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Super and estate planning

Death benefit income stream must be in the retirement phase

Section: 14.8

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 income stream or deferred income stream will only be a retirement phase income stream where the recipient has met the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release.

Therefore, if one of these income streams reverts automatically to a beneficiary who has not met one of these conditions of release, there is uncertainty as to whether the income stream will be in retirement phase. As a result, the reversionary nomination may be invalid. In such cases, the fund's default death benefit provisions would apply.

To avoid having an invalid reversionary nomination, clients who commence transition to retirement income streams or deferred income streams should consider putting in place a valid binding or non-lapsing death benefit nomination, rather than a reversionary nomination, to ensure that a new retirement phase income stream can commence to their nominated beneficiary upon death, without their nomination becoming invalid.

Last modified: Thursday, January 11, 2018