Protect your pension: Discover potential changes that impact your future!

Navigating the complexities of retirement funds can be daunting, especially when understanding the intricacies of Self-Managed Super Funds (SMSFs) and the pensions they provide.

For Australian seniors, staying informed about potential changes to pension statuses within SMSFs is crucial, as these changes could significantly impact their financial security.

Recently, a group of SMSF specialists shed light on the possibility of altering a reversionary pension to a non-reversionary retirement, which could have profound implications for retirees.


At the heart of the discussion is the flexibility within the law and the SMSF's governing documents to allow such a change.

Jemma Sanderson, director at Cooper Partners Financial Services, highlighted a method to change the status of a reversionary pension by commuting it and restarting it as a non-reversionary pension.


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Changing a reversionary pension to a non-reversionary pension within an SMSF is legally possible if allowed by the fund's documentation. Credit: Depositphotos


However, she cautioned that this approach remains untested in practice, and it's unclear how it would stand up if challenged.

A reversionary pension automatically transfers to a nominated beneficiary upon the pension holder's death, providing the beneficiary with certainty and continuity.

Altering this status could disrupt estate planning strategies and raise questions about the precedence of death benefit nominations.


Sanderson's concerns were echoed at The Tax Institute National Superannuation Conference in Sydney, where the lack of precedent for such changes was a hot topic.

The uncertainty lies in whether the SMSF's deed permits such alterations and whether these changes would be upheld if scrutinised.

Dan Butler, director at DBA Lawyers, offered a more optimistic view, suggesting that his firm's documentation does include the ability to change pension terms, at least for account-based pensions.

He believed such changes are feasible with the proper legal framework and backing from Australian Taxation Office (ATO) materials.

Phil Broderick, principal at Sladen Legal, supported this perspective, likening the process to the philosophical thought experiment of Theseus's ship.

He argued that altering the pension's terms should be permissible under the contract as long as its fundamental nature remains intact, provided the SMSF's deed does not prohibit it.
Key Takeaways
  • The possibility of changing a reversionary pension to a non-reversionary pension within an SMSF is legally feasible if the fund's documentation permits it.
  • It has been suggested that such a change could be made by commuting and restarting the pension, but this approach still needs to be tested and may be challenging.
  • The implications of conflicting documents, such as a reversionary pension and a death benefit nomination, highlight the importance of understanding the SMSF deed's specifications.
  • SMSF specialists believe that from a legal perspective and based on available ATO materials, it is permissible to alter the terms of a pension if the necessary provisions are included in the SMSF documentation.
Have you considered changing your pension status within your SMSF? Have you encountered any challenges in this area? Join the conversation below.
 
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they "ve made it so complicated that one has to pay an expert (very rare, even experts argue this) And the cost far outweighs the return ,even if you win the money goes to the accountant, its better to let them keep it
 
Some advisors don't contact their clients every time there is a change. You may have to make the first contact.
 
  • Wow
Reactions: PattiB
Our adviser contacts us regularly, but only if it’s relevant & don’t think this is, though I probably wouldn’t know, my brains discombobulated by it all. 🤣🤣🤣
I bet you pay a fee for that... what return do you get???
 

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