log in and go to webinar page.

3) Express opinion online, on various submissions which the association makes to the ATO, ASIC and Treasury.

4) As an Association, we are here to help & support our members in case they feel threatened, by unreasonable ASIC disqualification or ATO exerting un-due pressure on the good work which most our members do.


SMSFAAA Webinars approved for *FESEA Limited Licence CPD 

Many members of SMSF Auditors Association of Australia (SMSFAAA) are also limited licence holders to provide SMSF Advice. Under the new rules, FASEA requires that each Financial planner undertakes 40 hours of CPD activity each year - 70% of which must be approved by their licensee.

All SMSFAAA webinar certificates will be marked as " FESEA Allocation - Technical competence: acting as a technically proficient professional" . 

 If your licensee does not approve our CPD - please let us know - we will send them content of our Webinar for assessment.

In assessing CPD, licensees are required to consider the following:

1. The level of expertise of the CPD provider

2. Expertise of facilitators and/or those delivering the CPD

3. The level of learning undertaken

4. The stated learning outcomes for the CPD activity

5. Volume of time in undertaking the CPD activity 6. The approach for verification of learning outcomes achieved


Click here to download FESEA CPD Policy

* FESEA Financial Adviser Standards and Ethics Authority


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