Reversionary Beneficiary

A reversionary beneficiary is nominated on an account-based pension before it starts, and the nomination cannot be changed while that pension runs - changing it means stopping the pension and starting a new one. On death, the pension continues to the reversionary beneficiary automatically: the fund keeps paying, the same drawdown rate applies, and the beneficiary can keep receiving it or take the balance as a lump sum. The beneficiary must be a dependant under super law. That is a spouse or de facto partner, a child under 18, or a financially dependent child up to 24 in full-time study.

The nomination lives outside your will: super is not distributed under a will unless the trustee pays the death benefit to the estate. Where no reversionary beneficiary is named, the death benefit goes through the trustee's discretion and any valid binding death nomination - a slower, forms-based path. The reversionary route is the one decision that cannot be retrofitted to an existing pension.

The mechanics are quiet. The pension starts with the reversionary beneficiary named on the establishment forms, and from that day the entitlement is locked in: on death, the fund continues paying the pension to that person at the same drawdown rate without a claim form. The beneficiary chooses whether to keep receiving the pension or commute it to a lump sum, and the choice carries the usual tax treatment - tax-free payments for a spouse over 60. Nothing is distributed under the will; the pension never enters the estate unless it is commuted to one.

The transfer balance cap mechanics are where the 12 months matter. The reversionary pension is credited against the beneficiary's cap from 12 months after the death, not immediately - a grace period for the arithmetic. Earnings inside those 12 months do not count toward the cap. A $700,000 reversionary pension landing on a spouse who already runs a $1.5m pension takes her to $2.2m against the $2m general cap: she has 12 months to commute $200,000, or the ATO issues a commutation direction with tax on the excessive earnings.

The contrast is the non-reversionary path. A death benefit pension paid under a binding death nomination counts toward the beneficiary's cap immediately, and a death benefit with no valid nomination at all goes through the trustee's discretion - weeks to months of forms while the money sits. A non-dependant beneficiary cannot keep the money in super at all: the benefit must be paid as a lump sum, taxed on the taxable component.

For an Australian reader, the reversionary nomination is the difference between a pension that continues on the Tuesday after the funeral and a claim process that runs for months. The ATO's transfer balance cap pages and MoneySmart's death benefit pages are the authorities, and the 12-month cap grace period is the planning window most spouses never know exists. It also matters at pension start: the reversionary nomination is made once, on the establishment forms, and cannot be added later. The binding death nomination entry covers the discretion path.

A colleague named Brent (yes, that Brent) started an account-based pension for his father without a reversionary nomination, and when his father died the mother waited four months for the trustee's discretion to process the death benefit while the money earned nothing. The reversionary route would have continued the payments that week. The highest-leverage thing most Australians can do is nominate the reversionary beneficiary when the pension starts and check the cap arithmetic with the minimum pension drawdown calculator before the 12 months run out.