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Super and estate planning

Death benefit income stream must be in the retirement phase

Section: 14.7

From 1 July 2017, the SIS regulations include a requirement that a death benefit that is cashed as one or more pensions or annuities must also be a superannuation income stream that is in the retirement phase.

If a pension or annuity that is paid to a dependant ceases to be in the retirement phase, the interest supporting the income stream remains subject to compulsory cashing (see section 14.4) and cannot be rolled back to accumulation or combined with the dependant or spouse's other existing super interests. It must be either cashed out of the super system or be rolled over to another new fund or life company to start another death benefit income stream.

Reversionary transition to retirement or deferred income streams

A transition to retirement (TTR) income stream will only be a retirement phase income stream where the recipient has notified the trustee that they have met the retirement, terminal medical condition or permanent incapacity condition of release, or where the recipient has reached age 65.

Therefore, if a transition to retirement income stream reverts automatically to a beneficiary who has not met one of these conditions of release, the reversionary nomination will be invalid.

However, at the time of writing, legislation18 has been introduced which, if made law, will ensure any transition to retirement income stream is in the retirement phase if the person to whom it is payable is a reversionary beneficiary. The change will allow a reversionary transition to retirement income stream to be paid to a dependant beneficiary rather than the reversionary nomination being invalid and the fund's default provisions applying. If legislated, this amendment will apply retrospectively from 1 July 2017. At the time of writing, this amendment is not yet law.

Last modified: Wednesday, May 1, 2019